'Very, very attractive': Strategist names 2 under-the-radar U.S. small-cap names to play right now

Published Mon, Apr 1 20247:08 PM EDTUpdated Tue, Apr 2 20243:39 AM EDT

Amala Balakrishner @in/amala-balakrishner @_amalabk

Market strategist Matt Orton sees promise in small-cap stocks this year, naming two under-the-radar companies he is bullish on right now. "I have been optimistic around small-caps this year, and it looks like we could be on the verge of an even bigger breakout," Orton, who is the chief market strategist at asset management firm Raymond James Investment Management, told CNBC's " Squawk Box Asia " on April 1. "Small caps certainly deserve a position in investor portfolios ... Valuation differentials with large caps remain near historic levels and I think we can start to see earnings improve and truly inflect higher in 2H24," he added. Year-to-date, the Russell 2000 , the benchmark for small-cap stocks, has been up nearly 5.2% despite having a tough start to 2024. The index came close ending the first quarter at a two-year high following a nearly 30% rally off the October lows. Still, it is over 13% off its all-time high from 2021, Orton pointed out. Small-cap players in the U.S. stand out as "very, very attractive" right now, he said, naming Vertiv Holdings and CyberArk as two companies on his radar. Vertiv Holdings Vertiv Holdings — a provider of cooling equipment and power management products for data centers — was among Orton's top picks. Calling it a "really good performer," he expects the company to see a pick-up in demand as more chips generating higher amounts of heat enter the market. "There's a huge opportunity for increasing free cash flow. It's a high margin business. And so Vertiv, I think, will continue to benefit from that, and just gaining more and more scale because there aren't so many players in the market," Orton added. Shares in Vertiv are up nearly 471% in the last 12 months. The market strategist remains confident on the stock, noting that "just because it is up, doesn't mean you don't want to own it." Of the 13 analysts covering the stock, 12 give it a buy or overweight rating, while one has a hold rating, according to FactSet data. Analysts' average price target for the stock is $77.31, giving it around 5.3% potential downside. CyberArk The market strategist also has his eye on the cybersecurity space. Calling it an "under-looked" sector as a "huge consequence" of artificial intelligence, Orton believes there are many opportunities to be explored as cyber threats and attacks against corporates and governments surface as AI develops. His pick to play this theme is information security company CyberArk. "CyberArk [serves] a niche — they're focused on basically walled off parts of enterprises. So think of specific company data sets, their own cloud storages, industrial processes, a lot of those need specialized cybersecurity privileges and protections — and that's what CyberArk provides," he said. Other merits include "great earnings [and a] big opportunity for free cash flow expansion going forward," Orton added. Shares in Vertiv are up nearly 80% in the last 12 months. According to Factset data, of 32 analysts covering the stock, 30 have a buy or overweight rating, while two have hold ratings. Their average price target is $299.75, giving it 12.8% potential upside.