As we turn the page to 2024, there’s an unmistakable buzz around small-cap stocks. You’ve probably noticed the Russell 2000’s impressive climb – over 10% in December alone, capping off a year with a 13% gain. This resurgence, especially after a shaky start in October, is more than just a fleeting trend.
What’s driving this renewed interest? It’s the anticipation of a more favorable economic environment. With the Federal Reserve signaling potential rate cuts, the stage is set for small-cap stocks to shine.
In today’s watchlist, we’re diving deep into the realm of small-cap stocks. These aren’t your run-of-the-mill picks; they’re carefully selected for their low valuation multiples and attractive dividend yields. We’ve even analyzed their sensitivity to interest rates to give you a comprehensive view. Take a look…
Bloomin’ Brands Inc. (NASDAQ:BLMN)
Bloomin’ Brands, the parent company of Outback Steakhouse and several other restaurant chains, stands out as a noteworthy pick to begin our list with. This casual dining giant is currently trading at an intriguing valuation – just 10 times its projected 2024 earnings. What’s more, it offers a solid dividend yield of 3.6%.
While 2024 might not be branded as “the year of dining,” there’s an interesting development that could spice things up for Bloomin’ Brands. The company caught the attention of a significant activist investor, who acquired a 9.9% stake last August. This move could lead to exciting changes, such as a share repurchase program or even a potential sale, creating a positive momentum for the stock.
What’s particularly striking about Bloomin’ Brands is its valuation. It’s trading at a discount compared to its peers, and this isn’t due to any apparent shortcomings but likely because it’s a small-cap name. This presents a unique opportunity for investors looking for value.
Concerns about the broader consumer market’s health in 2024, especially in sectors like dining, are always on the radar. However, the resilience and growth track record of Bloomin’ Brands suggest that any such concerns are already factored into its current valuation. This makes it an even more attractive proposition for those who believe in the strength of the U.S. consumer market.
With a market capitalization of $2.3 billion and a notable 32% stock price increase in 2023, Bloomin’ Brands is not just another stock in the crowd. It’s a compelling choice for investors seeking value, growth potential, and a rewarding dividend yield.
AES Corp (NYSE:AES)
AES, a key player in the utility and renewable energy sector, is a standout choice among small-caps. This company, sensitive to interest rate fluctuations, experienced a notable sell-off in 2023. Like many in the utilities space, AES faced challenges as rising interest rates increased the cost of refinancing debt, and their dividend yields became less appealing compared to alternatives like Treasurys.
Despite a 35% drop in its share price this year, there’s a strong case for a rebound in 2024. AES boasts a significant portfolio in renewable energy development and possesses high-quality utilities in the U.S., positioning it well for future growth.
Financially, AES presents an attractive investment profile. The stock is currently yielding a 3.6% dividend and is trading at just 10 times its projected 2024 earnings. With a market capitalization of $12.6 billion, AES is not just a utility company; it’s a forward-looking player in the renewable energy field.
This combination of a strong development pipeline in renewables and a solid financial footing makes AES a compelling pick for investors seeking exposure to the utility sector, especially those interested in companies poised to benefit from the shift towards renewable energy.
Kilroy Realty Corp (NYSE:KRC)
Kilroy Realty emerges as a particularly intriguing pick in our small-cap watchlist for 2024, though it might be seen as a somewhat unconventional choice. This real estate investment trust (REIT) stands out for a couple of key reasons.
Firstly, there’s a general pessimism surrounding Office REITs, but we believe the office space is far from obsolete. Despite the rise in remote work, a significant portion of the workforce still values and utilizes office spaces. This ongoing need underpins the potential of Kilroy Realty.
Another factor that could play into Kilroy’s favor is the anticipated lower interest rates in 2024. Lower rates generally bode well for REITs, making their financing more affordable and their dividend yields more attractive compared to fixed-income alternatives.
An interesting development is the role of artificial intelligence startups in reshaping office space usage. These companies are creating a “live from office” trend, where office spaces are used almost round the clock, equipped with amenities and storage for extended hours of operation. This trend is particularly prevalent in tech hubs like San Francisco and Boston, where Kilroy has significant exposure.
The bet here is that the rise of AI will not only benefit the tech sector but also lead to increased demand for office spaces. It’s a unique perspective, and admittedly, a bit controversial.
Kilroy Realty, with a market capitalization of around $4.8 billion, offers a solid dividend yield of 5.3% and trades at a favorable 9.3 times funds from operations ratio. The stock has seen a 5% increase year to date, adding to its appeal as a potential investment in the real estate sector with a twist.
