Value investor: Buy small caps after 6% pullback

Published Tue, Aug 18 20156:00 AM EDT

Craig Hodges, one of the 14 members of the "Squawk Box" Platinum Portfolio , shared his favorite areas of the market within the small-cap space following the recent pullback. After leading the market for most of the year, the Russell 2000 index is down nearly 6 percent from a record high reached in June. But as the small-cap index comes off its high, Hodges is using the drop as a buying opportunity in certain sectors. Source: FactSet "We like industries with high barriers to entry such as cement, airlines, energy, home builders, autos and consumer goods," said Hodges. Many of those picks will be helped by a potential $350-billion highway bill , a proposed six-year project that would repair the nation's roads and bridges. The chief executive officer of Hodges Capital Management, which focuses on small-cap value names, also recommends investors get behind companies with direct exposure to consumer spending. Read More Street: Housing stocks are best bet from here "We believe the U.S. consumer will continue to improve with low unemployment and lower energy costs," said Hodges, explaining that both factors are key drivers of consumer confidence, and therefore spending. The latest reading from the U.S. Bureau Labor of Statistics showed the unemployment rate stood at 5.3 percent, the lowest level since 2008. Similarly, WTI crude oil prices tumbled 57 percent in the past year, trading near a 6.5-year low. Another catalyst for small-cap companies is the surge in the U.S. dollar, which historically these names as they derive most of their sales from domestic operations. Small caps will also continue to benefit from an up-tick in mergers and acquisitions, Hodges predicts. The investor, whose mutual fund is up 2.7 percent this year compared with a return of 1.7 percent for the Russell 2000, owns names such as Matador Resources , Trinity Industries and American Airlines for the "Squawk Box" portfolio competition. CNBC Pro subscribers can access the top picks from all the contributors by clicking here .

Craig Hodges

Daniel Acker | Bloomberg | Getty Images

Craig Hodges, one of the 14 members of the "Squawk Box" Platinum Portfolio, shared his favorite areas of the market within the small-cap space following the recent pullback.

After leading the market for most of the year, the Russell 2000 index is down nearly 6 percent from a record high reached in June.

But as the small-cap index comes off its high, Hodges is using the drop as a buying opportunity in certain sectors.