3 Small Cap Stock Picks You've Never Heard Of: Dethroning FAANG With Disruptive Innovation
Adam Johnson of BullseyeBrief.com presented Tuesday at the Benzinga Global Small Cap Conference, discussing his fund of small-cap stock picks on Bullseye Brief, where subscribers can track his trades and analysis.
“My whole thing is American ingenuity, the people and companies driving the world forward. So I’ve got a lot of tech, a lot of biotech, a lot of medtech. I’ve got about 33 names in the fund right now. It’s a new stock pick every week,” he said.
Why Not Buy FAANG? Johnson’s fund is up 62% in 2020 compared to a 14.9% gain for the SPDR S&P 500 ETF Trust (NYSE:SPY).
“We could go out and buy the FAANG stocks, and that’s very exciting, but we can’t get any edge. So let’s try to find stocks where we can get an edge and where we can get more than just 30% or 40% upside,” Johnson told the virtual Benzinga conference.
Johnson discussed some of his top stock picks, including Koppers Holdings Inc. (NYSE:KOP), which he said is likely the best small industrial stock you’ve never heard of.
“Koppers is No. 1 in the world at making the substance that seals wood and protects it from water,” Johnson said.
“They’ve already guided up three times this year. The stock trades at about five times earnings and yet growing double-digits.”
A valuation that cheap at that high of a growth rate is mind-boggling in today’s market, he said.
Top Diagnostics Play: Another name that Johnson's particularly bullish about at today’s levels is Progenity Inc (NASDAQ:PROG).
“What’s cool about this company is they have a diagnostic test that uses all kinds of data and crunches it with artificial intelligence to try to figure out what is happening inside a woman’s body at week 20 of pregnancy, because it turns out 20% of the pregnancies in the world are compromised by a condition called preeclampsia,” Johnson said.
Preeclampsia is a condition where an otherwise healthy pregnancy is suddenly impacted by a spike in the mother’s blood pressure. There is no current diagnostic for preeclampsia, potentially giving Progenity a tremendous first-mover advantage.
“I think they’re going to start making money by 2023. In fact, the stock is trading in the $3s and my target is $26. And that’s because I’m quite comfortable saying that they are going to get the preeclampsia test approved for widespread use starting next year,” Johnson said.
“It’s like eBay for the 1%. It’s really high-end resale stuff,” Johnson said.
Johnson is a big fan of RealReal’s margins, which far exceed eBay’s.
“Yes, eBay does have some high-end stuff, but I’ve got to tell you the RealReal has done an amazing job at corralling that high-end purchaser.”
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