Three global small-cap stocks set for a big bounce

Professional investor Trevor Gurwich of the American Century Global Small Cap Equity Fund picks three small-cap stocks from around the world that look set to profit as economies begin to reopen.

Early in the Covid-19 crisis our focus on companies with accelerating and sustainable earnings growth prompted investments in companies that were beneficiaries of stay-at-home measures. Examples included online education, video-gaming and data-centre companies. 

We are now observing the recovery in markets that have been hit by the virus. Signs of improvement or stabilisation are being buttressed by substantial fiscal stimulus measures. As a result, our investment strategy is now also highlighting companies that may have suffered during the crisis but look likely to be beneficiaries as economies begin to reopen. 

Basic-Fit, a gym operator in solid shape

Take Basic-Fit (Amsterdam: BFIT) a low-cost gym operator in Benelux, France and Spain. It operates in markets that are underpenetrated and not very competitive. While the company’s revenues were severely affected in the short-term due to lockdowns and stay-at-home measures, we believe it may benefit as economies start to reopen. 

Encouragingly, the company experienced low cancellation rates during the first months of the pandemic, which bodes well for its medium to long-term profitability. 

Basic-Fit is also well positioned owing to its investments in technology. Its software should allow it to manage the entry and booking processes at its gyms effectively and facilitate social-distancing measures. Gym memberships are also now rising. Furthermore, Basic-Fit recently raised extra funding, which we believe will be supportive of future revenue growth and market-share gains at the expense of the company’s weaker competitors.

Chinese luxury cars are ready to motor

Another eye-catching stock is China Yongda Automobile Services (Hong Kong: 3669), a nationwide car dealer specialising in luxury vehicles. Yongda has a leading position in the sale of BMWs and Porsches, brands with strong growth prospects and pricing power. 

Last year, sales of new cars in China dropped sharply and the sector was hit hard in the first quarter by Covid-19. However, premium-car sales rebounded in April. Showroom traffic at car dealerships also recovered. We believe Yongda is well-positioned to deliver top-line growth and margin improvement as car sales continue to strengthen. It is also a beneficiary of rising car ownership and the growing popularity of luxury goods in China. Covid-19 may also raise car-ownership rates as consumers avoid public transport. 

Crocs crunches costs 

Crocs (Nasdaq: CROX), a global leader in casual footwear, is another potential recovery beneficiary. The company spent years trying to make its operations more efficient and reduce costs. Before the crisis the business was performing well, with sales rising. However, the pandemic led to supply disruptions and store closures. The shares declined by over 70%. 

We viewed the share-price decline as an opportunity to own a well-run business with a strong brand. Crocs has seen a recovery in sales in China and Korea, while crocs.com and other digital-commerce channels have remained open. Consumers’ migration to online shopping also bodes well. We believe store reopenings and a lower cost base will create sustainable and accelerating earnings growth.

Recommended

Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
21 Jan 2021
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
15 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
How to invest in Africa as it takes its place in the post-pandemic sun
Emerging markets

How to invest in Africa as it takes its place in the post-pandemic sun

The African Continental Free Trade Agreement has come into force. Favourable demographics, improving governance and a growing technology sector also b…
14 Jan 2021

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021