Yahoo Finance

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here is one small-cap stock that could amplify your portfolio’s returns and two that could be down big.

Two Small-Cap Stocks to Sell:

Sanmina (SANM)

Market Cap: $4.16 billion

Founded in 1980, Sanmina (NASDAQ:SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.

Why Do We Think SANM Will Underperform?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years

2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 8.1%

3. Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

At $74.10 per share, Sanmina trades at 12.1x forward price-to-earnings. To fully understand why you should be careful with SANM, check out our full research report (it’s free).

Landstar (LSTR)

Market Cap: $5.20 billion

Covering billions of miles throughout North America, Landstar (NASDAQ:LSTR) is a transportation company specializing in freight and last-mile delivery services.

Why Should You Dump LSTR?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 19.4% annually over the last two years

2. Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Landstar’s stock price of $145.37 implies a valuation ratio of 22.8x forward price-to-earnings. If you’re considering LSTR for your portfolio, see our FREE research report to learn more.

One Small-Cap Stock to Watch:

Workiva (WK)

Market Cap: $4.42 billion

Founded in 2010, Workiva (NYSE:WK) offers software as a service product that makes financial and compliance reporting easier, especially for publicly traded corporations.

Why Could WK Be a Winner?

1. ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability

2. Sales outlook for the upcoming 12 months implies the business will have more momentum than most peers

3. Prominent and differentiated software leads to a stellar gross margin of 76.7%