PM recommends three small/mid-cap holdings 'flying under the radar'

Smaller companies are due some time in the sun, says Josh Wein, a portfolio manager for Hennessy Cornerstone Growth Fund, who offers three small-cap holdings that investors should look at.

Small-cap stocks have been on something of a roll lately. The Russell 2000 is up nearly 7% year to date. Meanwhile, a widely expected Fed rate cut next week could help that momentum, as lower borrowing costs are seen as particularly supportive for smaller companies, MarketWatch points out.  

The bottom line for all of Wein's picks – a supermarket chain, an online insurer, and a real estate broker – is that they are “small/mid cap names that we feel fly under the radar and likely don’t garner the valuation that their larger-cap peers would exhibit,” he said.

Weis Markets is a U.S. regional grocery store chain with 200 stores in seven states. Such companies are dependable and consistent free cash flow generators, Wein argues. "I don’t know if they benefit from AI or the idea that rates go lower, but I just think that these names are forgotten about generally by people who can’t tear themselves away from AI headlines," he said.

Weis Markets is defensive-type name, very core to any economy, Wein noted, adding, "there was a time when grocery was an enormously popular play for equity buyout firms."

Year to date, Weis Markets shares have risen 3.2% to $69.80 per share as of the close, yesterday, September 10.

According to MarketWatch, the company has just one analyst rating, which is “hold.” That analyst set a target price of $31.00 per share, less than half of Weis Markets’ current value.

Root Inc is an online car insurance platform. Using data from someone’s cell phone, it is able to figure out what kind of driver the person is and price a policy accordingly, explains Wein. A newer holding, Root made it into the Hennessy Cornerstone Growth Fund portfolio during the annual spring reconstitution.

Year to date, Root shares are up 31% at $95.20 per share. Root shares trade at a price/book value ratio of 5.83, above the industry average of 1.57, according to Zacks Investment Research.

Among the six analysts covering the company, four recommend holding the stock and two advise buying. The average target price is $130.60 per share, implying nearly 40% upside from the last close.

This real estate brokerage platform could be a potential beneficiary as home prices start to bottom out, Wein believes. He feels it’s a good time to be looking at those sorts of companies, given their history of holding a similar name.

"We at one point owned Redfin and it was a similar idea where it’s like, this is the time to be looking at things that benefit from real estate volumes or transaction volumes, and then it was bought by Rocket," he explained.

For now, however, the opposite is true with Compass: in March 2025, the Wall Street Journal learned that the company was in talks to buy Warren Buffett's real estate brokerage business called HomeServices. According to RealTrends, Compass was the largest U.S. real estate brokerage by volume in 2023, with HomeServices ranking fourth.

Year to date, Compass shares have risen 57% to $9.20 per share. The company is covered by 10 analysts, with half recommending “buy” and the other half “hold,” according to MarketWatch. The average target price for Compass is $9.10 per share, slightly below the latest close.

The AI translation of this story was reviewed by a human editor.