There's still value to be found in the small-cap stock rally, Beth Lilly of Gabelli Funds said Wednesday.
"We look at the businesses from the ground up, and the companies that we talk to, we see business momentum is improving," she said. "As we look through the valuations and we do a sum-of-the-parts private-market value with a catalyst, we are still finding inexpensive stocks to buy in the market today."
The Russell 2000 index of small-cap stocks hit a record high for the second day in a row.
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Lilly, portfolio manager of the 5-star-rated TETON Westwood Mighty Mites Fund (WEMMX), said on CNBC's "Fast Money" that business sentiment was more positive than it had been six months ago.
"We're encouraged that things are improving," she said.
"We like to think that the companies that we invest in are Rodney Dangerfields on their way to becoming Bob Hopes."
Lilly's top three small-cap picks were:
SunOpta, a natural- and organic-foods company that was selling off non-core assets.
Lilly said the company should see operating margins increase from 5 percent to 8 percent and shares climb from around $9 to $13 or $14.
SurModics, which makes coatings for medical devices, has a robust lineup of new products set for release.