Value Small Cap Stocks: Is it Their Time to Shine?

December 12, 2018

Bill Caton, CFA, is a Research Analyst and Senior Trader at First Wilshire Securities Management Inc. With responsibilities in portfolio management and trading, Mr. Caton joined First Wilshire’s internship program over 20 years ago and advanced through the ranks. Today, he is a member of the investment committee. He holds a bachelor’s degree from the University of California at Los Angeles with a specialization in business administration.

In this 3,296 word interview, exclusive to the Wall Street Transcript, Mr. Caton describes how his firm builds a portfolio and suggests some top picks for investors:

“We specialize in small-cap value equities where we believe the best long-term returns can be found but also dive a little into midcap, large cap, but our bread and butter is small cap, and we are bottom-up fundamental investors.

We have a very long-term buy-and-hold strategy, and we typically focus in the U.S., some in Canada. We also run an international fund that invests globally with a similar strategy of small-cap value, and our assets under management right now are approximately $375 million.”

One investment example is Tutor Perini Corporation (NYSE:TPC):

“One that I would find very interesting would be Tutor Perini Corporation (NYSE:TPC). As background, it’s the second-largest U.S. contractor in the transportation market and the third-largest U.S. heavy domestic contractor. They are very large civil contractors that also do specialty mechanical, and they also build commercial buildings.

In terms of valuation, it’s trading at about 8.5 times fiscal year 2018 p/e and under seven times fiscal year 2019 p/e. So if you compare it to its peer group, it’s trading at a big discount. In terms of price to book, it’s trading about half of book, relative to its peers that are four times that. So it offers a lot of value, absolute value and relative value, and a key thesis is the backlog has been growing very strongly.

It went from $6.2 billion backlog at the end of 2016 to $7.3 billion backlog at 2017 to now $8.7 billion in 2018…”

To get all the investment detail on this and many others, read the entire 3,296 word interview in the Wall Street Transcript.