One Small-Cap Stock to Buy for Any Market Condition

Boom or recession, this little stock is a great buy.

The Fed is prepared to lower interest rates for the first time in more than a decade. Cutting interest rates typically boosts stock prices, but it is also indicative of economic weakness. And it can lead to serious trouble for the stock market if inflation starts to rise.

As a result, there's plenty of debate over whether to be bullish or bearish on stocks right now.

But for us – and for you – it doesn't matter.

Because we've got a stock pick today that you can keep in your portfolio for years, riding the upswings and holding strong during the downswings.

That's because its products sell through multiple channels and remain in demand in any economy.

During the economic downturn following the 2008 financial crisis, for example, this company benefited from increasing its market share while its competitors lagged. It even launched a whole new product line in 2010 to take advantage of new buying trends, while other businesses were shying away from new ventures.

So even if the stock market loses its momentum, this pick would still be one of the rare “buys” out there. In fact, it could even come out stronger for it.

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If the rally continues, though, you can expect this stock to beat the rest of the market by a wide margin.

That's because nearly every metric suggests this pick is undervalued. By at least one calculation, its current share price is less than half its fair value.

No wonder our Money Morning Stock VQScore™ system just gave it a top score.

This is a stock you'll want to grab right away and hold onto for years to come…

Boom or Recession, This Small-Cap Stock Is a Great Buy

American Woodmark Corp. (NASDAQ: AMWD) is a leading manufacturer of cabinetry for kitchens and bathrooms. Its roots go back to 1951, when a dentist in Long Island began by making dental cabinets. His company eventually expanded to include wood cabinets for the home, and in 1980, a group of executives bought that division to form American Woodmark as we know it today.

And one of the best reasons to invest in this company is its vertical integration. It controls every stage of its production process from collecting the hardwood in the Appalachian region to delivering the cabinets for installation.

Perhaps most importantly, American Woodmark has a strong presence in both the new construction and remodeling channels. So when homebuying is up, it benefits from new installations. When homebuying lags, it benefits from remodels.

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During the Great Recession, American Woodmark had built up enough cash flow to launch a new brand, Waypoint Living Spaces. This line was geared toward the dealer channel, which is oriented toward remodeling rather than new construction.

The company's thinking was that Waypoint would let it capitalize on pent-up demand for remodeling once the economy started to improve.

It worked…

The dealer channel is now the largest channel in the industry, and American Woodmark has established itself as one of the top cabinet makers in North America, with more than $1.6 billion in annual sales.

That still leaves plenty of room for growth. According to the Home Improvement Institute, home improvement spending in the United States is expected to increase 5.5% to $420 billion in 2019.

That's while more than 1.2 million new single-family homes will likely be built in 2020 and 2021. So American Woodmark can expect to grow on both fronts.

As great as the long-term outlook is, the stock might be even better to own in the short term…

Now Is the Time to Buy AMWD

AMWD shares have rebounded from last year's market sell-off. They're up from $53.76 on Christmas Eve to about $84 right now. But in spite of a fantastic run over the last five years – up more than 160% – the stock is still down about 9% in the last 12 months.

But that doesn't reflect the company's performance in that time. Total net revenue growth for the fiscal year ending in April was 21%, with an outlook of 32% to 33% for this year. Earnings per share was up an outstanding 83%.

American Woodmark's cash flow is on the rise too. The company expects to close this fiscal year with a free cash flow of $135 million, up from $37 million. That will give it a lot of flexibility to expand and experiment in the next few years, as it did successfully during the last recession.

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