Small-cap stocks are those with a market capitalization between $300 million and $2 billion. Even some of the best stocks to buy in the past half-decade started as small-cap stocks — including giants like Amazon and Tesla. While long-term investment in small-cap stocks can prove very fruitful due to their growth potential, it is not without risks.
Since 2000, small-cap stocks have outperformed large-cap stocks. But then again small-cap stock price tends to be more volatile and fluctuate more dramatically. Given that small-cap stocks are usually in their growth phase and often unprofitable, they suffer more in market downturns. On the other hand, these stocks outperform bull markets and yield good profits.
Thus, to help you capitalize on the current market downturn and prepare your portfolio for the end of the bear market, we have compiled a list of the five best small-cap stocks to invest in for the long term.
To begin our list, the first stock we have is CarParts.com (PRTS). Previously known as U.S. Auto Parts, CarParts.com is an online auto parts seller. After streamlining its business, its sales surged during the pandemic and are still delivering double-digit growth in e-commerce. The company’s latest quarter’s top-line growth was 12% at $176.2 million in sales. The company is now targeting revenue growth of 20-25% and adjusted EBITDA growth of 8-10% over the long term. This further confirms the stock’s potential than being just a pandemic play.
CarParts.com is rapidly expanding its distribution network and recently completed the expansion of its Texas warehouse — while opening a new warehouse in Florida. CarParts.com is, therefore, now giving even brick-and-mortar retailers a run for their money as it can now ship to 99% of the U.S. within two days. The online retailer is able to ship to 55% of the country in just one day. The company is also expanding its business line with its new do-it-for-me business. This allows customers to connect with a mechanic through CarParts.com along with ordering parts to do the job.
Moreover, the company has a solid inventory strategy. It has beefed up its inventory to absorb any supply chain shocks with an estimated $40 million in extra inventory. Making the stock even more promising is the fact that it is trading at just 0.66 times its sales. This combined with its improving profitability makes it one of the best small-cap stocks to buy right now for the long term.
ACM Research (ACMR)
Up next in our list of small-cap stocks for long-term investment is a player in the semiconductor industry, ACM Research (ACMR). This company manufactures cleaning equipment for semiconductor wafers. Thus, being a “picks-and-shovels” play in the semiconductor industry, ACM Research provides the rare opportunity of exposure to a high-growth industry without exposure to the risk of declining prices of the commodity chip.
Another plus for investing in the stock is relatively safe exposure to the Chinese market. ACM is an American company with most of its business in China. But there’s no need to be wary of its high exposure to China as the company has continued globalization efforts. The company is progressing well with selling its products to non-China territories.
ACM also has a very strong financial profile as the company has been able to grow its net income by 51% in the last five years. This is a mammoth growth compared to the industry average of just 24% over the same period. Furthermore, the company’s latest quarter sales grew by 50% to $104.4 million. Consensus estimates place sales growth at 46% for this year and another 30.5% for 2023.
All in all, ACM Research is a rare small-cap stock that offers both high growth potential and solid profitability. And being down 41% year-to-date, it is the best small-cap stock to invest in right now and hold on to.
Celestica Inc. (CLS)
Moving on, the next small-cap stock on our list is Celestica Inc. (CLS). Celestica is a leader in the design, manufacturing, and supply-chain solutions for the world’s most innovative companies. Based in Canada, Celestica provides hardware platform and supply chain solutions in North America, Europe, and Asia. It offers end-to-end product lifecycle solutions to various industries and its diverse client portfolio provides unique growth potential on top of financial safety.
Its two core segments are cloud connectivity and advanced technology solutions. Both the segments delivered double-digit sales growth in the second quarter. The overall quarterly sales grew by 21% to $1.42 billion. Subsequently, the company bumped its full-year guidance by $200 million to $6.7 billion for 2022. What’s more, the company wrapped up the quarter with a healthy adjusted return on invested capital of 16.2%. Celestica also boasts a strong cash position of $365 million with $286 million in debt.
Given the continued traction that its lifecycle solutions portfolio has been gaining traction over the years with margin and top-line growth, Celestica’s share price gains are most certainly going to be huge. This is surely a small-cap stock in the technology sector worth having in one’s investment portfolio for the long term. Celestica Inc.’s profile suggests it to be a small-cap growth stock with multibagger potential.
FutureFuel Corp. (FF)
Up next on our list is a chemical and biofuel company, FutureFuel Corp. (FF) which is based in the U.S. FutureFuel was originally established to acquire biofuel and fuel companies. However, in 2006, the company transitioned and now produces chemicals and biofuels through its acquired production facilities. Hence, it now manufactures and sells performance chemicals, bio-based fuels, and fine chemical products in the U.S.
The company’s chemical business which makes up around 50% of its revenue stream has been showing green shoots. But its biofuel business has been hurt by higher feedstock prices, which resulted in the company registering a loss from a profit last year. As per the latest financial results, FutureFuel had a net loss of $3.1 million against the year-ago profit of $3.5 million. On the brighter side, it did improve sales by 59% year-over-year to $117.8 million in the quarter.
On top of its nice growth trajectory despite some bumps on the road, the stock offers an attractive dividend yield of 3.15%. If that’s not enough to pique your interest, the stock is currently trading at just 0.91 times sales. Thus, at a price of just a little above $7, FutureFuel is surely a great small-cap stock full of potential to have in your portfolio for the long term.
CI&T Inc. (CINT)
Finally, the last small-cap stock on our list for today is a Brazilian strategy, design, and software engineering provider, CI&T Inc. (CINT). CI&T is a digital information technology leader in the Americas. The company develops customizable software through software solutions like machine learning, artificial intelligence, analytics, and cloud & mobility technologies. This company has been enabling the digital transformation of enterprises across the globe since 1995.
CI&T has been continuously striving for excellence and expanding its business. To enhance its growth in Australia and the Asia-Pacific region, the company is in the process of acquiring Transpire Pty Ltd. Transpire is an award-winning Australian technology consultancy that has partnered with some of the most innovative organizations like Vodafone, Virgin Australia, etc. This deal comes just a couple of months after CI&T acquired Box 1824, hybrid research, consultancy, business strategy, and future hub in Sao Paulo.
Another reason for CI&T being an attractive buy right now is its fundamental and financial profile. The company recently posted impressive revenue growth of 67% in the second quarter follows by 66% in the previous one. Add to this a stock that trades at about 21 times forward earnings and you get a very attractive valuation for a tech stock with a nice growth profile. Down over 40% in the past three months, it is most certainly the best time to buy this small-cap stock for long-term investment.