Small-Caps on Sale: The Prudent Speculator Likes ENS & HPE

As we suspect that many have limited exposure to small- and mid-cap stocks, we’ve updated our special report, Small Companies, Big Potential.

We also offer a reminder of the methodology we utilize for all our value-based equity strategies. We think you will find the report to be valuable reading.

READY TO POWER AHEAD

Over the past two decades, the industrial concern has completed more than a dozen acquisitions and offers different battery types, ranging from Flooded Lead Acid (FLA) to Thin Plate Pure Lead (TPPL) and Lithium-ion (Li-ion) for various needs and applications.

In the long run, EnerSys stands to benefit from a variety of megatrends, such as 5G, the electrification of mobility and grid modernization. But in the near-term, the company continues to grapple with supply chain issues and inflation, although management is aggressively working to raise prices.

An improvement in gross margin back to around the typical level of 25% ought to significantly improve the bottom line going forward, but shares have shed nearly a quarter of their price over the past year. They now change hands for just 13 times fiscal NTM EPS estimates with per share profits presently projected to nearly double to over $8 by fiscal 2025.

HEALTHY PROFITS AND BIG YIELD

Hewlett Packard Enterprise (HPE) offers enterprise security, analytics and data management services to businesses worldwide. Split off from Hewlett-Packard (HPQ) in 2015, HPE is focused on Hybrid IT, a combination of in-house data centers and private or public cloud environments.

The company continues to promote its “as-a-service” model, which it says should accelerate cloud growth and help businesses right-size and scale with ease. Indeed, HPE’s GreenLake Edge-to-Cloud Platform supports about 70 platform services which customers can choose to deploy themselves.

A few weeks back, the company confirmed its previous fiscal 2022 outlook and offered the fiscal 2023 outlook. HPE now expects its revenue growth next year to be 2% to 4%, when adjusted for currency, and non-GAAP operating profit growth to be approximately 4% to 5% year-over-year. The non-GAAP diluted EPS forecast ranges from $1.96 to $2.04.

HPE boasts diverse offerings, including 5G networking, and potential to grow subscription revenue, while the inexpensive valuation (7 times NTM estimated EPS) and 3.5% yield offer a margin of safety.

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This post was also published on John Buckingham’s Forbes contributor site.

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