News & Our Thinking


Thinking Big with Small Caps Stocks

03 October 2023

Ken talks to Peter Roy, Small Cap Portfolio Manager, about their shared excitement for small-cap stocks. They discuss the potential of small-caps in the current market, highlighting the earnings growth forecast for 2024. Peter shares insight into how government spending on infrastructure projects is benefiting certain small-cap companies, such as Herc Holdings and ICF International, and emphasizes their long-term potential. They also take a look at OneMain Holdings and Hamilton Lane, two stocks that have been a welcome surprise in a difficult sector.

Ken Crawford: Welcome to Conversations with Ken, a podcast where we discuss relevant topics and investing. I’m Ken Crawford, Senior Portfolio Manager with Argent Capital Management.  

If you missed us last month, the investment team was doing a live presentation. If you’d like to look at that presentation, you can hop on our website, You can see some of our latest thoughts, and you can also attach faces to the voices that you’ve heard on the podcast so far. 

One of the portfolio managers who was part of the St. Louis presentation that I just spoke about was Peter Roy. Peter Roy, as you might remember, has been a guest on our podcast, and he’s here with me today. Welcome, Peter. 

Peter Roy: Thanks for having me, Ken! 

KC: Peter is our Small Cap Portfolio Manager. He and Kirk McDonald, our Mid Cap Portfolio Manager, run Argent’s SMID Cap, which is small and mid-cap strategies. So, Peter, is there anything that has you enthused about small-caps? 

PR: If you go back and look at small-caps relative to large-caps from a price-to-earnings perspective, the last time that small-caps were this cheap was back when the tech bubble burst during the late 1990s and early 2000s. If you purchased small-caps back then, you had a phenomenal decade-plus run from a returns perspective. If you pair that with discounted valuation with the expected earnings growth that looks to be on the horizon for small-caps, we think that’s a pretty powerful combination.  

KC: Getting to the presentation that we gave last month, I think you had a slide that showed what, 30% earnings growth in ‘24 expected. 

PR: We did. 

KC: And that 2024 30% jump sounds pretty compelling. How does that compare to large-cap stocks? 

PR: There’s a couple of things that we’re looking at first earnings for. For small-caps, this year has been really challenged as we came out of the tough COVID comparisons from 2021 and 2022. You also have analysts that have been really sandbagging earnings estimates for this year, as the economy was largely anticipating some type of economic slowdown. Small-caps tend to be more economically sensitive than large-caps, and therefore they’ve taken really the brunt of that slowdown projection.  

Now what we’ve seen so far through the first half plus of this year is that the economy has remained fairly resilient even in the face of heightened interest rates. Inflation has really trended down nicely, and sentiment around a steep economic slowdown has changed. Small-cap earnings estimates for 2024 have been the beneficiary of that, and that’s why you’re seeing such a robust growth estimate for the next year. 

KC: You talked about being hit by COVID. One of the things that was part of COVID, or trying to get us out of that and the Recession that it had caused, was considerable government spending, infrastructure, etc. Some of the companies in the large-cap portfolio we have specifically because we think they’re going to be beneficiaries of that spend coming from the government into the economy. Any stocks or exposures that small-cap has in that area? 

PR: You’re definitely right about that, Ken. There’s been plenty of focus by the federal government in that area. You have the Infrastructure Investment, and Jobs Act, the Inflation Reduction Act, and the Chips and Science Act. The goal of these spending programs is to fund transportation-related projects, energy and power build-out, coupled with reshoring activities as it relates to the research and manufacturing of semiconductors, just to name a few.  

I’ll mention a couple of businesses that we’ve owned in our small-cap strategy well before the spending boom came about, but there should be a nice a nice growth kick that we should see from these projects moving forward.  

The first is Herc Holdings. Herc is an equipment rental company. They provide all sorts of equipment to job sites, anything from aerial work platforms to air compressors to earthmoving equipment to storage containers. It’s pretty easy, we think, to see why Herc’s equipment will be in demand for years and years to come as these projects roll out.  

The second business I mentioned is ICF International. There are global consulting services company that derives a very large piece of their revenue from federal government projects. The areas of their business that are most positively impacted by these recent federal spending mandates are climate, environment and infrastructure consulting services. ICF also has exposure to information technology and digital transformation work for the federal government. I think, as we all know, the federal government has been woefully behind on updating their IT systems, and the opportunity for a company like ICF to help modernize that infrastructure is very significant. 

KC: Both sound very, very interesting and I would imagine long runways, especially given the spend that we expect. Any other stocks or areas in your portfolio that have you particularly interested at the moment? 

PR: Yeah, I think I point out some of our investments in the financial sector. From a sector perspective this year, financials have been the worst-performing group within the small-cap universe, and that’s mainly due to the banks, which we all know have had a tough time here over the first half of the year. But we’ve had some nice successes with several of our financials, and a couple of those that we like that we currently own.  

First is OneMain Holdings. This business offers personal loans to less than prime credit score consumers. They provide a very valuable service to a large and growing section of the population that is underbanked and underserved by the traditional lenders out there. OneMain has taken a consistent conservative approach to running its business throughout the business cycle, which is something we appreciate as long term investors.  

The next one is Hamilton Lane. Hamilton Lane is an alternative asset manager. They all take capital to private equity, real estate, private credit and real assets. We think that the long term outlook for the alternative asset managers is quite favorable, and a company like Hamilton Lane has exposure to very large and growing pools of capital at a time when the investing landscape should provide a setup for nice returns moving forward. 

KC: So a couple of areas, infrastructure related and then financial is where, as you mentioned, investors have been a little bit less enthused of late. So maybe a chance to get some cheap stocks moving upwards. 

PR: That’s right. 

KC: Sounds like it could be a lot of fun in the next few years to come! 

PR: We hope so! We think so! 

KC: Ok, Peter. Well, thank you very much. Thanks for being my guest, and thank you all for listening. If you have any questions or comments, please let us know, and otherwise we’ll talk to you in a month. 

Thank you for listening to Conversations with Ken. For now, stay safe, stay well and thank you for investing your time with us. 


Opinions reflect the portfolio managers’ judgment on the date broadcast and are subject to change. A list of stocks recommended by Argent is available upon request. You should not assume that these recommendations are or will be profitable.