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3 Top Small-Cap Stocks to Buy Right Now

By Rich Duprey - Apr 14, 2021 at 6:29AM

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These small-cap companies can pack a big punch.

The Russell 2000 is not exactly an unknown index, as it is often used as a proxy for small-cap stocks, but it grabs far fewer headlines than the S&P 500, which tracks the market's 500 largest stocks.

While the latter has been grabbing headlines for setting record highs almost daily, going unnoticed by many is the fact that the small-cap index is actually far outpacing its larger brethren's returns over the past year. Where the S&P 500 is up 49% over the last 12 months, the Russell 2000 has risen a blistering 83%.

With that in mind, here are three small-cap stocks to consider buying in April to power your portfolio's returns.

Green bull with rising arrow

Image source: Getty Images.

Columbus McKinnon

Columbus McKinnon (CMCO 0.26%), the country's largest manufacturer of hoists, cranes, actuators, and other rigging tools, is primed to benefit from President Joe Biden's $2 trillion infrastructure proposal.

Obviously hurt by the pandemic, which shut down the economy, Columbus is marching back, with sales improving in its fiscal third quarter with a 5.5% sequential gain. It additionally regained profitability after a second quarter loss, notching $6.6 million in net income, and is using the depressed market to work its acquisition pipeline.

Columbus McKinnon has no long-term debt, just $245 million in term loans and revolving credit facilities, and $188 million in cash and equivalents in the bank. 

This small fast-grower trades at less than twice its sales even as analysts expect profits to double this year and grow at a rate of 20% annually for the next few years. With shares trading just 13 times the free cash flow it produces, Columbus McKinnon can build a solid financial foundation.

Duluth Holdings

Duluth Holdings (DLTH 1.72%) might not have the same pedigree longevity as privately held rival Carhartt, but its Duluth Trading work clothes have developed a following worthy of an equally iconic brand.

It is another small-cap business unduly hurt by the coronavirus outbreak. Sales at retail stores declined 29% in the fourth quarter to $69 million. It has mostly overcome that hurdle, though, by relying upon its direct-to-consumer business, which saw sales surge, up 29% year over year to $187 million.

With the economy reopening, the retail market should recover enough to contribute to growth, and not undermine the work being done in the e-commerce channel.

Duluth trades at just a fraction of its sales and for a heavily discounted 14 times free cash flow, even though Wall Street is looking for long-term EPS growth of 25% annually.

Vista Outdoor

The firearms market is white hot, and though Vista Outdoor (VSTO 0.35%) sold off its Savage Arms shotgun business several years ago to focus on the larger rugged outdoors market opportunity, it still closely supports the shooting sports, which still make up the majority of its sales. 

Total fiscal third-quarter sales jumped 35% to $575 million on the strength of a 41% gain in its shooting sports segment, which rose to $402 million. Ammunition is the biggest component of the division, and despite running factories night and day, the industry faces a severe shortage due to unprecedented demand.

In 2020, record numbers of firearms were sold and the National Shooting Sports Foundation estimates 40% of all gun purchasers were first-time buyers. That's going to keep the industry's foot on the accelerator to try to catch up to demand just to reach equilibrium. 

This year, the gun industry is already well ahead of last year's pace set for sales, and President Biden just unveiled six new gun-control executive orders that should fuel the debate and drive sales even higher.

Vista Outdoor trades at bargain-basement rates across the board, going for just 11 times next year's earnings (even as analysts peg it for 25% compound annual earnings growth), less than 1 times sales, and only 6 times free cash flow. 

The stock may have quadrupled in value over the past year, but there seems to be plenty of growth left in this small-cap stock.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Columbus McKinnon Corporation Stock Quote
Columbus McKinnon Corporation
CMCO
$34.15 (0.26%) $0.09
Vista Outdoor Inc. Stock Quote
Vista Outdoor Inc.
VSTO
$31.26 (0.35%) $0.11
Duluth Holdings Inc. Stock Quote
Duluth Holdings Inc.
DLTH
$10.08 (1.72%) $0.17

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