RBC: These Are The 16 Best Small Cap Stocks In The Market

RBC Capital Markets sees small-cap stocks reversing their downtrend for the year.

Analysts Robert Sluymer and Jonathan Golub believe valuations for small-caps have gone from contraction to expansion.

Since October 10, small-cap sectors have returned 11%, compared to 6.0% for large caps, they note. The S&P 600 and Russell 2000 may break their 2014 highs of 1213.55 and 695.71 respectively if the upside trend continues over the coming weeks, Sluymer noted.

Small caps will see earnings growth of 22% over the next 12 months, versus 8% for large caps, they forecasted.

“We believe that stronger growth and attractive PEG (P/E to Growth) ratios are supportive for small caps,” Golub wrote.

Sluymer and Golub identified 16 attractive small-cap stocks rated “Outperform” by RBC analysts.

Abengoa Yield Plc

Ticker: ABY

Industry: Utilities

Price Target: $US46

Implied Upside To Target: 36.3%

Comment: 'Abengoa's commitment to continue investing in the project pipeline and its demonstrated execution in converting opportunities into backlog give us confidence in our estimates and would provide significant upside to our estimates if Abengoa is able to continue growing its pipeline,' wrote RBC's Shelby Tucker.

Source: RBC Capital Markets

Clearwater Paper Corporation

Ticker: CLW

Industry: Consumer Products

Price Target: $US79

Implied Upside To Target: 22.1%

Comment: 'With its large ~$US270MM investment in the Shelby TAD machine behind it, Clearwater is expected to generate significant free cash flow going forward as the machine reached steady-state EBITDA from Q314,' wrote RBC's Paul Quinn. 'We forecast FCF of $US5.85/sh in 2015 and $US7.74/sh in 2016.'

Source: RBC Capital Markets

Colony Financial, Inc

Ticker: CLNY

Industry: Specialty Financials

Price Target: $US28

Implied Upside To Target: 26.7%

Comment: 'We expect earnings upside from the single-family home rental business, as well as from the CRE side -- we could see additional benefit as the company adds on modest leverage up to 2 -- 3x D/E (currently 0.3x D/E),' wrote RBC's Jason Arnold.

Source: RBC Capital Markets

Corporate Executive Board Company

Ticker: CEB

Industry: Specialty Financials

Price Target: $US85

Implied Upside To Target: 16.1%

Comment: 'We expect CEB to generate double-digit growth in the next few years while throwing off significant cash flow,' wrote RBC's Gary Bisbee. 'This should allow for strong share price returns, which we believe is likely to be boosted by at least modest multiple expansion as SHL segment growth continues (revenue and margins) and share repurchases increase.'

Source: RBC Capital Markets

IGATE Corporation

Ticker: IGTE

Industry: Technology Services

Price Target: $US42

Implied Upside To Target: 15.8%

Comment: 'Bigger deals illustrate that IGTE has achieved scale and relevancy -- signed more than $US900MM in TCV since June 2013 with a pipeline of ~$US3B,' wrote RBC's Dan Perlin. 'Recent earnings revision driven by new business conversions and gross margins should begin to rebound in FY15 (sequential improvement in H1/15 and y/y improvement in H2/15).'

Source: RBC Capital Markets

Imperva Inc

Ticker: IMPV

Industry: Technology

Price Target: $US41

Implied Upside To Target: 0.4%

Comment: 'With recent news around data breaches, Imperva should be positioned to benefit as it protects corporate data in the data center and security discussions are held at the highest corporate levels,' wrote RBC's Matthew Hedberg.

Source: RBC Capital Markets

InterXion Holding N.V.

Ticker: INXN

Industry: Technology

Price Target: $US33

Implied Upside To Target: 21.3%

Comment: 'Our long-term thesis for INXN of strong demand for carrier-neutral data center with stable pricing in Europe remains unchanged and is supported by ongoing success-based expansions by INXN in existing markets driven by strong demand in cloud computing, network connectivity, and connections to emerging markets,' wrote RBC's Jonathan Atkin.

Source: RBC Capital Markets

Matador Resources Company

Ticker: MTDR

Industry: Oil, Gas & Coal

Price Target: $US32

Implied Upside To Target: 37.4%

Comment: 'We expect above-average production growth rates of 40% and 60% in 2014 and 2015, respectively,' wrote RBC's Scott Hanold. 'The Eagleford provides Matador a liquids-rich asset with strong economic returns, and Haynesville offers an option on long-term natural gas prices.'

Source: RBC Capital Markets

Nimble Storage Inc.

Ticker: NMBL

Industry: Technology

Price Target: $US45

Implied Upside To Target: 60.3%

Comment: 'With new ramps, we believe NMBL can: 1) obtain volume leverage; 2) gain market share; 3) generate operating margin expansion; and 4) improve FCF,' wrote RBC's Amit Daryanani.

Source: RBC Capital Markets

PGT, Inc.

Ticker: PGTI

Industry: Consumer Discretionary

Price Target: $US11

Implied Upside To Target: 14.7%

Comment: 'The stock's market value makes it most suitable for aggressive small cap investors with a growth bias looking for exposure to an ongoing recovery in the Florida housing market,' wrote RBC's Robert Wetenhall. 'Increased new residential construction activity and better financial performance represent potential catalysts for achieving our price target.'

Source: RBC Capital Markets

Rush Enterprises, Inc.

Ticker: RUSHA

Industry: Consumer Discretionary

Price Target: $US43

Implied Upside To Target: 14.9%

Comment: 'We believe that the company's acquisition and other investment activity have been very meaningful and that its larger platform will allow it to see a material increase in revenue and EPS,' wrote RBC's John Barnes.

Source: RBC Capital Markets

Shutterstock, Inc.

Ticker: SSTK

Industry: Media

Price Target: $US90

Implied Upside To Target: 18.2%

Comment: 'While the long-term margin outlook remains a key investor concern, we believe SSTK is taking all of the right steps and sowing seeds for long-term growth: new products, hiring salespeople, nicer offices, international expansion, acquisitions, new media (music), and extending its platform via partnerships (Facebook, Salesforce),' RBC's Rohit Kulkarni wrote.

Source: RBC Capital Markets

WebMD Health Corp.

Ticker: WBMD

Industry: Media

Price Target: $US70

Implied Upside To Target: 64.2%

Comment: Rated 'Top pick', WebMD is a 'leading brand and on-line platform in rapidly emerging Consumer Health IT (CHIT) market segment,' wrote RBC's David Francis.

Source: RBC Capital Markets

Wright Medical Group, Inc.

Ticker: WMGI

Industry: Financials

Price Target: $US40

Implied Upside To Target: 30.7%

Comment: 'Surgeons expect WMGI to be the largest share gainer in the U.S. total ankle replacement market over the next 12 months,' wrote RBC's Glenn Novarro. 'Surgeons listed WMGI's INBONE and INFINITY total ankles as the #2 and #3 products that were most likely to be responsible for share gains in their practice.'

Source: RBC Capital Markets

And here's a list of the best large caps.

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