Here are buying opportunities in small caps: Pro

The Russell 2000 may be down more than 5 percent over the last six months, hitting the so-called death cross on Monday, but one market pro says there are still buying opportunities to be found in small-cap stocks.

A death cross, which occurs when a stock or index's 50-day moving average trendline dips below its 200-day moving average, is viewed as a bearish indicator by technicians.

"We would take advantage of weakness to buy the high-conviction names that really present the most value in this market," Eric Marshall, co-portfolio manager of Hodges Small Cap Fund, said in an interview Tuesday with CNBC's "Street Signs."

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He likes three names that are all down this quarter: Kapstone Paper, Lithia Motors and Horizon Pharmaceutical.

Traders on the floor of the New York Stock Exchange.
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Traders on the floor of the New York Stock Exchange.

Kapstone Paper, a containerboard company, is "uniquely positioned" in an industry that is dominated by large players and is trading at 12 times earnings, he said.

Lithia Motors was down Tuesday in sympathy with CarMax, Marshall noted, but he said the prospects for the business look "very good." It trades about 13 times earnings, he added.

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Marshall also said Horizon Pharmaceutical's core business is "really underappreciated" by Wall Street. The bio-pharma company is growing earnings rapidly, he said, and the stock trading at a "reasonable" multiple relative to that growth.

However, Doug Sandler, founder and chief equity strategist at Riverfront Investment Group, has been negative in the small-cap space.

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"If you are going to play in the small- and mid-cap waters, you are going to be swimming against a pretty strong tide," he warned.

That said, Sandler does have a few mid-cap stocks he likes: LKQ, which provides collision replacement parts for cars, and retailer Urban Outfitters, which he said delivers fashion at reasonable prices.

Disclosures: Marshall owns Kapstone Paper, Horizon Pharmaceutical and Lithia Motors in the Hodges funds. Riverfront Investment Group owns LKQ and Urban Outfitters.