Executive Summary

This case study examines three undiscovered US small-cap stocks identified by Simply Wall St as presenting compelling value opportunities for investors. We analyze their fundamentals, growth trajectories, and relevance to Singapore-based investors seeking international diversification in 2026.

Case Study: Three Undiscovered Gems

1. John Marshall Bancorp (JMSB) – Community Banking Excellence

Company Profile: John Marshall Bancorp operates as a regional bank holding company serving the mid-Atlantic United States market through John Marshall Bank. With $2.3 billion in total assets and a focused community banking model, the company has carved out a niche in personalized financial services.

Financial Performance:

• Market Capitalization: $283 million
• Total Assets: $2.3 billion
• Equity Base: $259.7 million
• Revenue: $59.27 million
• Earnings Growth: 19.2% (significantly outpacing industry averages)
• P/E Ratio: 14.1x (vs. market average of 19x)

Key Strengths: The bank demonstrates exceptional risk management with a 188% allowance for bad loans, covering its minimal 0.5% non-performing loan ratio with substantial buffer. The funding structure is particularly robust, with 95% derived from stable customer deposits rather than volatile wholesale funding sources. This conservative approach to lending and funding provides downside protection while the attractive valuation offers upside potential.

Risk Factors: Regional concentration exposes JMSB to local economic conditions. As a small-cap bank, it faces regulatory compliance costs that represent a larger proportion of revenue compared to major institutions. Interest rate sensitivity remains a concern as the Federal Reserve’s monetary policy evolves.

2. Timberland Bancorp (TSBK) – Washington State Banking Opportunity

Company Profile: Timberland Bancorp serves communities throughout Washington state, offering traditional banking services with a focus on relationship-driven customer service. The company has built a reputation for conservative lending practices and community involvement.

Financial Performance:

• Market Capitalization: $282 million
• Total Assets: $2 billion
• Equity: $262.6 million
• Revenue: $81.62 million
• Total Deposits: $1.7 billion
• Total Loans: $1.5 billion
• Net Interest Margin: 3.8%
• Earnings Growth: 20% (above industry benchmark)

Key Strengths: Trading at 41% below estimated fair value suggests significant upside potential. The bank’s 411% allowance for bad loans against only 0.3% non-performing loans indicates extremely conservative underwriting standards. Management confidence is evidenced by the recent share repurchase program, typically a positive signal when insiders believe shares are undervalued.

Risk Factors: Geographic concentration in Washington state creates dependency on the Pacific Northwest economy. The loan-to-deposit ratio of 88% leaves some liquidity cushion but limits near-term growth without additional deposit gathering. Competition from larger regional banks remains intense.

3. Calavo Growers (CVGW) – Fresh Produce Distribution Leader

Company Profile: Calavo Growers operates in the perishable foods sector, specializing in avocado marketing and distribution alongside other fresh produce. The company serves both retail grocery chains and foodservice customers globally, providing a critical link in the fresh food supply chain.

Financial Performance:

• Market Capitalization: $378 million
• Fresh Segment Revenue: $624.93 million
• Prepared Segment Revenue: $68.78 million
• Earnings Growth: 192.8% (versus industry average of 2.8%)
• Debt Position: Zero (down from 9.1% debt-to-equity ratio five years ago)
• Valuation Gap: Trading 53.3% below estimated fair value

Key Strengths: The transformation from a leveraged to debt-free capital structure demonstrates exceptional financial discipline and operational improvement. Explosive earnings growth of nearly 193% reflects successful turnaround execution. New CEO B. John Lindeman brings proven leadership experience from Hydrofarm Holdings Group, suggesting continued strategic focus. The valuation disconnect presents a compelling entry point for patient investors.

Risk Factors: Agricultural commodity exposure creates volatility from weather patterns, crop yields, and pricing fluctuations. Supply chain disruptions can impact margins significantly. Consumer demand for avocados, while currently strong, faces potential saturation. Perishability of products requires sophisticated logistics and inventory management.

Market Outlook for 2026

Macroeconomic Context

The US market enters 2026 following a year of strong gains across major indices. However, several factors will influence small-cap performance:

Interest Rate Environment: While the Federal Reserve has signaled a more accommodative stance, rates remain elevated compared to the 2010s. This creates both challenges and opportunities for small-cap companies. Higher rates increase borrowing costs but also benefit banks’ net interest margins.

Small-Cap Premium: Historically, small-cap stocks have outperformed large-caps over extended periods, offering a “size premium” to compensate for additional risk. Current valuations suggest this premium may be expanding, with many quality small-caps trading at significant discounts to intrinsic value.

Economic Resilience: The US economy has demonstrated surprising resilience despite monetary tightening. Consumer spending remains robust, employment stays strong, and recession fears have receded. This environment generally favors small-cap companies with domestic focus.

