It's tough to be excited about buying anything right now. The coronavirus contagion was already alarming, but its ongoing spread this month has brought a great deal of the world's commerce to a screeching halt. Getting those wheels spinning again will be no small task.
As veterans who survived the dot-com meltdown of 2001 and the subprime mortgage mess of 2008 can attest, though, capitalism finds a way. Stocks dig their way out. These seemingly insurmountable problems -- as well as lesser ones like the SARS and swine flu scares -- are terrifying at the time, but they usually prove to be fantastic buying opportunities. Investors just need the guts and foresight to take the plunge.
To that end, while the COVID-19-driven drubbing currently has the S&P 500 still down around 24% from its February peak, the S&P 600 small-cap index remains off to the tune of more than 32% from its recent high. The value stocks within the S&P 600 are off by more than 34% since Feb. 20. This oversized sell-off, however, may make small-cap value names the most opportune buy here. Three names stand out as the top prospects to consider.
1. Insperity: A cloud-based HR service with steady growth
Insperity (NYSE:NSP) may not be a household name, but there's a good chance you or somebody in your household has been digitally handled by Insperity. The company offers a suite of human resources solutions to small and mid-sized businesses that might otherwise struggle to manage the growing complexities of HR matters. From benefits to payroll to recruiting, and more, Insperity can help.
It's not alone in the arena. Indeed, the cloud-based human resources tools market can feel a bit crowded, with bigger players like Paycom Software seemingly in control. Insperity's edge is its smaller size, though, enabling it to serve customers that might otherwise be lost in the shuffle if served by larger companies in the business.
Its diminutive size has also kept it off many investors' radars, although this may well change in time. Valued modestly at 17.4 times its trailing four-quarter earnings and priced at only 16.1 times this year's estimated earnings, Insperity is a bargain. It's even more of a bargain given its steady, average sales-growth pace of between 7% and 8% that's been in place for several years now ... one of the upshots of selling a service clients need in perpetuity.
2. Generac Holdings: Power generators are always in demand
Generac Holdings (NYSE:GNRC) admittedly tests the boundaries of what qualifies as a value stock. It's presently priced at nearly 29 times its trailing earnings, and more than 22 times analysts' estimated earnings for this year. There are no accounting oddities skewing either figure.
By most other standards, though, Generac Holdings looks and behaves like a value name. Its revenue growth is perpetually slow but impressively reliable. Next year's estimated sales growth of a little more than 7% is on par with this year's estimates, and last year's top-line growth of nearly 9% is in the same ballpark. Income has grown accordingly, though at a slightly better pace due to the benefits of expanding scale.
The key to that steady fiscal march forward is the product. Generac makes (as the name more or less implies) power generators for institutional as well as personal use.
There's always been demand, but 2019's devastating wildfires in California sent a clear message to the entire country that our utilities infrastructure may not be everything it needs to be. Even families not directly exposed to those fires suffered power outages that could have been avoidable. Now consumers are increasingly taking matters into their own hands. That's great news for Generac Holdings, which says it controls more than two-thirds of the U.S. home generator market.
3. LogMeIn: Benefiting from heightened demand for remote work access
Finally, LogMeIn (NASDAQ:LOGM) may technically be a technology name, but it's hardly reliant on coming up with the next big hardware revolution. LogMeIn offers companies a way to let their employees as well as their customers securely communicate online. It's the parent of virtual meeting platform GoToMeeting, for instance, but also manages password-based gateways allowing workers to remotely access digital files, and even their computers at their offices.
It's an obvious pick in the wake of the coronavirus pandemic that prompted some employers to ask employees to work from home. Similarly positioned video teleconferencing name Zoom Video Communications, for instance, has seen its shares soar while most other stocks were being crushed by the contagion, and Slack Technologies says it's seen increased demand for its online collaboration platform. LogMeIn is a beneficiary of heightened demand for remote employment tools too.
LogMeIn, however, was doing just fine before the COVID-19 outbreak, and shouldn't fade away once the coronavirus finally starts to be contained (and is eventually forgotten). Last year's top line was up nearly 5% from 2018's revenue, and analysts are calling for even more growth this year. They're also calling for continued earnings growth, with this year's estimated income of $5.00 per share translating into a palatable forward-looking P/E of 16.1.