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 best small cap stocks to invest in for the long term.
What Are Small Cap Stocks?
Today, we’re diving into the exciting world of “best small cap stocks for Long Term.”
But before we jump in, let’s get on the same page about what small-cap stocks actually are.
In the stock market, companies are categorized based on their market capitalization, which is the total value of all their outstanding shares.
Small-cap stocks represent companies with a relatively smaller market capitalization compared to their larger counterparts.
Typically, small-cap stocks have a market cap between $300 million and $2 billion.
These companies often fly under the radar, which can make them intriguing investment opportunities for those seeking significant growth potential.
However, remember that with higher growth prospects come higher risks, so it’s crucial to approach small-cap investing with due diligence.
Now that we know the basics, let’s explore the best small cap stocks that could be hidden gems for your long-term investment journey!
Best Value Small-Cap Stocks
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Carparts.Com (PRTS)
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 invest in.
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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 stocks to invest in and hold on to.
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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 platforms 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 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.
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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 one of the best small cap stocks to invest in.
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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 a great time to buy this pick among best small cap stocks for long-term investment.
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Farmers National Banc
Farmers National Banc Corp. (NASDAQ: FMNB) is a prime small-cap pick for investors.
With a broad range of customer offers and 161 consecutive profitable quarters, it’s got the chops.
Their 5% dividend yield and lower valuation make it a sweet deal.
Ambitious growth plans through acquisitions show promise, and its efficient deposit growth highlights solid fundamentals.
For small-cap seekers, FMNB is a gem with strong potential and consistent performance. Don’t overlook this opportunity!
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Miller Industries
So here’s the scoop on yet another hidden gem: Miller Industries, Inc. (NYSE: MLR).
It’s a small-cap stock with huge potential! Despite a 40%+ rise this year, the market’s not fully catching on to their operating leverage story.
They’ve got a solid track record in the towing and recovery industry and strong distributor relationships.
As investments pay off, margins should soar, drawing in more investors.
Sure, it’s a small-cap, and things might get bumpy, but with demand looking good, this could be your ticket to some serious gains! Don’t miss this opportunity!
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Ares Commercial Real Estate
Ares Commercial Real Estate (NYSE: ACRE), a small cap gem, made a sweet recovery from May lows to over $11.20, a 50% return (excl. dividends).
Despite office market challenges, they’re managing loans strategically.
High dividend yield sparked concern, but ACRE expects to maintain payouts, showing confidence. Analysts predict a FY24 recovery.
With a forward dividend yield near 13%, ACRE looks appealing. A small cap worth watching; potential pullback could offer an entry point
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Adecoagro
Adecoagro (NYSE: AGRO) is another pick among the best small cap stocks that has big possibilities.
Their sugar and rice segments are on fire, thanks to rising prices and strategic moves in the market.
With economic confidence growing and food security concerns on the rise, Adecoagro’s cash flows are looking pretty sweet.
Keep an eye on this one! It might just be the small cap gem you’ve been searching for.
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Accolade, Inc.
Accolade, Inc. (NASDAQ: ACCD) is a hot small cap stock for long-term investors.
They’re a fast-growing population health management solution provider in the US, helping people with healthcare navigation and cutting costs.
Their unique combo of tech platforms and health assistants drives high engagement and saves customers 4-10% on medical expenses.
With a scalable SAAS model, Accolade is in high demand among self-insured employers trying to reduce expenses and keep employees happy.
It’s still in its growth phase, but its potential for long-term growth makes it a buy.
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PetMed Express Inc.
Alright, listen up investors! PetMed Express Inc. (NASDAQ: PETS) is a top choice among best small cap stocks.
Why? It’s cheap compared to the market and has a solid dividend yield of 8.85%, higher than the 1-year Bill and 10-year Note.
Sure, the income statement isn’t perfect, but the balance sheet is strong, and the cash flow is decent.
Small cap stocks can be a wild ride, but if you’re willing to ride the waves, this one’s a smart pick with potential for growth and a fat dividend.
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Genesis Energy
Genesis Energy (NYSE: GEL) is a small cap stock that faced some challenges but is now on the upswing.
Despite a drop in units, management raised guidance multiple times, and they have exciting projects ahead.
With solid distribution coverage, a strong balance sheet, and the potential for triple-digit growth, this small cap gem has caught our eye!
So, if you’re into some of the best small cap stocks with promising long-term potential, consider giving Genesis Energy a shot – it could be a game-changer for your investment portfolio!
