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3 Small-Cap Stocks That Smashed Earnings for Q4 2023

Published 2024-03-05, 06:29 a/m
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Balancing earnings and fundamentals, these stocks have growing potential.

While Meta (NASDAQ:META) and Nvidia (NASDAQ:NVDA) keep scooping up capital within the Magnificent Seven stocks, small-cap stocks have been on the rise. Over the last month, the US Small Cap 2000 Index (RUT) outperformed S&P 500 (SPX) at 7.5% vs 3.7% respectively.

Stronger-than-expected earnings among three-quarters of S&P 500 companies have bolstered investors’ willingness to tap into lower market cap waters. The fact that this is happening within a 5.25 – 5.50% interest rate environment is an additional confidence booster.

Presently, the market still expects rate cuts in the second half of the year, as fed fund futures price the first one in June at 66% probability, according to the CME Fedwatch Tool. Given that it is easier to push the price of shares with smaller market cap weight, which small cap companies have shown strong fundamentals in Q4 2023?

1. Lantheus Holdings, Inc.

This Massachusetts-based radiopharmaceutical company provides AI-powered diagnostics and targeted therapeutics. Its conservative business model revolves around total cost recovery. Lantheus (NASDAQ:LNTH) identifies all operations costs to streamline profits across its diversified holdings: Lantheus Medical Imaging, Progenics (NASDAQ:PGNX_old) Pharmaceuticals, and EXINI Diagnostics.

One of Lantheus’ top products is PYLARIFY, used in early prostate cancer detection and recently boosted by AI analytics. In the company’s annual report delivered on February 22nd, Lantheus reported $326.6 million in net income. This marks an impressive 1,063% profitability boost from 2022, having a “high” Earnings Quality Ranking (EQR) for the 17th consecutive week.

At the same time, Lantheus decreased its operating costs by 36.8% while also executing a $75 million share buyback program. Holding $1 billion worth of assets against $835 million worth of total liabilities, the potential for growth boosted LNTH shares by 20% over the last month.

Based on nine analyst inputs pulled by Nasdaq, LNTH stock is a “strong buy.” Twelve months ahead, the average LNTH price target is $98.25 vs the current $65. The high estimate is $128, while the low forecast is above the present price level at $82 per share. This Monday, the company announced the FDA approval of DEFINITY as a supplemental new drug application (sNDA) in pediatric ultrasound applications.

2. Unity Software Inc.

After the November kerfuffle revolving around the pricing of its game engine software, and following the retirement of Unity CEO John Riccitiello, Unity Software (NYSE:U) shares tracked 29% year-to-date drop in value. Although the company surprised investors in the Q4 2023 report with $0.23 earnings per share (EPS) vs expected $0.19 EPS, Unity’s guidance was lackluster.

Year over year, Unity increased revenue by 35% to $609 million in Q4 while still suffering a $254 million net loss. This was an improvement over the net loss of $288 million in a year-ago quarter. For the full year 2023, Unity achieved $2.187 billion revenue, but the FY 2024 revenue guidance comes short at $1.76 – 1.8 billion.

Yet, following the pricing backlash, Unity engine remains dominant among video game developers with an estimated market share of 29.81% according to 6sense. In November, the company laid off 265 employees (3.8% of the workforce) with plans to cut the total workforce by 25% (1,800) in 2024.

With a leaner operating model, U stock represents a buy on the weakness opportunity. Based on 20 analyst inputs pulled by Nasdaq, U stock is a “buy.” The average U price target is $32.46 vs the current $27. The high estimate is $45, while the low forecast is $16 per share.

3. Lithium Americas (TSX:LAAC) (Argentina) Corp.

This Canadian-based company uses ESG standards to pursue lithium exploration and supply projects. The company owns large shares of multiple sites in Argentina, from Caucharí-Olaroz to Pastos Grandes and Sal de La Puna.

Prepping for the EV future with phased-out petroleum-powered vehicles, Lithium Americas (NYSE:LAC) reported $6.6 million net income in Q3 2023 vs $41 million net loss in the year-ago quarter. The company is yet to publish its Q4 2023 report on March 29th.

However, based on long-term lithium demand, 14 analyst inputs pulled by Nasdaq rate LAAC stock as a “strong buy.” The average LAAC price target is $8 vs. the current $4.91. Little known among the trading public, LAAC shares have dropped 22% year-to-date, representing cheap penny stock exposure to long-term EV trends.

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

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This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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