In this piece, we will take a look at the 13 most promising small-cap stocks according to analysts. If you want to skip our overview of small cap investing and the latest stock market news, then you can take a look at the 5 Most Promising Small-Cap Stocks To Buy.
Within the broader world of investing that sees thousands of stocks change hands daily on the market, several categories of stocks are suited for different macroeconomic climates. When trying to decide which equity security to pile money into, a prospective investor can position their portfolio for growth, stability, or regular income. This can be done through investing in high potential companies whose shares aren't too expensive in dollar terms, larger and well capitalized companies unlikely to bleed high percentage points in market value, or well footed companies that can afford to award their investors through juicy dividends.
When we talk about the former category, one set of stocks that always stand out are small cap stocks. These are firms whose market capitalization ranges between $300 million and $2 billion. As is generally the case, investing in small cap stocks comes with its own drawbacks and benefits. Starting from the latter, the benefits include a potential for a nice profit due to large share price appreciation. Small cap stocks are typically more affordable than their large or mega cap peers, which allows their investors to profit from potential share price appreciation. Additionally, these stocks often belong to relatively stable companies with established business models. This provides a buffer against significant share price depreciation.
On the other side, the drawbacks of small cap investing relate to the broader economy and the nature of the stocks and the firms themselves. Since small cap stocks have lower prices, their shares are more open to manipulation and pump and dump scams designed to lure unsuspecting investors to buy the shares. Additionally, small caps typically do not perform well in a slow economy as their more modest balance sheets provide them with inadequate buffers against prolonged periods of revenue drops and economic slowdowns.
Considering these factors, the fourth quarter of 2023 is quite important. The year is closing out on an optimistic note, which is quite stark when compared to the market sentiment a year back from now. At the close of 2022, there was only one thing that investors cared about and that was a recession. Following the Federal Reserve's rapid interest rate hikes to tame inflation, several analysts had generated worrying predictions of an economic slowdown based on the assumption that businesses and consumers would fail to maintain their spending and sales patterns.
However, 2023 came and went with no recession in sight. While this does not entirely rule out a downturn, it does lend confidence to America's economic strength. Additionally, inflation is also markedly down, with the latest data for November showing that inflation in the U.S. stood at 3.1%. Similarly, as the holiday season was about to settle in, the Commerce Department was out with a great set of numbers for investors. Its data release for the personal consumption expenditures price index (CPE) showed that core and non core PCE grew by 3.2% and 2.6% respectively in November. This marked the first time in more than three years that the non core PCE fell annually, Similarly, while the core PCE jumped by 0.1%, its 3.2% was the lowest in more than two years. Combined, these figures provide more credence to a belief that the Federal Reserve will start reducing rates soon, with some quarters penciling in an interest rate cut during March 2024.
So how does this bode for small cap stocks? Well, small caps tend to thrive the most when the economy is growing as they belong to smaller companies with singificant growth potential. However, if the economy is slowing, the money flows out of them since investors either seek the stability of mega caps or safe haven assets such as the U.S. dollar and gold.
With these risks in mind, let's take a look at some promising small cap stocks according to analysts. The notable names are Amarin Corporation plc (NASDAQ:AMRN), Senseonics Holdings, Inc. (NYSE:SENS), and Cassava Sciences, Inc. (NASDAQ:SAVA).
13 Most Promising Small-Cap Stocks According to Analysts
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Our Methodology
To make our list of the most promising small cap stocks, we ranked all small cap stocks with their average analyst share price percentage upside and picked out the best stocks. For these stocks we have also mentioned hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
13 Most Promising Small-Cap Stocks According to Analysts
MultiPlan Corporation (NYSE:MPLN) is an American technology company that enables healthcare firms to manage their financial operations. Its third quarter earnings saw MultiPlan Corporation (NYSE:MPLN)'s revenue drop annually and net income turn into a loss as the firm cited future investments driving down its bottom line profit.
As of Q3 2023 end, 17 out of the 910 hedge funds covered by Insider Monkey's research had held a stake in MultiPlan Corporation (NYSE:MPLN). It joins Senseonics Holdings, Inc. (NYSE:SENS), Amarin Corporation plc (NASDAQ:AMRN), and Cassava Sciences, Inc. (NASDAQ:SAVA) in our list of the most promising small cap stocks accoring to analysts.
