The small cap space continues to experience the same challenges that it experienced at the start of the year. Credit Suisse, Lori Calvasina, in an interview on CNBC, believes the valuation in the space looks terrible consequently not buying into the dip. In Contrast, Schaeffer’s Investment Research, Todd Salamone, picked Century Aluminum Co (NASDAQ:CENX) and Chesapeake Lodging Trust (NYSE:CHSP) as his best pick in the space.
Calvasina reiterated the fact that, momentum in small cap stocks space can carry one in the short term, but also bring some damage in terms of valuation later-on. Another major concern in the space is the fact that trading has been taking place at the 18 times and 19 times forward P/E – multiple a range that historically means one either gains or slumps by a single digit. This essentially limits the ability of one to gain traction in the space.
Mr. Salamone picked Century Aluminum Co (NASDAQ:CENX) and Chesapeake Lodging Trust (NYSE:CHSP) on the price action that the stocks have been showing.
“Our general approach is to look for those stocks that are displaying strong price action,” said Mr. Salamone.
He also admitted to receiving skepticism when looking at analysts buy-holding accelerations or when looking at short interest levels.
Mr. Salamone selected Century Aluminum Co (NASDAQ:CENX) as one of the stocks in the small cap space at the back of Alcoa receiving positive earnings reaction in the market and on the heels of it doubling out its 52-week low. The fact that there is high short interest and that only two, of the eight analysts that cover it, give it a buy rating, make it a good small cap investment according to Salamone.
“Century Aluminum, this is a stock that has more than doubled of its 52-week low, yet there is high short interest and of the eight analysts that cover it, only two ‘Buy’ ratings,” said Mr. Salamone.
The investor remains bullish on Century Aluminum Co (NASDAQ:CENX) as it is 60% up on a year to date with a strong upgrade potential and strong coverage potential.