Wall Street's focus on large-cap stocks creates plenty of opportunity for investors who are willing to fish in small-cap land. So which little-known companies do we Fools think are top buys right now?
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We asked a team of investors to weigh in, and they picked Brookfield Renewable Partners (NYSE: BEP), Tanger Factory Outlet Centers (NYSE: SKT), and Halozyme Therapeutics (NASDAQ: HALO).
A soon-to-be Dividend Aristocrat
Leo Sun (Tanger Factory Outlets): Tanger Factory Outlets lost nearly 30% of its market value over the past year, due to ongoing fears about e-tailers crushing brick-and-mortar stores. But Tanger isn't a retailer -- rather, it's a property owner and landlord that focuses on the well-protected niche of outlet centers.
Tanger owns 44 outlet shopping centers in the U.S. and Canada. As a retail real estate investment trust (REIT), Tanger is required to distribute most of its taxable income as dividends. It pays a forward dividend yield of 5.3%, and it's hiked that payout annually for 24 straight years -- one year shy of becoming a Dividend Aristocrat.
Tanger's strength is measured in its occupancy rate, which hit 96.9% last quarter, up from 96.1% in the previous quarter. For the full year, Tanger recently raised its year-end occupancy guidance from 96% to 96.5%-97%.
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Those occupancy rates are impressive compared to similar companies like Brixmor Property Group (NYSE: BRX), which owns large shopping centers instead of outlets. Brixmor reported an occupancy rate of just 91.6% last quarter. Tanger also increased its blended rental rate by 15.4% annually on renewed or retenanted leases over the past 12 months, indicating that it can charge higher rents while maintaining solid occupancy rates.
Analysts expect Tanger's revenue to rise 4% this year, but for its profit to drop 62% on higher expansion and remerchandising costs. But its earnings should rebound sharply over the next few years as those investments pay off.
An overlooked renewable energy dividend
Travis Hoium (Brookfield Renewable Partners): Slow and steady stocks don't seem to get a lot of attention from Wall Street, which currently favors growth and tech over boring dividend stocks. But overlooking a company like Brookfield Renewable Partners (NYSE: BEP) -- with its 5.4% dividend yield and consistent cash flows from renewable energy assets -- is a mistake.
Eighty-five percent of Brookfield Renewable Partners' assets are hydroelectric power plants that sell power to utilities in Europe, Brazil, and North America. They deliver consistent cash flows and don't have and fuel-cost risk like fossil fuels. In addition, the company owns some wind assets, an area where we'll likely see more growth in the future.
While the company is similar to other yieldcos on the market today from an operational perspective, it only plans to grow its dividend 5% to 9% annually, lower than a 12% to 15% target for most yieldcos. That's because it uses excess cash flow to buy new assets and grow organically. You can see below that the strategy has led to total returns of nearly 400% over the past decade.
The market is turning to renewable energy instead of fossil fuels, and companies with the capital to buy assets will be well-positioned for long-term growth. That's why Brookfield Renewable Partners is performing so strongly, and I think the momentum will continue.
Big pharma's best friend
Brian Feroldi (Halozyme Therapeutics): Halozyme Therapeutics is a small-cap biotech that doesn't get a lot of coverage on Wall Street, but I find it fascinating.
The bull case for owning Halozyme centers around the company's two-prong growth strategy. First, Halozyme partners with big pharma companies to help them make their drugs work better. Halozyme does so by applying its ENHANZE technology to the drugs, which enable some medicines to be delivered via a subcutaneous injection instead of an infusion. This works because Halozyme's ENHANZE technology allows other drugs to be absorbed more easily. Halozyme has already earned hundreds of millions of dollars in payments from its partners like Roche, Johnson & Johnson, and Bristol-Myers Squibb.
Second, Halozyme has a compound in late-stage development called PEGPH20 that holds promise as a treatment for pancreatic cancer. In a phase 2 study, adding PEGPH20 to Celgene's Abraxane and Gemzar regimen almost doubled progression-free survival rates in certain patients. If PEGPH20 ultimately wins the green light from regulators, it could become a blockbuster drug.
In total, Halozyme offers investors a lucrative royalty business with PEGPH20 as a growth kicker. That's a compelling combination that makes Halozyme worthy of a closer look.
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Brian Feroldi has no position in any of the stocks mentioned. Leo Sun owns shares of JNJ and Tanger Factory Outlet Centers. Travis Hoium owns shares of JNJ. The Motley Fool owns shares of and recommends JNJ. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.