Small Financial Plays with a Chance to Break Out

Jacob Harper |

High volatility is often considered a worrisome facet in an investment. Volatility, after all, is synonymous with instability, and investors aren’t usually looking for the Next Unstable Thing. But volatility can actually be viewed as a positive, if you consider what’s causing that volatility.

Sometimes what’s driving that whipsaw action is merely high investor interest. The interest might be a combination of positive and negative, to be sure, but the interest is there nonetheless. If high volatility is combined with strong fundamentals, there’s a chance that the stock might have a chance to break out, and could be an unusually cheap buy, as the majority of investors are scared away by the stock’s instability.   

METHODOLOGY

We decided to limit our search to financial stocks in the “small-cap” sector, or those with a market capitalization between $300 million and $2 billion. After that, we looked for stocks in that category that fit the following parameters:

Experienced volatility of more than 5 percent over the last month.

Volatility of over 5 percent is quite unusual, and indicates that the company has been subject to extreme whipsaw action.

Has a current ratio over 1.

A current ratio higher than one indicates that the company is on relatively stable ground, and possesses the ability to pay off their short-term debts.

Has an operating margin over 25 percent.

A high operating margin indicates the business is utilizing capital wisely, a must for a small-cap financial.

FINDINGS

We found five stocks that fit that criteria, and thus fit our projections for volatile small-cap financials poised to break out. They are:

Home Loan Servicing (HLSS)

Market Cap: $1.45 billion

Price:  $20.33

YTD Performance: -10.20 percent

Noah Holding (NOAH)

Market Cap: $1.89 billion

Price:  $17.18

YTD Performance: -4.56 percent

Virtus Investment Partners (VRTS)

Market Cap: $1.43 billion

Price: $178.35

YTD Performance: -10.85 percent

WisdomTree Investments ($WETF)

Market Cap: $1.94 billion

Price:  $15.04

YTD Performance: -15.08

Westwood Holdings (WHG)

Market Cap: $431.61 million

Price: $56.25

YTD Gain: -9.14

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
NOAH Noah Holdings Limited 23.89 0.12 0.50 107,232
WHG Westwood Holdings Group Inc 61.08 0.85 1.41 23,432
WETF WisdomTree Investments Inc. 11.19 -0.22 -1.93 2,066,437
VRTS Virtus Investment Partners Inc. 114.50 -1.55 -1.34 71,241
NRDGF Nordiag Asa Ord n/a n/a n/a 0

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