Our call of the day zeroes in on overlooked small-cap companies in the so-called emerging U.S. Midwest, provided by Christopher S. Beck, chief investment officer of Macquarie’s small-mid cap value equity team.
“Small-caps by definition have tended to be higher risk than large-caps, but they’ve also over time tended to have better returns, and frankly if you look at any long-term charts, small-cap value has been a great place to be,” he says. While it hasn’t been a great place to be in the past 10 years versus small cap-growth, he believes that will change.
After all, Beck said, from 1979 to about 2009, small-cap value — cheaper, unloved stocks — was a great place for investors to be. Many of the stocks in his portfolio benefit from running operations out of the less-costly Midwest, and investors can sidestep currency conversions due to companies’ domestic focus.
KeyCorp KEY, +1.33%, an Ohio-based regional bank with a market capitalization of about $20 billion, is one of his portfolio picks. He likes the bank for its decent deposit and loan growth, and cash that it has been returning to shareholders via buybacks and dividends. Shares are up 11% over 12 months.
He also likes Hess Corporation HES, -0.05%, the roughly $20 billion market-cap energy company, which pays a dividend and has “decent operations” in the oil-producing North Dakota Bakken region. Five years from now, he projects Hess will produce a lot of crude, alongside Exxon XOM, -0.14% in Guyana. Shares are up 20% in 12 months.
MasTec MTZ, -2.21%, the engineering infrastructure group that builds pipelines for energy transport to the Gulf or East Coast, is one of his biggest holdings. “This is a company that would have modest capital spending needs, it’s all funded by projects that they win,” says Beck, adding that 98% of the around $4.8 billion market cap company’s work is done in the U.S. Shares are up 31% in a year.
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