Why I’ve Added These 2 Small-Cap Stocks to My Portfolio

In today’s market, which seems to be running on high and overvalued, finding genuine investment opportunities can be challenging. However, after some research, I’ve pinpointed two small-cap stocks that stand out as undervalued gems. Here’s why I’m excited to add them to my portfolio.

1. Atlas Energy Solutions Inc. (AESI)

Atlas Energy Solutions has recently emerged as a major player in the proppant sand industry, which is crucial for oil and natural gas extraction.

This sand is used to keep fractures open in oil and gas wells, allowing for more efficient extraction. The company’s recent acquisition of Hi-Crush in March 2024 has solidified its position as the largest producer of 100 mesh and 40/70 mesh proppant sand in North America.

Atlas operates five production facilities in the Permian Basin—one of the most vital and rapidly growing oil production areas in the U.S. In addition to these, the company runs eight other mines and has a logistics business to support its operations.

What sets Atlas apart is its innovative production method. By using water from local aquifers and electric dredges, Atlas has managed to cut production costs by up to 75% compared to traditional methods. This efficiency is particularly important in a commodity-driven market where margins can be thin.

Despite these advancements, Atlas Energy Solutions has seen its stock price drop by over 20% from recent highs. This decline is largely due to a reduced rig count in the Permian Basin, which has affected the overall demand for proppant sand.

However, even with this setback, Atlas remains in a strong financial position. The company’s balance sheet is robust, with a leverage ratio of less than one, indicating manageable debt levels.

Looking ahead, the integration of Hi-Crush is expected to drive a significant revenue increase. Analysts project a 25% rise in revenues for FY2025, reflecting the positive impact of this acquisition.

The stock is currently valued at just over five times the estimated earnings per share for FY2025, which is quite low for a company with such growth potential.

Additionally, with a dividend yield of over 4%, Atlas Energy Solutions offers not just growth potential but also income through dividends. This combination of low valuation and high yield makes AESI a compelling buy in an otherwise overvalued market.

2. Mid Penn Bancorp, Inc. (MPB)

Mid Penn Bancorp is a seasoned bank holding company based in Pennsylvania, with a history dating back to just after the Civil War. Despite its long track record, the bank’s stock is currently trading below its book value and at just over eight times its forward earnings.

This undervaluation presents a unique opportunity for investors looking for solid value. The bank’s stock also offers a 3.6% dividend yield, which is appealing for income-focused investors.

Insider buying throughout 2024 indicates confidence from those closest to the company. This insider activity can often be a positive signal, suggesting that the company’s leadership believes the stock is undervalued and has strong future prospects.

Mid Penn Bancorp’s financial health appears solid. The bank’s loan portfolio is strong, with low levels of non-performing loans and adequate provisions for credit losses.

This suggests that the bank is managing its credit risk effectively. Deposits are growing, albeit slowly, and the bank stands to benefit when the yield curve eventually normalizes, which could enhance its profitability.

Overall, both Atlas Energy Solutions and Mid Penn Bancorp represent promising investment opportunities in today’s market. Atlas Energy Solutions offers significant upside potential due to its innovative production methods and strategic acquisition, while Mid Penn Bancorp presents a value play with its attractive dividend yield and solid financials.

Adding these small-cap stocks to my portfolio is a strategic move to capitalize on their growth potential and market undervaluation, even in a high-flying market.

Leave a Comment