Sector-Specific Outlook

Regional Banking: Community banks face a critical juncture. Those with conservative underwriting, strong capital positions, and relationship-driven models should thrive. The key differentiator will be deposit stability—banks funded primarily by customer deposits rather than brokered or wholesale sources will outperform. Both JMSB and TSBK fit this profile.

Consolidation trends may accelerate, with well-run community banks becoming acquisition targets for larger regionals seeking market expansion. This creates potential upside through M&A premiums.

Agriculture & Food Distribution: Global population growth and rising middle-class consumption in emerging markets support long-term demand for fresh produce. Supply chain efficiency gains and vertical integration provide competitive advantages. Companies like Calavo that control distribution networks and maintain direct grower relationships should capture value.

Climate change and sustainability concerns are reshaping the sector. Companies demonstrating environmental stewardship and sustainable sourcing practices may command premium valuations.

Investment Solutions & Strategies

Portfolio Construction Approach

1. Diversification Strategy Rather than concentrating in a single undiscovered gem, investors should consider building a basket approach. Allocating across multiple small-cap value stocks reduces company-specific risk while maintaining exposure to the overall opportunity set.

Suggested Allocation Framework:

• Regional Banks (40%): Split between JMSB and TSBK for geographic diversification
• Food & Agriculture (30%): CVGW as core holding
• Other Undiscovered Gems (30%): Additional positions from the broader 301-stock screener

2. Value Investing Discipline These stocks share common characteristics that value investors seek:

• Trading below intrinsic value estimates
• Strong balance sheets with manageable debt
• Positive earnings momentum
• Quality management teams
• Sustainable competitive advantages

Investors should establish position sizes based on conviction level and risk tolerance, typically ranging from 2-5% of portfolio value per holding.

3. Risk Management Framework

Position Sizing: Limit individual small-cap positions to no more than 5% of total portfolio value. The illiquidity and volatility of small-caps necessitate prudent sizing.

Stop-Loss Discipline: Consider implementing 15-20% stop-loss levels to protect against deteriorating fundamentals or broader market selloffs.

Rebalancing Protocol: Review positions quarterly, trimming winners that exceed target allocation and adding to positions trading below purchase price if fundamentals remain intact.

4. Time Horizon Considerations

Small-cap value investing requires patience. The market may take 2-4 years to recognize undervaluation and close pricing gaps. Investors should:

• Commit capital for minimum 3-5 year holding periods
• Expect volatility and temporary drawdowns
• Focus on business fundamentals rather than daily price movements
• Harvest tax losses strategically while maintaining exposure

5. Due Diligence Checklist

Before investing in any undiscovered gem:

• Read recent 10-K and 10-Q filings
• Listen to earnings call transcripts
• Understand competitive positioning
• Assess management quality and capital allocation track record
• Verify analyst assumptions about fair value
• Consider worst-case scenarios and stress test assumptions

Singapore Impact & Considerations

Currency Considerations

USD/SGD Dynamics: Singapore-based investors face currency risk when investing in US equities. The Singapore dollar has historically traded in a range against the US dollar, with periodic strengthening and weakening cycles.

Hedging Strategies:

• Natural Hedge: For investors with US dollar liabilities (education expenses, overseas property), unhedged exposure may be appropriate
• Partial Hedging: Consider hedging 50% of US equity exposure to balance currency risk and cost
• Strategic Timing: Deploy capital during periods of SGD strength for better entry points

Impact on Returns: A 5% move in USD/SGD can materially impact returns. For example:

• Stock gains 20% + USD appreciates 5% = 25% total return in SGD terms
• Stock gains 20% + USD depreciates 5% = 15% total return in SGD terms

Regulatory & Tax Framework

Singapore Tax Treatment: Singapore operates a territorial tax system with several implications:

Capital Gains: Not taxed in Singapore for individual investors, making US small-cap appreciation particularly attractive from a tax efficiency standpoint.

Dividend Income:

• US withholding tax: 30% (reduced to 15% under US-Singapore tax treaty for qualifying individuals)
• No additional Singapore tax on foreign-sourced dividends for individuals
• Net effective tax rate: 15% on US dividends

Estate Tax Considerations: US estate tax applies to non-US persons holding US securities exceeding $60,000 at death. Singapore investors with substantial US holdings should consult estate planning professionals.

Reporting Requirements:

• FATCA compliance through Singapore financial institutions
• CPF funds cannot directly invest in individual foreign stocks
• SRS (Supplementary Retirement Scheme) funds can invest in US stocks through approved platforms

Access & Implementation for Singapore Investors

Brokerage Platforms: Several Singapore-based platforms provide access to US small-cap stocks:

1. Interactive Brokers: Direct access to US markets, competitive commissions, professional-grade platform
2. Tiger Brokers: User-friendly interface, lower minimum deposits, suitable for retail investors
3. Moomoo: Commission-free trading on US stocks, advanced charting tools
4. Saxo Markets: Comprehensive research, multiple asset classes
5. Local Banks (DBS, OCBC, UOB): Higher commissions but integrated with existing banking relationships

Trading Considerations:

