We recently published a list of the 8 most undervalued small-cap stocks to buy, according to analysts. In this article, we’ll take a look at where Webster Financial Corporation (NYSE:WBS) stands compared to other most undervalued small-cap stocks, according to analysts.
Will we see a multi-year small-cap cycle?
The situation for small and mid-cap stocks is becoming increasingly exciting given the Fed’s recent interest rate cuts, which could open up significant investment opportunities. Although the Russell 2000 Index lags the averages, analysts are optimistic about the growth potential of these stocks as market conditions improve.
Many small and medium-sized enterprises are well-positioned to take advantage of a favorable economic environment, with innovative strategies and strong fundamentals that can drive demand and market share. As interest rates stabilize and investor confidence increases, these companies are likely to receive renewed attention from investors looking for high-growth opportunities.
The current environment is ripe for exploration, and there’s never been a better time for investors to consider small- and mid-cap stocks. This was the sentiment of Curtis Nagel, senior US SM midcap internet analyst at BofA Securities, who spoke about this market scenario on CNBC earlier. We covered his thoughts in another article, 7 Best Small Business Stocks to Invest in. An excerpt is shown below.
“…he believes this could present significant opportunities for SMID cap stocks across a variety of sectors, including home furnishings and subscription services.
Nagel specifically pointed to Restoration Hardware, noting that it flies under the radar because it’s a well-known name. Mr. Nagel’s overall thesis focuses on updating price targets for companies that are sensitive to interest rates and have the potential for revenue and earnings growth in a soft-landing scenario. . The ACV auction was noted as an interesting opportunity. Nagel described it as a wholesale auto digital marketplace where dealers trade cars. He noted that this market is not yet fully digitized and the company is at the forefront of this transition. The auto wholesale market faces challenges with a decline of around 25% compared to historical averages, but the company believes the market could recover as interest rates improve and car affordability increases. Nagel theorized. He believes the stock may be overlooked, but has significant upside potential. ”
Nancy Prial, co-chief executive officer and senior portfolio manager at Essex Investment Management, said in a Sept. 30 interview with CNBC that she expects small-cap stocks to grow due to lower interest rates and stock-picking opportunities. He said there was.
Prial noted that small-cap stocks outperformed in the third quarter, largely due to expectations for rate cuts, and that the 50 basis point cut was larger than previously expected. He expressed optimism that small-cap stocks have significant room for growth, stressing that this could be the start of a multi-year cycle for these stocks. Small-cap stocks are currently undervalued in the market, accounting for just under 5% of the total stock market, a record low. This low ownership level presents an attractive opportunity for investors.
He noted that small-cap stocks remain significantly undervalued compared to large-cap stocks. Prial says several conditions need to be met for small-cap stocks to gain momentum, including continued interest rate cuts, confidence that the economy will weather a soft landing rather than a recession, and stronger relative earnings growth. insisted. He noted that the relative profit growth of small-cap stocks has started to improve and is expected to outpace that of large-cap stocks by the end of the year.
When asked about his expectations for the market as a whole, Prial said that while S&P 500 earnings growth is expected to be 13% in the fourth quarter and 15% in 2025, small-cap stocks could outperform those numbers. He admitted that he thought it was sexual. He argued that small-cap stocks could achieve 15-20% earnings growth next year despite a slight slowdown in economic growth. However, he cautioned that the overall index may not reflect this growth, as forecasts often start high before being revised downward.
Prial also spoke about investments related to infrastructure and nearshoring, with particular mention of Clean Harbor. Although he acknowledged the strong third quarter performance, he made it clear that he did not expect Washington’s new legislation to bring further benefits. Rather, she believes such companies will benefit from existing legislation currently in place. She further highlighted Arcosa’s “pick and shovel” role in this space, highlighting its role in building artificial intelligence infrastructure and supporting digitization efforts across a variety of industries.
Her insights reflect a bullish outlook for small-cap stocks amid changing economic conditions and expected changes in monetary policy. By focusing on strategic stock selection and recognizing the potential for earnings growth within this sector, investors may find attractive opportunities as they navigate the evolving market environment. .
methodology
We used a stock screener to look for companies trading between $1 billion and $10 billion. This is our definition of small cap stocks. We then found 25 stocks with forward price-to-earnings ratios below 15 and upside potential greater than 20%. We then selected eight stocks that are most popular among elite hedge funds and that analysts are bullish on. Stocks are ranked by analyst likelihood of upside.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Learn more ).
Close-up view of a hand pressing a mobile banking app displayed on a tablet or smartphone.
Webster Financial Corporation (NYSE:WBS)
Forward price/earnings ratio: 7.78
Average increase potential: 28.15%
Number of hedge fund holders: 42 people
Webster Financial Corporation (NYSE:WBS) is an American commercial bank with 177 branches and 316 ATMs. It offers a wide range of financial products and services, including commercial banking, retail banking, wealth management, and investment banking, and is committed to providing personalized services and customized solutions to both individual and corporate customers. The emphasis is on
Management reported second quarter 2024 revenue of $614.6 million, down 8.71% year over year. Despite the decline, the main announcement this quarter was a new joint venture with Marathon Asset Management. The joint venture will increase the company’s balance sheet flexibility, expand its offering and enable it to better serve its customers. The company plans to begin the joint venture in the fourth quarter of 2024 or the first quarter of 2025.
The company has made several improvements to remain competitive and grow its business, including investing in technology, expanding its product offerings, and increasing efficiency. These efforts are expected to help the company enhance its digital experience, offer new products and services to customers, reduce costs and improve profitability.
Webster Financial Corporation (NYSE:WBS) exhibits strong financial fundamentals and a diversified business model. A balanced loan portfolio and strategic management of the deposit base have ensured the company’s continued growth and profitability, making it a fairly attractive investment opportunity.
Diamond Hill Select Strategy has this to say about Webster Financial Corporation (NYSE:WBS) in its Q1 2024 investor letter:
“Lowest contributors in the first quarter included Humana, Extra Space Storage, and Webster Financial Corporation (NYSE:WBS).・Webster Financial, a storage real estate investment trust (REIT) specializing in extra space storage and HSA, achieved strong results at the end of 2023 amid a resilient economic backdrop and continued high interest rates. Real estate (and REITs in general) and banks were under pressure in the first quarter (though it’s worth noting that Webster Financial’s stock was slightly positive in the quarter), but Extra Space Storage has a lot to offer in the industry. We believe we have a high-quality, long-term franchise with a leading operating platform that positions us well in the future, as well as Webster Financial’s large and diverse HSA account platform. We believe our deposit base is a strong competitive advantage in the current macroeconomic environment.”
Overall, WBS ranks #6 on the list of most undervalued small-cap stocks to buy, according to analysts. While we see the growth potential of WBS as an investment, we believe AI stocks have great potential for high returns in the short term. If you’re looking for AI stocks that are more promising than WBS but are trading at less than 5x P/E, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article was originally published on Insider Monkey.
