Top 7 Small-Cap Value Stocks Warren Buffett Would Approve Of

Warren Buffett is the most successful value investor on Wall Street and the world, standing tall for multiple reasons. He doesn’t follow the crowd, he doesn’t copy others’ investment strategies, and he’s not afraid of high market volatility or even a stock market crash.

He has a strong investment philosophy and stays within his circle of competence. A believer of the Benjamin Graham school of value investing, Buffett targets unjustifiably undervalued securities based on their intrinsic worth and valuations.

Moreover, rather than focusing on the supply and demand intricacies of a particular stock, he looks at the company’s business as a whole using fundamental analysis.

These days, Buffett focuses on large blue chip equities to invest in (his Berkshire Hathaway is Apple’s largest shareholder); however, he has mentioned that if he was starting out he would use an investment strategy that would focus on undervalued small cap stocks like he used to when he first started out.

He also advises to be properly diversified with low-cost ETFs like Vanguard, so ensure that your holdings have proper allocation to manage risk.

Many investors try to use different stock screeners to find undervalued stocks using certain parameters including price to book, EPS, and P/E. This can be helpful but can result in only  seeing a stock from a snapshot point in time.

Best Small-Cap Value Stocks

Considering Buffett’s investment values, here are seven small-cap value stocks at a bargain to buy that would get the investor’s approval.

  1. EBIX

Ebix Inc (NASDAQ:EBIX) is a leading supplier of on-demand infrastructure software exchanges and e-commerce services. It offers services to industries like insurance, finance, travel, and healthcare in the United States and globally. After losing more than 30% year to date, the stock is presently much below its 52-week high.

EBIX’s financials for the last quarter were quite good, even though the company had missed the market’s earnings estimates. The company’s revenue growth has been 6% year-over-year, this time with its worldwide revenues, excluding pre-paid cards, growing by 32% year-over-year.

Notably, even in the slow economy, eight out of the ten major geographic locations of the company had shown growth, so one can imagine how much the company will be able to achieve when the market conditions improve and become more bullish.

EBIX closed September 19 at $21.35 with an average target price of $33, which is a potential upside of over 56%.

Currently, EBIX trades at quite an attractive value making it one of our favorite undervalued stocks, and looking at the company’s prospects and the fact that e-commerce is an emerging market, EBIX is one of the best stocks for value investors.

  1. Sinclair Broadcast Group

Sinclair Broadcast Group Inc (NASDAQ:SBGI) is a media company that broadcasts free over-the-air programs such as network-provided programs, locally produced news, and local sporting events through its broadcast segment. It broadcasts professional sports games and related content through its Local Sports segment.

Sinclair stock has been a victim of volatile markets. It has been down by more than 20% in the past six months and is now trading at a reasonably cheap valuation. Its Price to earnings ratio of 0.62 is well below the industrial average.

Still, the high group beta says the stock will remain comparatively more volatile relative to the broader market in the near times.

Further, Sinclair has a high yield dividend yield of 4.61% which is pretty good considering the market standards, and its investors will be able to make some solid passive incomes for them. Sinclair closed on September 19 at $21.67 and has an average target price of $28.8, which is a potential upside of around 33%. This is a strong candidate for a Buffett small-cap value stock.

  1. Green Plains

Green Plains Partners LP (NASDAQ:GPP) is the third-largest ethanol fuel producer in North America that produces, markets, and distributes billions of gallons of oil annually in the United States and globally. It has three main segments: Ethanol Production, Agribusiness and Energy Services, and Partnership.

Despite the unfavorable economic conditions and with discussions that we are going into a recession or a potential market crash have caused most growth stocks to underperform, Green Plains is one of the growth stocks that have performed relatively well in the last six months, gaining around 6.5%.

This past performance shows the strength of this small-cap value stock and how it can be a potential hedge.

The company’s performance over the next few years will be critical and may even outperform the market. Investors can draw this conclusion because the Climate Change Bill has heavily promoted existing carbon capture subsidies, boosting corn ethanol production.

Green Plains closed September 19 at $32.23 and has an average target price of $48.43, which is poised for a potential upside of over 57%.

  1. Griffon Corporation

Griffon Corporation (NYSE:GFF) is another strong small-cap value stock. It sells consumer and professional products and home and building products in the United States, Europe, Canada, Australia, and worldwide.

The company has been up by almost 40% in the past year despite all the unfavorable economic conditions around the world. Besides, its price-to-earnings ratio of 7.27 confirms Griffin is quite attractively priced.

Griffon Corporation has undergone many changes recently, and its overall financial performance is also quite solid. Like in its most recent quarter, the company’s adjusted income from the continuing operation has grown to $66.5 million, or $1.23 per share, compared to last year’s $20.8 million, or $0.39 per share.

This growth has resulted from the revenue growth of 31% the company had achieved during the period. Griffon Corporation closed on September 19 at $32.57 with an average target price of $41.33, a potential upside of around 32%.

  1. AdvanSix

AdvanSix Inc (NYSE:ASIX) is a chemical company engaged in producing nylon 6 and related chemicals like caprolactam and ammonium sulfate fertilizers in the United States and worldwide. The company is a good performer.

However, in the present times, due to the adverse economic conditions surrounding the world, its performance did get somewhat affected, and it ended up losing close to 40% in the past six months. But its loss is comparatively much lesser than many growth stocks have faced.

The market believes AdvanSix has good potential. Its main product, Nylon 6, is a synthetic material used to produce fibers, filaments, engineered plastics, and films and is highly in demand. Besides, all the other tailwinds relating to the Agri sector also provide it with significant advantages that can help boost its future performance. So, its lower price and excellent prospects make AvanSix a good buy.

  1. Hope Bancorp

Hope Bancorp Inc (NASDAQ:HOPE) is a leading Asian American bank that has provided financial services to the largest Korean American community in the country for the last forty years.

The company has been consistently performing well concerning its top and bottom-line performances over the years and also comes with a lucrative dividend profile yielding 3.84%. This small-cap value stock could make a solid addition to your portfolio.

The company’s latest financials portrayed its loan originations outperformed by 25% this time and went up to $1.29 billion, representing a well-diversified mix. The net recoveries totaled $930 thousand, the third consecutive quarter of total net recoveries.

Further, the Net interest margin of Hope Bancorp also saw a massive 15% expansion compared to the preceding quarter benefitting from the higher loan yields. Notably, despite the rising interest rates and slower growth in interest-bearing loans, such results were achieved. So, if conditions improve, the company’s performance can improve to a great extent.

Hope Bancorp closed September 19 at $14.63 and has an average target price of $16, which is a potential upside of around 11%.

  1. Perion Network

Perion Network Ltd (NASDAQ:PERI) is an Israel-based tech company engaged in providing digital advertising products and services to various brands, agencies, and publishers across North America, Europe, and internationally. It operates through its intelligent hubs that connect buyers and sellers.

The best thing about this small-cap stock is that it is not only growing fast but is also profitable. It has achieved that through its innovative ad concepts like a connected cart, allowing customers to immediately purchase an item by scanning a QR code in an ad.

Moreover, Perion’s financials also scream success. In the second quarter, its revenue rose 34% to $146.7, although most digital advertising companies were experiencing slower sales growth. Notably, there was a massive 90% jump in the connected TV, driven by the recent acquisition of Vidazoo.

Perion Network closed September 19 at $21.46 and has an average target price of $30.8, which is a potential upside of around 45%.

Perion’s prospects are enormous. Digital advertising is a growing industry, and when market conditions improve, the performance of Perion might improve even more. This small-cap value stock could be a potential multi-bagger.

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