We recently published a list of 10 Oversold Small Cap Stocks to Buy Right Now. In this article, we are going to take a look at where Bloomin’ Brands, Inc. (NASDAQ:BLMN) stands against other oversold small cap stocks to buy right now.
Market experts believe that the rally in the small-cap stocks might be just getting started.
Data suggested that the benchmark small-cap stock index, Russell 2000, saw an increase of more than 9% between early July and September end. This means that the small-cap index surpassed the S&P 500 index’s return of more than ~4%. The strong performance of the small-cap index primarily stemmed from the rotation into small-cap stocks in July as the investors believed that there would be rate cuts moving forward. These expectations finally materialized when the US Fed announced a mega 50-basis-point drop, with the projections of further cuts. As per Wall Street experts, the small-cap stocks saw a significant increase on the news.
Now that we are in the last quarter of the year, many investors wonder whether or not this rally is sustainable. However, market strategists believe that this rally has the potential to sustain, and 2025 will see strong outperformance.
Small-Caps in 2025: The Road Ahead
Why is a rate-cutting cycle beneficial for small-cap stocks? Smaller companies tend to be dependent more on floating-rate debt as compared to large-cap companies for their funding needs. Therefore, as and when the rates go down, the cost of debt will also be reduced, enabling small-cap companies to borrow more. Therefore, small businesses tend to benefit financially as their interest costs will decline. This should boost the earnings of small-cap companies.
Jill Carey Hall, who is the head of US small and mid-cap strategy at Bank of America, explained that the small-caps tend to outpace the returns delivered by the large-caps by approximately 1 percentage point. This happens over the 6 months post a 50-bps cut.
BlackRock believes that, if the market continues its upward trajectory, the small-cap space can demonstrate dynamism. Small-cap stocks are more sensitive to broader economic cycles, and history suggests that small caps benefit most during the expansionary cycles. The valuations for these firms and an environment of improved EPS growth should result in delivering competitive returns, as per the firm. These favorable characteristics, together with the US economic gains, and the infrastructure investment should help accelerate earnings for the smaller firms.
What Should Investors Expect from Small Cap Stocks?
As per Francis Gannon, Co-Chief Investment Officer and Managing Director of Royce Investment Partners, small-caps have an advantage over large-caps concerning estimated earnings growth for 2025. Moreover, he believes that small-caps had better returns than large-caps following the previous 10 presidential elections. This was the case irrespective of the fact that which party won the White House. Such an outcome was seen despite every election having its own set of challenges, difficulties, and opportunities. Therefore, he believes that it’s not about the person or policies as much as the investors pay attention to the uncertainty that prevails in the months before any elections.
As per Gannon, inflation has been moderating, the economy continues to grow, unemployment remains low, and there has been normalization in the rates. Also, the benefits of reshoring and the CHIPS Act are now visible. Additionally, he believes that there has been a positive reversion to the mean argument for the small-cap leadership as well as strong performance.
Our Methodology
To list 10 Oversold Small Cap Stocks to Buy Right Now, we used a Finviz screener to extract the stocks having the market cap of less than $2 billion. After getting the list of 20-25 stocks, we narrowed it down to the following 10 stocks by selecting the ones trading at a forward P/E of less than 15.0x and which have fallen significantly on a YTD basis. Finally, the stocks were ranked in the ascending order of their hedge fund sentiment, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Bloomin’ Brands, Inc. (BLMN): Oversold Small Cap Stock with Strategic Initiatives for Growth
The golden glow of the exterior of a modern Upscale Casual Dining restaurant reflecting on a busy street.
Bloomin’ Brands, Inc. (NASDAQ:BLMN) owns and operates casual, upscale casual, and fine dining restaurants in the US and internationally.
Bloomin’ Brands, Inc. (NASDAQ:BLMN) has been actively pursuing several strategic initiatives that can potentially unlock shareholder value. For example, the review of strategic alternatives for its operations in Brazil can lead to a potential sale or restructuring of the Brazilian business. Through potentially divesting or restructuring, Bloomin’ Brands, Inc. (NASDAQ:BLMN) can streamline its operations, reduce exposure to international market risks, and reallocate this capital to more profitable avenues. To enhance shareholder returns, the company has completed an Accelerated Share Repurchase (ASR) program. It also settled obligations related to its 2025 Notes, resulting in an improvement in capital structure and financial flexibility.
Bloomin’ Brands, Inc. (NASDAQ:BLMN)’s flagship brand, Outback Steakhouse, continues to show early signs of progress with comparable sales and traffic surpassing expectations and improving guest metrics.
Moreover, Carrabba’s Italian Grill reflected superior performance and has been serving as the bright spot in its brand lineup. Moving forward, the company’s strong brand portfolio, with well-established casual dining concepts, should continue to act as a potential tailwind.
Bloomin’ Brands, Inc. (NASDAQ:BLMN) has been focusing on restaurant growth, menu improvements, and customer experience in a bid to drive traffic and sales. The company highlighted that marketing spending should remain stable. However, there is openness to increase it, if required. For FY 2024, the company is expecting capital expenditures in the range of $260 million – $270 million and adjusted diluted earnings per share of $2.10 – $2.30.
As per Wall Street, the shares of the company have an average price target of $20.13.
Overall, BLMN ranks 5th on our list of oversold small cap stocks to buy right now. While we acknowledge the potential of BLMN as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than BLMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
