Whisper it, but sentiment among investors looks to be turning. That’s got me in the mood to hunt for FTSE minnows that could rally harder than larger blue-chip stocks when the next bull market arrives. Although nobody truly knows when this will happen, I’m increasingly optimistic it might kick off in 2024.
Tasty recovery play
Shares in ingredients manufacturer and supplier Treatt (LSE: TET) have lost 36% of their value in the last 12 months. That seems a pretty big fall for a company that had been performing brilliantly for long-time holders.
The company’s valuation was beginning to look very rich in the face of multiple economic headwinds. So, perhaps we shouldn’t be surprised that Treatt has been walloped by the market.
Still, I’m beginning to think this share could bounce back well in time. Despite raw material inflation and industry de-stocking, revenue is still rising. FY23 profits are also expected to be 11% above FY22.
Elsewhere, the firm has been paying down debt and boasts a great record of rising dividends. Those are two things I always like to see.
The forthcoming retirement of CEO Daemmon Reeve after 11 years is a potential drawback. As a result, I’m adding this stock to my watchlist until an update on his successor is provided.
MJ Gleeson (LSE: GLE) is a second small-cap stock I think could recover strongly in time. In fact, shares in the housebuilder have already jumped 32% year-to-date as investors grow increasingly confident that interest rates have peaked.
I reckon this is just the start though. Assuming a recession can be avoided (a key risk here), the company is likely to see more demand for the small, affordable starter homes that it builds in the North and the Midlands.
This tallies with Gleeson’s comment last week that a “more certain backdrop” means it expects demand to “pick up into the seasonally stronger spring selling season“.
In the meantime, the balance sheet looks strong. There’s also a decent 3.2% dividend yield that’s likely to be covered more than twice by profit. Naturally though, it goes without saying that this income can never be guaranteed.
Former high-flyer Mortgage Advice Bureau (LSE: MAB1) completes the trio of small-cap stocks that I’m considering.
Back in September, CEO Peter Brodnicki reflected on “an exceptionally challenging year” with multiple interest rate hikes creating huge problems for mortgage brokers. On a more positive note, he also said that the company had still managed to outperform its market.
Looking ahead, the Derby-based business believes the “underlying level of demand for home ownership and home moves remains strong“.
All this may help to explain why the share price has been moving upwards ever since. A 22% rise in the last month is particularly encouraging, even if the shares may still be some way off the 52-week high hit back in May.
My main concern here, however, is the valuation. Changing hands for 24 times forecast FY23 earnings, the shares are far from cheap. So there could be some more volatility ahead if rate cuts take longer than expected to materialise.
That’s when it may be the time for me to consider building a stake here.