3 Small Growth Stocks Flying Under the Radar

The Russell 2000 Index failed to post a new bull market high in July, with capital rotating out of small growth issues into big tech stocks. However, a basket of exceptionally strong small stocks continues to gain ground, hitting multi-year or all-time highs. Many of these issues are flying under the radar, poorly followed by Wall Street, stock pickers or the FANG-obsessed financial media.

Let's look at three lesser-known growth stocks hitting new highs in this conflicted summer market. Their resilience may indicate superior products or services that will generate additional upside in coming months, or a short-term advantage that will dissipate when geopolitical forces no longer affect the ticker tape. In both cases, they look like better bets than the handful of over-loved issues talked up and down on financial television every day. (See also: Morgan Stanley Says Biggest Correction Since Feb Looming.)

USANA Health Sciences, Inc. (USNA), covered by just two analysts, currently holds a $3.19 billion market capitalization and a trailing price-to-earnings ratio (P/E) of 46.3. The stock has risen more than 131% in the past 12 months. The Salt Lake City, Utah-based company sells nutritional supplements and personal care products that lower the impact of chronic degenerative disease. The stock topped out at $88 in 2015 after a long-term uptrend and eased into a rounded correction that found support in the lower $50s in the first quarter of 2016.

USANA shares turned higher in September 2017 and completed a round trip into the prior high in April 2018. An immediate breakout stalled at $120 in May, yielding a pullback to $107 followed by a high-volume breakaway gap in reaction to last week's bullish earnings report. The 29-point buying surge ended at $138, while three narrow range sell-off bars since that time have given up just seven points. This unusual strength could presage a rapid follow-through rally above $150. 

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Addus HomeCare Corporation (ADUS) gets no Wall Street coverage, but that hasn't stopped the Texas-based elder care provider from gaining 92% in the past 52 weeks. It currently holds a tiny $754.1 million market cap while trading at a trailing P/E of 53.35. The stock completed a multi-year cup and handle pattern in March 2018, breaking out above major resistance at $37 and entering an uptrend that has nearly doubled the stock's price in the past five months.

The rally eased into a rising channel in April, booking steady progress into a July channel breakout that posted an all-time high at $67.45 last week. It is pulling back to test trendline support at $63.50, but this breakout pattern often fails, trapping late buyers in a deeper retracement. Two logical approaches may work with this scenario. First, wait for a bounce at the channel trendline, or second, stand aside and wait for the decline to reach support at the June high near $60. (For more, see: Top 5 Strategies to Pay for Elder Care.)  

Florida's Universal Insurance Holdings, Inc. (UVE) is followed by boutique investment house Keefe Bruyette and no other analysts. It carries a $1.55 billion market cap and a low trailing P/E of 13.65 despite gaining more than 77% in the past year. The stock topped out in the mid-$30s in October 2015 after a three-year uptrend gained more than 1,000%. It fell into the mid-teens in 2016 and slumped at that price level into a September 2017 test that completed a double bottom reversal

The subsequent uptick reached the 2015 high in June 2018, generating a minor pullback followed by last week's breakout to an all-time high. This is highly favorable trade setup with a measured move target near $60, more than 15 points above the last closing price. Even so, it is best to wait for a consolidation or pullback rather than chasing the upside, with a decline into the upper $30s offering the lowest-risk buying opportunity. (See also: How Does the Insurance Sector Work?)

The Bottom Line

A basket of small growth stocks with limited or no Wall Street analyst coverage could offer superior returns in the coming months. (For additional reading, check out: 8 Micro-Cap Stocks That Are Beating the Blue Chips.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>

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