Johnson Outdoors Inc. (NASDAQ:JOUT) is a recreational products company that serves the needs of campers, fishing enthusiasts, and others. The firm has faced one difficulty after another over the past couple of years, with its latest fiscal year report marking a 11% revenue drop amidst a tough consumer environment marred by high inflation.
By the end of September 2023, 11 out of the 910 hedge funds part of Insider Monkey's database were the firm's investors. Scott Wallace's Wallace Capital Management was Johnson Outdoors Inc. (NASDAQ:JOUT)'s biggest shareholder as it owned a $15.8 million stake.
Nabors Industries Ltd. (NYSE:NBR) is a mid sized oil and gas exploration and production company. Its shares are rated Buy on average and analysts have set an average share price target of $128.60.b
During this year's third quarter, 21 out of the 910 hedge funds profiled by Insider Monkey had bought Nabors Industries Ltd. (NYSE:NBR)'s shares. Jeffrey Gendell's Tontine Asset Management owned the largest stake courtesy of its $47.3 million investment.
Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) is an American biopharmaceutical company that develops treatments for pneumonia, leukemia, and other diseases. December 2023 was an important month for the firm's shares as it shared its long term sales and revenue growth outlook through which Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) expects to grow its recurring revenue at a compounded annual growth rate (CAGR) of 16% for the next five years.
Insider Monkey took a look at 910 hedge fund SEC filings for 2023's September quarter and found that 15 were the firm's investors. Ligand Pharmaceuticals Incorporated (NASDAQ:LGND)'s biggest hedge fund shareholder in our database is Amy Minella's Cardinal Capital as it owns a $12.3 million stake.
RCI Hospitality Holdings, Inc. (NASDAQ:RICK) is an American company that operates night clubs, cabaret clubs, and other hospitality establishments. A tightening consumer environment characterized by high inflation and interest rates led to a substantial 65% annual net income drop during its previous fiscal year.
As of September 2023 end, 11 hedge funds among the 910 that were tracked by Insider Monkey had bought RCI Hospitality Holdings, Inc. (NASDAQ:RICK)'s shares. Adam Wyden's ADW Capital was the firm's largest investor due to its $57 million investment.
Zhihu Inc. (NYSE:ZH) is a Chinese technology company that offers a diversified connectivity platform that caters to several different needs and requirements of its users. There has been little analyst action surrounding the stock in 2023, but the average share price target of nine analysts polled by Yahoo Finance is $1.68. the firm has also met or beaten analyst EPS estimates in all four of its latest quarters.
Insider Monkey's third quarter of 2023 survey covering 910 hedge funds revealed that eight had invested in the company. Zhihu Inc. (NYSE:ZH)'s biggest hedge fund shareholder is Jonathan Guo's Yiheng Capital as it owns $3.7 million worth of shares.
Latest Average Analyst Share Price Target: $100.26
Latest Share Price Percentage Upside: 85.70%
Precision Drilling Corporation (NYSE:PDS) is a backend oil and gas company that provides drilling services to petroleum producers. The firm expanded its drilling rig fleet in November 2023 by buying a peer firm for a $127 million price tag.
By the end of this year's third quarter, 17 out of the 910 hedge funds covered by Insider Monkey's research were Precision Drilling Corporation (NYSE:PDS)'s shareholders. Out of these, the largest investor was Todd J. Kantor's Encompass Capital Advisors due to its $38.4 million investment.
Waterdrop Inc. (NYSE:WDH) is a Chinese insurance brokerage company headquartered in Beijing, China. Its shares are rated Buy on average and the latest such ranking came from Goldman Sachs in September 2023.
During Q3 2023, just two out of the 910 hedge funds tracked by Insider Monkey had bought the company's stock. Waterdrop Inc. (NYSE:WDH)'s biggest investor in our database is Paul Marshall and Ian Wace's Marshall Wace LLP since it holds a $239,955 stake.
Amarin Corporation plc (NASDAQ:AMRN), Waterdrop Inc. (NYSE:WDH), Senseonics Holdings, Inc. (NYSE:SENS), and Cassava Sciences, Inc. (NASDAQ:SAVA) are some promising small cap stocks according to analysts.