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Sixth Street Specialty Lending
Sixth Street Specialty Lending, Inc. (NYSE: TSLX) is a hot contender among the best small cap stocks in 2023.
With its common shares up a big 15%, this business development company (“BDC”) focuses on middle-market U.S. firms through senior secured loans.
TSLX pays sweet dividends, with a 9.4% annualized forward yield.
Plus, its NAV has been on the rise, despite market pressures and rate hikes. Even though there are risks, the track record is impeccable.
TSLX is a buy for small cap fans looking for a thrilling ride!
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Anavex Life Sciences
Let’s move on to the next gem on our list of best small cap stocks: Anavex Life Sciences (NASDAQ: AVXL).
This clinical-stage biopharmaceutical firm is all about precision medicine for central nervous system diseases.
Their lead candidate, ANAVEX2-73, targets Alzheimer’s, Parkinson’s, and Rett syndrome.
A recent partnership with Partex Group brings AI technology to boost their drug pipeline.
Financially stable with $153.5 million in cash reserves and no debt, Anavex is well-positioned for growth.
Despite some ups and downs, their dedication to tackling medical needs and potential market opportunities makes this small-cap stock worth considering for the long term.
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Associated Banc-Corp
Moving on we look into Associated Banc-Corp (NYSE: ASB), one of the best small cap stocks for the long term.
With steady growth in book value per share and strong loan growth, ASB shows promising potential.
Their solid loan and real estate portfolios mean bigger returns for shareholders.
The outlook for 2023 is positive, and with a forward yield of 4.49% and a historical dividend growth rate of 8.19%, ASB offers a satisfying return.
A small cap gem with exciting possibilities! It’s a clear buy.
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Archer Aviation
Archer Aviation (NYSE: ACHR) is the small cap gem you’ve been waiting for!
They’re diving into the eVTOL industry, bringing us closer to those futuristic flying cars.
With their ‘Midnight’ aircraft, they’re aiming for FAA approval in 2024, and production starts in 2025, backed by automotive giant Stellantis N.V.
Their low valuation compared to rivals is mind-blowing.
Sure, there are risks, but Archer’s first-mover advantage and killer partnerships make it the small cap stock to watch.
Buckle up and get ready to fly high with Archer Aviation! This is what makes it a great pick among best small cap stocks.
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Medifast, Inc.
Medifast, Inc. (NYSE: MED) stands out as one of the best small cap stocks due to its focus on combating the widespread health issue of obesity.
Its Optavia platform aims to help people adopt healthier lifestyles through small, sustainable habits.
With a network of over 58,000 coaches and a track record of assisting over 2 million customers, Optavia’s customizable meal plans have proven effective.
Despite challenges, the stock appears undervalued, presenting an opportunity for investors.
However, risks such as competition, health concerns, MLM prejudice, and potential accounting issues should be carefully considered before investing.
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Cementos Pacasmayo
Cementos Pacasmayo (NYSE: CPAC) seems like a promising small cap stock pick.
Despite challenges earlier in 2023, its Q2 results were decent, with resilient cement demand in Peru.
With a new kiln coming online, higher EBITDA margins are expected. Cement deliveries have rebounded, and strong self-construction demand bodes well.
The stock’s current valuation suggests the potential for a 42.2% upside.
However, investors should watch for risks, such as potential declines in demand if self-construction compensates for earlier slowdowns and rainy seasons affecting demand.
Overall, there is much to be optimistic about Cementos Pacasmayo’s future performance, making it a compelling buy among the best small cap stocks.
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Lemonade
Lemonade (NYSE: LMND) is a top small cap pick due to its innovative use of artificial intelligence in the insurance industry.
By leveraging AI and chatbots, the company provides swift, low-cost policies with fewer overheads than traditional insurers.
Although it’s younger and faces underwriting challenges, its strong fundamentals and $1 billion cash reserves offer room for growth.
While valuing the stock was uncertain before, it’s now more reasonable, making it an attractive long-term investment.
Just keep an eye on the competition and be patient through potential volatility for enticing returns ahead.
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Federal Agricultural Mortgage Corporation
The Federal Agricultural Mortgage Corporation (NYSE: AGM) presents a compelling investment opportunity for long-term investors.
With a 20%+ potential upside and a reliable dividend yield of over 3%, it offers both growth and income prospects.
AGM’s strong track record of managing risks in agricultural finance, historically low loan losses, and conservative lending practices make it stand out among lenders.
With its federally chartered status providing a competitive edge and diverse loan portfolio, AGM is well-positioned to capitalize on growth opportunities in the agricultural market, making it an attractive pick for investors.
