Definitely, the best small-cap stocks for this market have to be recession-resistant and The Torro Company (NYSE:TTC) just might fit the bill. I have been following the impressive performance of the TTC stock for years, yet 2016 might be its best year yet.
We’re on the cusp of a new interest rate cycle and there’s only one direction interest rates are going to go: up. It’s a slow-growth world to begin with, skewed by monetary policy-induced gains in capital markets. Frankly, this is a tough market for picking stocks.
Large-cap technology is leading the stock market currently, but corporate sales and earnings growth really don’t support sustained capital gains in share prices right now. Besides, the market already went up—tremendously—so a buyer now has to be very particular.
Here’s the Bullish Case for TTC Stock
Often, some of the best stock market performers are great esoteric businesses that you never hear about. Perhaps it’s because these kinds of companies don’t offer a lot of “hype” potential, because maybe they just aren’t that exciting to begin with. But that’s okay, because hype often doesn’t provide sustained capital gains to shareholders long-term.
With this in mind, Toro Co. is a small-cap name with a long track record of making good money for stockholders. It’s not fancy and it likely won’t make front-page news, but Toro Co. is a very good business that consistently makes money.
The Toro Company has been around a while, having celebrated its 100th anniversary last year. This business knows how to manage the business cycle.
Toro makes turf management and snow removal equipment, along with irrigation and outdoor lighting products. It’s a “special situation” kind of stock, with a loyal customer base in the landscaping and golf course industries. It’s the perfect takeover candidate that pays a dividend.
The Toro stock chart is featured below:
Chart courtesy of www.StockCharts.com
Best Small-Cap Stocks for 2016? I’d Pick One and It’s This Company
There is a tremendous amount of investment risk in equities right now, so a business with staying power in a rising-interest-rate environment fits the bill. TTC stock is an existing winner, but the company’s financial outlook is strong, it doesn’t have a lot of currency translation risk, and no matter what happens to the stock market, the grass still needs to be cut.
At any given time, there are seemingly very few good businesses out there that are able to provide shareholders with relatively consistent growth in their operations, despite challenges from the business cycle. Last quarter, Toro’s total sales grew to $610 million, up from $568 million, and diluted earnings per share rose from $0.87 to $0.94.
This fiscal year, total sales should improve about 10% over last year’s and Toro management expects $3.50 in diluted earnings per share, which represents an expected gain of approximately 16% over last year’s $3.02 per share.
Any business able to generate double-digit growth in this world is an accomplished one. Whether next year brings recession, a stock market crash, or continued earnings malaise, I expect Toro Co. to keep selling its products to a loyal customer base. It’s a good business with a proven track record and that’s why TTC stock is my favorite micro-cap name for 2016.