• Time zone differences: US markets operate 9:30pm-4:00am SGT (standard time) or 10:30pm-5:00am SGT (daylight saving)
• Small-cap stocks may have wider bid-ask spreads and lower liquidity
• Consider limit orders rather than market orders for better execution

Portfolio Context for Singapore Investors

Strategic Asset Allocation: US small-cap value stocks should complement, not replace, core holdings:

Typical Singapore Investor Portfolio:

• Singapore Equities (STI, blue chips): 30-40%
• Regional Asian Equities: 20-25%
• US Large-Cap Equities (S&P 500): 15-20%
• US Small-Cap Value (Undiscovered Gems): 5-10%
• Bonds/Fixed Income: 15-20%
• REITs: 5-10%
• Cash/Alternatives: 5-10%

Rationale for Inclusion:

• Diversification: Low correlation with Singapore market reduces overall portfolio volatility
• Growth Potential: Access to US economic dynamism and innovation
• Value Tilt: Complements growth-oriented portfolios with value exposure
• Currency Diversification: Reduces concentration in SGD-denominated assets

Comparative Analysis: Singapore vs. US Small-Caps

Singapore Small-Cap Characteristics:

• Higher dividend yields (often 4-6%)
• Lower volatility
• Regulatory stability
• Limited institutional coverage
• Language and cultural familiarity

US Small-Cap Characteristics:

• Higher growth potential
• Larger addressable markets
• Greater liquidity
• More sophisticated disclosure requirements
• Innovation and technology exposure

Singapore investors can optimize by holding both markets, leveraging Singapore small-caps for income and stability while using US small-caps for growth and international diversification.

Risk Considerations Specific to Singapore Investors

1. Information Asymmetry: Distance from US markets creates challenges in gathering local intelligence about small-cap companies. Regional banks like JMSB and TSBK operate in specific geographic markets that Singapore investors may not fully understand.

Mitigation: Focus on companies with transparent reporting, active investor relations, and coverage by reputable research platforms like Simply Wall St.

2. Liquidity Risk: Exiting positions during Singapore trading hours may be difficult as US markets are closed. Emergency liquidations could require waiting 12+ hours.

Mitigation: Maintain adequate portfolio liquidity in local holdings, avoid over-concentration in small-caps.

3. Geopolitical Considerations: US-China tensions, trade policies, and regulatory changes can impact cross-border investments unpredictably.

Mitigation: Diversify across multiple jurisdictions, monitor geopolitical developments, maintain flexible positioning.

4. Technology and Platform Risk: Reliance on online brokerage platforms exposes investors to potential technical failures, cyber risks, or platform insolvency.

Mitigation: Use established brokers with regulatory oversight, maintain records of transactions, consider SIPC insurance coverage (protects up to $500,000 for US securities).

Actionable Recommendations

For Conservative Singapore Investors:

1. Allocate 3-5% of equity portfolio to US small-cap value
2. Focus on Timberland Bancorp (TSBK) given strongest balance sheet metrics
3. Implement 50% currency hedge
4. Use DBS Vickers or OCBC Securities for integrated banking
5. Plan for 5-year minimum holding period

For Moderate-Risk Singapore Investors:

1. Allocate 5-8% of equity portfolio across all three companies
2. Equal-weight JMSB, TSBK, and CVGW (approximately 2.5% each)
3. Natural currency exposure (no hedge)
4. Use Interactive Brokers for cost efficiency
5. Rebalance annually, trimming winners above 4% position size

For Aggressive/Sophisticated Singapore Investors:

1. Allocate 10%+ to US small-cap value strategy
2. Build diversified portfolio from broader 301-stock screener
3. Consider modest leverage (up to 1.3x) through margin
4. Actively trade around core positions
5. Implement options strategies for income generation
6. Use multiple brokers for redundancy and comparison

Conclusion

The three undiscovered gems highlighted present compelling opportunities for value-oriented investors willing to accept small-cap volatility and exercise patience. John Marshall Bancorp and Timberland Bancorp offer stable, well-managed banking franchises trading at attractive valuations with strong risk management. Calavo Growers provides exposure to growing food distribution markets with impressive turnaround momentum.

For Singapore-based investors, these stocks represent an effective way to diversify internationally, access US market opportunities, and potentially enhance long-term returns. Success requires understanding currency dynamics, using appropriate platforms, maintaining proper position sizing, and committing to multi-year holding periods.

The disconnect between current market prices and estimated fair values won’t persist indefinitely. As these companies continue executing their strategies, deliver consistent earnings growth, and attract broader market attention, the valuation gaps should narrow, rewarding patient investors who recognized the opportunity early.

Final Thought: Undiscovered gems remain undiscovered only temporarily. The goal is to identify them before the crowd, accumulate positions at attractive prices, and benefit as the market eventually recognizes their true worth. With disciplined research, appropriate risk management, and strategic positioning, Singapore investors can successfully navigate US small-cap opportunities while building truly diversified, global portfolios.