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HIVE Digital Technologies
HIVE Digital Technologies (NASDAQ: HIVE) is among the best small cap stocks because of its pivot to AI infrastructure.
The company dropped “blockchain” from its name and embraced the growing demand for high-performance computing (HPC) services, particularly in AI.
The introduction of the “HIVE Cloud” for small and medium-sized businesses shows a shift in focus.
While the future demand for HPC services looks promising, the lack of revenue guidance and potential dilution risk from the recent stock offering make it prudent to observe from the sidelines for now.
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Pitney Bowes
Pitney Bowes Inc. (NYSE: PBI) may seem like a risky bet due to its declining margins and negative sentiment.
However, the presence of determined institutional investor Hestia Capital, aiming to overhaul management, brings a turnaround potential.
With the possibility of gaining shipping volume from struggling competitor UPS, PBI could see improved margins in the medium term.
Despite the risks involved, the current stock price fails to reflect this promising catalyst.
Considering the events unfolding and PBI’s undervaluation, we recommend a “Buy” for patient investors willing to wait for potential gains in the next few quarters.
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LegalZoom
LegalZoom (NASDAQ: LZ) is a top small cap stock pick for investors.
The company’s freemium model, offering free products to attract new customers, has shown promising results, gaining market share and creating growth potential.
Incorporating generative AI will also boost efficiency and enhance offerings.
Improved productivity and cost optimization strategies are driving margin expansion.
With a positive macroeconomic outlook, LZ’s future looks bright.
Despite potential risks, including freemium adoption, LZ’s growth prospects and valuation make it a compelling buy choice for long-term investors.
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Cognyte Software
Cognyte Software (NASDAQ: CGNT) is a great small-cap pick because it offers investigative and analytics services for government and financial institutions.
Despite slow cash conversion due to working with public organizations, revenue performance is improving, and cost control is impressive.
Backlog conversion issues have stabilized, and higher-margin software revenues are taking over.
Operating profit has seen significant improvements, and narrowing losses have positively impacted cash flow.
With customers showing confidence and new contract wins, revenue growth is expected to resume.
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Syrah Resources
Syrah Resources Limited (OTCPK: SYAAF) is a top small cap stock because it operates the world’s largest graphite mine and plans to supply Active Anode Material (AAM) to the electric vehicle battery market.
Despite a recent dip in share price, the growth prospects for natural graphite-based AAM are promising due to the increasing demand for electric vehicles.
As global efforts to combat climate change continue, the company’s vertically integrated structure positions it to capitalize on the expanding EV market.
With Vidalia’s AAM production facility nearing completion, Syrah is well-positioned for future growth. It’s now a ‘Buy’ rated stock for investors.
What Should You Look for When Buying Small-Cap Stocks?
When hunting for those promising small-cap stocks that can blossom over the long term, keep a few key tips in mind:
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Financial Health
Check out the company’s financials – the balance sheet, revenue growth, and profitability.
Solid numbers are like a sturdy foundation for future growth.
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Competitive Advantage
Look for what makes the company stand out from the crowd.
A unique product, innovative tech, or a devoted customer base can set them apart.
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Management Team
Get to know the leaders running the show. Competent and experienced management can steer the company in the right direction.
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Industry Growth Potential
Peek into the future of the industry the company operates in. A growing market means more opportunities for your investment to thrive.
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Valuation
Keep your eyes peeled on the price tag. You wouldn’t want to pay a premium, even for a promising small-cap stock.
Should You Invest in Small-Cap Stocks?
After our lengthy look into small-cap stocks, let’s talk about whether small-cap stocks are the right fit for you as an investor.
While they offer exciting growth potential, they also come with increased risks.
Small-cap companies are often young and less established, so their stock prices can be more volatile.
If you’re comfortable with a roller-coaster ride and have a long-term perspective, small caps could be your ticket to outsized returns.
Just keep in mind that diversification is key – don’t put all your eggs in one basket.
Before diving in, assess your risk tolerance and do your homework on individual companies. Small caps can be rewarding, but they’re not for everyone.
Advantages of Small-Cap Stocks
Small-cap stocks might not always grab the headlines like the big guys do but don’t underestimate their potential.
Here’s why they can be a fantastic addition to your long-term investment strategy:
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Growth Potential
Small-cap stocks have the agility of a dynamic player, allowing them to seize new opportunities and experience rapid growth when the market conditions are favorable.
