4 Under the Radar Small-Cap Stocks to Buy in the Fourth Quarter

The futures of the S&P 500 and the Dow Jones Industrial Average edged higher this morning, after a dip on Wednesday over concerns of the tech sector’s underperformance in a rising interest-rate environment. Significant job growth last month, a moderate drop in the unemployment rate, and Senate Majority Leader Chuck Schumer’s recent announcement that the chamber had reached a deal to avoid a government shutdown this week should give a boost to the stock market in the upcoming days. This, along with the expected continuation of the low-interest-rate environment, should benefit small-cap stocks.

Moreover, with a sustained rally in the stock market over the past few months, many large-cap stocks have become highly overvalued. Therefore, quality small-cap stocks that remain under the radar should offer better returns.

We think Tennant Company (TNC), Standex International Corporation (SXI), Donnelley Financial Solution Inc. (DFIN), and AdvanSix Inc. (ASIX) could be strong bets now, considering their expanding market reach and fundamental strength.

Tennant Company (TNC)

With a market capitalization of $1.39 billion, TNC is engaged in designing, manufacturing, and selling floor cleaning equipment worldwide. The company offers its products under the Tennant, Nobles, Alfa Uma Empresa Tennant, IRIS, VLX, IPC, Gaomei, Rongen brands, and private-label brands.

TNC’s revenue increased 30.4% year-over-year to $279.1 million in the second quarter that ended June 30, 2021. Its operating income came in at $20.4 million. The company reported a net income of $9.8 million, while its EPS came in at $0.51 over this period.

The company’s EPS is expected to grow 49.5% year-over-year to $4.35 in fiscal 2021. Analysts expect TNC’s revenue to increase 10.2% year-over-year to $1.1 billion in the current year. The stock has gained 24.2% over the past year and 8.1% over the past nine months.

TNC's POWR Ratings reflect this promising outlook. The company has an overall grade of A, which translates to a Strong Buy rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

TNC also has a B grade for Growth, Stability, and Value. Within the A-rated Industrial -Machinery industry, it is ranked #1 out of 83 stocks.

To see additional grades for Quality, Momentum, and Sentiment for TNC, click here.

Click here to check out our Industrial Sector Report for 2021

Standex International Corporation (SXI)

SXI, along with its subsidiaries, manufactures and distributes a variety of commercial and industrial products and services in the U.S. And overseas. The company operated through five segments: Electronics; Engraving; Scientific; Engineering Technologies; and Specialty Solutions. It has a market capitalization of $1.22 billion.

During the fourth quarter that ended June 30, 2021, SXI’s total revenue increased 26.6% year-over-year to $176.44 million. Its operating income grew 121.4% from the year-ago value to $22.42 million, while its net income surged 660.2% year-over-year to $13.95 billion over this period. The company’s EPS increased 660% from the year-ago value to $1.14.

The consensus EPS estimate of $5.24 for the current year represents a 13.9% improvement year-over-year. Analysts expect SXI's revenue to increase 5.8% year-over-year to $694.04 million in fiscal 2021. The stock has gained 70.4% over the past year and 30% year-to-date.

SXI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which equates to a Strong Buy rating in our POWR Ratings system. The stock also has a B grade for Quality, Growth, and Value. In the B-rated Industrial – Equipment industry, it is ranked #8 out of 92 stocks.

In total, we rate SXI on eight different levels. Beyond what we've stated above, we have also given SXI grades for Stability, Momentum, and Sentiment. Get all the SXI ratings here.

Donnelley Financial Solution Inc. (DFIN)

With a market capitalization of $1.18 billion, DFIN is a global risk and compliance solutions provider. Capital Markets Software Solutions (CM-SS); Capital Markets Compliance and Communications Management (CM-CCM); Investment Companies Software Solutions (IC-SS); and Investment Companies Compliance and Communications Management (IC-CCM) are the four operational segments of the company.

This month, DFIN announced the redemption of all outstanding $233 billion aggregate principal amount of 8.2% Senior Notes due 2024. This exhibits the robust financial strength of the company.

For the second quarter that ended June 30, 2021, DFIN’s net sales increased 16.1% year-over-year to $267.5 million. The company’s operating income grew significantly year-over-year to $62 million. Its net income came in at $42.9million, compared to a net loss of $1.3 million in the prior-year quarter. The company reported an EPS of $1.24, compared to a loss per share of $0.04 in the second quarter of 2020.

Analysts expect DFIN’s revenue to increase 1.5% year-over-year to $908.2 billion in fiscal 2021. In addition, the company's EPS is expected to grow 72% in the current year. Over the past year, the stock has gained 116.1%. Also, it has returned 106.8% year-to-date.

DFIN's POWR Ratings reflect this promising outlook. The company has an overall grade of A, which translates to a Strong Buy rating in our proprietary ratings system. DFIN also has an A grade for Value, and a B for Growth and Sentiment. Within the Financial Services (Enterprise) industry, it is ranked #6 out of 103 stocks.

Click here to see additional grades for Momentum, Quality, and Stability for DFIN.

AdvanSix Inc. (ASIX)

ASIX is a polymer resin manufacturer and distributor in the United States and internationally. It provides Nylon 6, a polymer resin used to make fibers, filaments, engineered plastics, and films, among other things. The company sells its products directly, as well as through distributors. It has a market capitalization of $1.13 billion.

This month, ASIX added 100% post-industrial recycled (PIR) grades to its industry-leading portfolio of Aegis PA6 Resins and Capran Biaxially Oriented Polyamide (BOPA) films. The new solutions will allow customers to meet their sustainability goals by integrating recycled monomer-based components into their finished products without sacrificing performance.

ASIX’s sales increased 87.8% year-over-year to $437.68 million in the second quarter that ended June 30, 2021. The company’s net income grew 286.1% from the year-ago value to $44.13 million, while its EPS increased 273.2% from the prior-year quarter to $44.13 million. In addition, its net cash from operating activities surged 488% year-over-year to $51.95 million.

The consensus revenue estimate of $1.57 billion for next year represents a 35.3% increase year-over-year. ASIX’s EPS is expected to increase 16.4% year-over-year to $4.27 in fiscal 2021. Also, the stock has returned 218.4% over the past year and 101.2% so far this year.

It is no surprise that ASIX has an overall grade of A, equating to a Strong Buy rating in our POWR Ratings system. The stock also has an A grade for Growth and Value, and a B for Quality. In the A-rated Industrial – Manufacturing industry, it is ranked #3 out of 45 stocks.

In addition to the grades I have just highlighted, you can see ASIX’s grades for Momentum, Sentiment, and Stability.

TNC shares were trading at $74.86 per share on Thursday morning, up $0.23 (+0.31%). Year-to-date, TNC has gained 7.63%, versus a 17.41% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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