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Hodges: Buy small caps to ride out global woes

The turbulence in the market could be mitigated by investing in small-cap stocks, which derive most of their sales domestically and are candidates for mergers and acquisitions, money manager Craig Hodges told CNBC on Thursday.

"Most small caps have less direct exposure to global geopolitical uncertainly and rely more on well-calculated business decisions and ingenuity," said the CEO of Hodges Capital Management. "We expect merger activity to continue in the second half of 2016 as larger companies seek to grow by acquiring smaller businesses that can complement or expand their addressable markets."

Within the small-cap space, Hodges is bullish on financials, consumer discretionary, technology and industrial names. By contrast, defensive plays like utilities and telecom stocks are less appealing due to the recent runup.

Hodges' also revealed his favorite stock picks during the "Squawk Box" segment. The replay is available here exclusively for PRO subscribers.