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Undiscovered Diamonds
Since they often fly under the radar of large institutional investors, small-cap stocks can be hidden treasures with excellent growth prospects, waiting to be unearthed.
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Room to Expand
Unlike established companies, small-caps typically have plenty of room to expand into new markets and industries, which can lead to exciting breakthroughs and big profits.
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Outperforming the Market
Historically, small-cap stocks have demonstrated the ability to outperform the overall market over the long term, providing investors with compelling returns.
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Economic Resilience
Small-cap companies are often more tied to the domestic economy, making them less susceptible to global economic fluctuations and trade-related uncertainties.
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Acquisition Targets
As small-cap companies grow and thrive, they can attract the attention of larger corporations seeking to expand their portfolios through acquisitions, which could lead to significant gains for shareholders.
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Portfolio Diversification
Including small-cap stocks in your investment mix can diversify your portfolio, reducing overall risk and offering a broader exposure to different market segments.
How To Invest in Small Cap Funds?
So, you’ve got your eyes on those promising small-cap stocks, but how do you invest in them like a pro? Let’s break it down:
- Do Your Research: Before diving in, dig deep into the company’s financials, growth potential, and management team. Knowledge is power!
- Diversify: Small-cap funds can be volatile, so spread your investments across various companies to reduce the high beta.
- Long-Term Vision: Small-cap stocks can take time to shine, so think long-term and avoid knee-jerk reactions to short-term market fluctuations.
- Patience Pays Off: It may take a while for your investment to mature, but patience can lead to handsome rewards.
- Stay Updated: Keep a keen eye on market trends and economic shifts to make informed decisions.
How to Find More Top Small-Cap Stocks to Buy
Now that we’ve covered some fantastic small-cap stock picks, let’s talk about how to unearth more hidden gems for the long term.
Here are some nifty tips to expand your portfolio:
- Do Your Homework: Dive into research! Look for companies with strong fundamentals, growth potential, and a solid track record.
- Follow The Trends: Keep an eye on emerging industries and technologies. Small caps in growing sectors can be winners.
- Check the Balance Sheet: Ensure the company is financially healthy, with manageable debt and steady cash flow.
- Management Matters: Trust in capable leaders who have a clear vision and a history of shareholder-friendly decisions.
- Listen to Earnings Calls: Get insights from management themselves and understand the company’s strategy.
Small-Cap vs. Mid-Cap vs. Large-Cap Stocks
Now let’s break down the differences between Small-Cap, Mid-Cap, and Large-Cap stocks in plain and simple terms.
As pointed out, small-Cap stocks are like those little hidden gems in the market.
These companies have a smaller market capitalization, meaning their total value is lower than the big players.
They can be young and full of potential, but they may also carry higher risks because they’re not as established.
Investors often see them as opportunities for massive growth, but you gotta buckle up for some volatility.
Now, let’s move on to Mid-Cap stocks. Think of them as the middle tier in the stock world.
Mid-Cap companies, while larger and more stable than Small Cap counterparts, still possess significant growth potential.
Mid-Cap stocks often strike a balance between growth potential and risk.
They might not explode with gains overnight, but they can be reliable performers over the long term.
Lastly, we’ve got the big boys, the Large-Cap stocks. These companies are the heavyweights of the market with high market capitalization.
They’re usually well-established, respected, and less prone to wild price swings.
Large-Cap stocks might not have the explosive growth potential of Small-Cap stocks, but they often offer steady dividends and a sense of security.
In a nutshell, Small-Cap stocks are high-risk, high-reward, Mid-Caps are the balanced plays, and Large-Caps are the stable and secure giants.
Depending on your risk appetite and investment goals, each of these categories has something unique to offer in the stock market playground.
Conclusion
Alright, fellow investors, we’ve covered some seriously promising small-cap stocks that could be the secret sauce to your long-term investment recipe.
Remember, the world of small caps can be exhilarating but also unpredictable.
It’s essential to do your own due diligence and assess your risk tolerance before diving in.
Keep in mind that long-term investing is like planting a garden – it takes time, patience, and nurturing.
Don’t be disheartened by short-term fluctuations; focus on the bigger picture.
Diversification is your best buddy, so spread those investments wisely.
FAQs
What’s Next for Small Cap Stocks?
Future potential is bright, but thorough research is key.
Which Companies Are Small-Cap?
Small caps are companies with low market capitalization, usually under $2 billion.
Is Small Cap Investing for You?
Consider it if you can handle higher risk for potentially high rewards.
How do I choose a good small-cap stock?
Look for strong fundamentals, growth prospects, and capable leadership.
