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Check out these small-cap plays: Fund manager

Small-cap stocks are offering some nice opportunities, a fund manager with Hodges Capital Management told CNBC on Thursday.

"We don't see the market as being inexpensive here, but we don't see it as being overly expensive either," Eric Marshall, who co-manages Hodges' small-cap fund, said on "Power Lunch." "So you really have to look at areas of the market that are either overlooked or misunderstood."

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Marshall, whose fund is five-star rated by Morningstar, told CNBC's "Power Lunch" that small caps are less exposed to currency volatility than larger multinationals.

LED play

Light-emitting diodes (LEDs) at a Cree facility in Durham, North Carolina.
Jim R. Bounds | Bloomberg | Getty Images
Light-emitting diodes (LEDs) at a Cree facility in Durham, North Carolina.

The stock of Cree, an LED maker, has gone down almost 40 percent over the past 12 months. Marshall said the company suffered from overcapacity in the LED industry especially with subsidies coming out of China.

"Now that demand is starting to work through a lot of that capacity, and we don't see those subsidies out there anymore, we think eventually the market will become more rational," he said. "Cree is going to be very well-positioned as a leader in LED lighting."

'misunderstood player'

Trinity Industries is a "misunderstood player in the rail car manufacturing business" said Marshall. Shares have gone down about 8 percent over the past 12 months, which is less than 10 times its earning guidance for the year.

It's not understood because the company is seen as being heavily tied to crude oil, he said. The fund manager attributes the stock pullback to some of the uncertainty regarding new government regulations for rail transportation.

"We feel really good about the business long term and we like the nontank car part of their business which is starting to pick up."

Retail pick

Shoe Carnival, a family footwear retailer, is what Marshall calls a "niche growth story in the family shoe channel."

"This is a specialty retail concept that we believe can achieve above-average growth in a challenging consumer environment and has the ability to fund this growth through internal cash flow."

Disclosure: Eric Marshall personally owns Cree, Trinity Industries and Shoe Carnival either directly or indirectly through the fund he manages. Hodges Capital Management owns all of these stocks either directly or indirectly through its mutual funds.

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