When it comes to companies representing the most upside potential, indicating they are underappreciated, small-cap companies come to mind. These businesses are often valued between $250 million to $2 billion. This vast spread accounts for multiple sectors, as a list of small-cap stocks shows.
While they generally are quite more volatile than mid or large-cap companies (where valuations range from $2 billion to $10 billion and $10 billion to $200 billion respectively), small-caps are valuable portions of an investment portfolio. That is primarily because, at their current development stage, it’s likely they are still expanding. Depending on several factors, it could cause their valuation to skyrocket. In the end, this benefits the cautious investor. Here are three underappreciated companies to buy this month.
Topgolf Callaway Brands (MODG)
Topgolf Callaway Brands (NYSE:MODG) is a consumer-centric, leisure-focused company that operates internationally, but is headquartered, and has a strong presence, in the U.S. It manufactures and distributes golf equipment, while also providing “Topgolf” branded venues for consumers to play golf in.
MODG stock was recently valued at $14 a share giving it a market cap of $2.69 billion. That puts it slightly out of the small-cap limit. However, the company still has solid growth prospects. With quarterly revenue decreasing 2% year-over-year (YOY), it is clear Topgolf shanked the ball a bit. However, the golf pro beat earnings per share expectations, putting the company back on the fairway.
MODG is making major moves through Topgolf. It recently partnered with PepsiCo (NASDAQ:PEP) and is using the partnership to generate buzz. For example, buyers of a qualifying drink have a chance to win a Topgolf gift card. Additionally, insiders bought $2 million worth MODG shares, indicating that management agrees the stock is a buy.
Darden Restaurants (DRI)
Darden Restaurants (NYSE:DRI) owns and operates several well-known full-service restaurant brands, including Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, Bahama Breeze, Eddie V’s Prime Seafood and The Capital Grille. Based in Orlando, Fla., Darden Restaurants serves a wide range of cuisines across the U.S. and Canada
DRI stock is currently trading around $137 a share with a market cap of $16.7 billion. The company’s financials and growth are solid with profit and operating margins of 9.02% and 13.42% respectively. As we wait for Q3 earnings, the stock has consistently beaten EPS predictions over the past year and is set to do so for this quarter too. The company has seen continuous growth over the past four years with revenue increasing by 58%.
Another reason why investors might want to invest in this stock is its high dividend yield. It currently boasts a dividend yield of 3.74%. Additionally, as Americans gain more disposable income, the revenue stream for Darden Restaurants is likely to increase. People will always have a demand for dining out and the restaurant’s diverse portfolio of chains, each offering different types of food, positions it to benefit from consumer trends. It makes Darden Restaurants one of the best-underappreciated breakout stocks to buy.
Tenet Healthcare (THC)
Tenet Healthcare (NYSE:THC) operates a nationwide network of hospitals, outpatient centers and Conifer Health Solutions, which offers revenue cycle management and value-based care. It focuses on integrated healthcare services and specialty care.
THC stock saw a massive increase in profits in Q1 2024, going from $244 million in Q4 2023 to a whopping $2.14 billion. The stock has also consistently beaten EPS predictions over the past year, with an average surprise of 56.4%. The stock has a very high beta of 2.15, indicating its shares are highly volatile. It means Tenet experiences larger price swings compared to the market.
This can be beneficial for investors looking for high returns, as price fluctuations create opportunities to buy low and sell high. The recent earnings surge, driven by strong performances in its ambulatory care segment, USPI and inpatient services demonstrates THC’s growth potential despite its volatility. As healthcare demand remains consistent, this volatility can provide significant upside for investors who are willing to manage the associated risks. It makes THC an underappreciated breakout stock to buy.
On the date of publication, Achintya Pasricha did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
