If you want to make 10, 50, or even 100 times your money in the stock market, most of those opportunities will come from smaller stocks. It's very hard for a huge company to go up by many multiples. While one could argue that small-cap stocks are a bit riskier than large, well-funded behemoths, they're also the place to look for the next massive multibagger opportunity.
Two of the following small caps currently look like great values, with low price-to-earnings ratios and solid growth prospects -- perfect for the market's current preference for value over growth. But if you'd like to bet on a reversal of the current trend with a high-growth disruptor, the third stock on this list also has massive long-term potential, and is down 40% off its highs to boot.
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Super Micro Computer
Server maker Super Micro Computer (SMCI 6.25%) is an under-the-radar name that should benefit from increases in artificial intelligence, cloud, and 5G applications. After all, Super Micro excels at customized enterprise servers that efficiently serve all of these end markets, thanks to its novel building-block architecture and energy-efficient designs. Super Micro currently sports a $1.65 billion market cap, but also has about $270 million in net cash, good for an enterprise value under $1.4 billion.
Super Micro also trades at less than 10 times 2022 earnings estimates, making it very cheap indeed. The stock recently pulled back after Bloomberg rehashed a story from 2018 claiming Super Micro's servers may have been hacked by Chinese intelligence. However, that story has been largely debunked by the U.S. National Security Agency, as well as all by of Super Micro's clients.
The initial hacking scandal in 2018 proved to be a buying opportunity -- the stock is up about 150% since October 2018 -- and this time around could be a similar opportunity. Even better, Super Micro recently completed a $50 million share repurchase program in the fourth quarter, and just initiated another $200 million repurchase program on its last earnings call. Given the bargain-basement price of the stock, those repurchases should add lots of value for long-term shareholders.
Ichor Holdings
Ichor Holdings (ICHR 3.79%) is a $1.1 billion company that plays in the currently booming semiconductor space. More specifically, Ichor makes the fluid and gas delivery subsystems which go inside semiconductor production equipment -- the machines that make today's leading chips.
Another under-the-radar name, Ichor trades at just 13 times this year's earnings estimates, with a strong net cash position. That's pretty cheap, especially as we're in the midst of a significant semiconductor shortage that should last throughout the rest of the year. Semiconductor manufacturers have been supply-constrained amid the pandemic, and now there's booming demand for chips across a wide range of applications -- from leading-edge chips serving cloud and 5G to lagging-edge automotive chips. That means increased investment in semiconductor production capacity, which means more money for Ichor.
Additionally, the Biden administration just asked Congress for $37 billion in funding to increase domestic manufacturing capabilities. Over the years, chip manufacturing has become heavily concentrated in Asia, and the U.S. and Europe are now desperately trying to bring back domestic capacity due to geopolitical concerns.
High investment in chipmaking, a "Buy America" mantra coming from the new administration, and a cheap valuation all line up pretty well for Ichor, which is headquartered in Fremont, California. Ichor has been quite volatile amid the current tech sell-off, but I think that's unwarranted given its position in the growing semiconductor space and its status as a value stock.
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TS Innovation Acquisitions Corp.
Special purpose acquisition companies (SPACs) were red-hot last year and in early 2021, but these newly public companies have been hit hard in the recent tech rout. One of the more intriguing new SPACs, TS Innovation Acquisitions Corp. (TSIA), is down over 40% from its recent highs.
In late January, TSIA announced it would be merging with real estate tech start-up Latch. Latch began as a "smart lock" product for multifamily apartment buildings, but has grown its hardware portfolio and software into an integrated operating system for buildings, with lots of potential to expand its product line over time. Current products besides smart locks include intercoms, security cameras, smart sensors, smart-home products, and delivery management functionality. And its software has the potential to become a de facto hub for guest management, onboarding, and other services that will allow landlords to fold many different manual systems into one simple operating system.
Obviously, the real estate market is huge, and Latch will have the benefit of Tishman Speyer, a global leader in real estate development, as its sponsor. Tishman Speyer is a happy Latch customer, and its backing should propel Latch into many revenue opportunities -- both into new international markets, and into other types of real estate, such as office buildings.
After the pullback, TSIA has a $1.7 billion market cap. But since raising money using the SPAC, it's also flush with about $500 million in cash, good for an enterprise value of just $1.2 billion. While the company makes minimal revenue now, it's growing fast; management believes it can make upwards of $800 million in revenue by 2025, with positive EBITDA (earnings before interest, taxes, depreciation, and amortization) and free cash flow.
TSIA is a bit riskier than the two stocks mentioned earlier. But if management's projections turn out as expected, this week's pullback could prove to be a huge bargain over the longer term.
