Searching for value outside large-cap U.S. equities

Small- to mid-cap companies in the U.S. market that are indicating the best value from a quantamental perspective.
The iShares Russell 2000 ETF has gained momentum over the past two weeks, rising more than 7 per cent, while the SPDR S&P 500 ETF has slipped by more than 4 per cent during the same period. Small-cap stocks are outperforming large caps as big tech stocks like Nvidia Corp., Microsoft Corp., Amazon.com Inc. and Alphabet Inc., which dominate the S&P 500, fall out of favour. The Russell 2000′s broader and more diversified industry and sector composition compared with the S&P 500 provides value investors with greater opportunities to identify undervalued stocks among smaller companies.
This week, we filtered for small- to mid-cap stocks using a quantitative factor investing methodology developed by Trading Central.
We began by setting a market capitalization threshold between US$1-billion and US$10-billion, which best represents stocks in the Russell 2000 index.
We then applied two quantitative filters: The total TC Quantamental Rating, with an emphasis on the TC Value Factor rating, which requires a minimum score of 50 out of 100. These ratings assess a company’s fundamental strength relative to its industry peers. The Value Factor evaluates key metrics, including earnings yield, price/book ratio and free cash flow.
Finally, we screened for companies showing a five-year historical EPS growth rate of at least 10 per cent to provide a long-term view of how the company has increased its earnings.
We have also included dividend yield, P/E year-to-date and one-year returns.
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Topping our list is Jackson Financial Inc. JXN-N, an investment holding company focused on retirement planning and insurance. The stock has the best one-year and year-to-date performance on our list at an impressive 154.5 per cent and 65.2 per cent, respectively, after recording a new record high on Tuesday. The company has the highest TC Quantamental Rating of 74 out of 100, which is very strong and the highest among its peers. The company also boasts the highest Value Factor Rating on our list at 92 out of 100 owing to a strong earnings yield of 52.26 per cent. Despite the stock trading near all-time highs, the P/E ratio is the lowest on our list at just 2.15. The stock is indicating a dividend yield of 3.36 per cent.
Brookfield Reinsurance Ltd. BNRE-N, a business providing insurance and reinsurance services to individuals and institutions, has the largest market cap on our list at US$6.69-billion. The company has an overall TC Quantamental Rating of 65, which is strong and a TC Value Factor rating of 81, among the highest amongst its peers. The stock price continues to trend higher, posting a new 52-week high on Tuesday.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.