Every day, countless stocks see their values rise and fall on the market. Data from the World Federation of Exchanges shows that as of Q1 2022, a whopping 58,200 companies were listed on all of the world's stock exchanges. This figure has only grown, with the latest data from the same body showing that as of April 2023, the total number of publicly traded firms stood at 58,301. These firms had a combined market value of $105 trillion with $9.8 trillion of shares being traded. Most of the listed companies were in the Asia Pacific region, which accounted for 55.2% or 32,171 of the total listed shares. Naturally, this also led to most of the trades being carried out in these markets as well, with 2.3 billion trades carried out in the region out of the total 3.3 billion trades.
Within these thousands of companies, there are several ways to classify the firms. One of these comes from the Financial Industry Regulatory Authority (FINRA), which is a private American regulator of brokerages. The FINRA categorizes stocks along micro cap, small cap, mid cap, large cap, and mega cap - with mega-cap stocks defined as those that have a market capitalization greater than $200 billion, while small caps have a market capitalization that ranges between $250 million and $2 billion.
Out of these, small caps often catch attention in the media, since their relatively stable business models combined with low share prices provide both a chance at share price growth and attractive entry points. But as is with the case with most aspects of the financial world, intuitive explanations often fail to hold their ground against research. On this front, research from Northwestern University shows that while small-cap stocks do offer the potential for high returns, they also carry higher risk when compared to large and mega cap stocks. Building on this, researchers from Brazil took an interesting look at small caps, as they investigated whether a crossover moving average trading strategy employed through portfolios of large cap and small-cap stocks would yield any differences in profitability. The researchers found that large cap stocks do not offer any significant benefits in terms of profitability, a conclusion that is generally thought counterintuitive in emerging markets due to high levels of liquidity.
Moving back to America, and looking at what's going on in the small-cap market right now, investment firm Royce Investment Partners which is known for its focus on small-cap stocks has some data for how the market performed during the first quarter of this year. It shows that small-cap stocks gained 13.7% year to date until the start of February when interest rate hikes from the Federal Reserve and growing rhetoric for a recession pushed them down. This led the Russell 2000 index to drop from posting almost 15% in returns by the start of this year to 2.7% as the first quarter ended. Royce adds that volatility was a key characteristic of the small-cap sector over the past couple of quarters, with returns swinging from +10% to -10% regularly. Additionally, turbulence in the economy also led investors to flee to the relatively safer mega cap firms such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).
Another report from Janus Henderson is quite optimistic for the fortunes of small-cap companies. Janus outlines that when the price to book value of a firm is used as a proxy to evaluate a stock's discount, small caps have traded significantly below the average most of the time since 1995. It also shares that small caps actually peaked large caps after the collapse of the infamous dot com bubble until the summer of 2018, with the large caps then taking the edge as they were aided by the mega cap companies. Janus adds that small caps tend to perform poorly in the buildup to a recession. But as a recession takes hold, the small caps are "resilient" and cary the potential to deliver strong results after the downturn is over. Finally, the firm concludes by stressing that portfolio positioning is key to benefiting from the potential of long term outsized financial performance.
This sentiment is also echoed by Chuck Royce, the portfolio manager for Royce Investment Partners, who shared his outlook on the small-cap sector in April 2023 and when asked whether the valuations for small-cap stocks have become attractive, replied:
Yes, the Russell 2000 was still in a bear market at the end of March. It fell -24.7% from its peak on 11/8/21 through 3/31/23, and the average stock in the Russell 2000 was down -35.2% from their respective 52-week highs through the end of March. This has created opportunities for us to add to our highest conviction names as well as the chance to investigate new names in several areas. The troubles for regional banks rippled to hit many value and cyclical stocks hard. But our long-term investment perspective and emphasis on quality allow us to tune out the short-term noise, which is especially important at times like this. Within Financials, for example, we like insurance companies, business development companies, and alternative asset managers. These are long-term investments in companies that are not reliant on the banking system. And we’re also looking closely at select regional banks to see which companies look best positioned to survive the currently difficult conditions for the industry.
With these details in mind, let's take a look at some best small-cap growth stocks to buy now, out of which the top picks are Akero Therapeutics, Inc. (NASDAQ:AKRO), SomaLogic, Inc. (NASDAQ:SLGC), and Mirion Technologies, Inc. (NYSE:MIR).
10 Best Small Cap Growth Stocks to Buy Now
Photo by Chris Liverani on Unsplash
Our Methodology
To compile our list of the best small-cap growth stocks, we first listed down all the small-cap stocks in Janus Henderson's Triton Fund Holdings portfolio. Then, the number of hedge funds that had invested in them during Q4 2022 was determined through Insider Monkey's survey of 943 funds. Out of the 28 firms identified, the top ten small-cap stocks are listed below.
National Vision Holdings, Inc. (NASDAQ:EYE) is a specialty retailer based in Duluth, Georgia. As the name suggests, the firm sells optical products.
14 of the 943 hedge funds had bought the firm's shares during last year's fourth quarter. National Vision Holdings, Inc. (NASDAQ:EYE)'s largest investor is Henry Ellenbogen's Durable Capital Partners with a $119 million stake.
Along with SomaLogic, Inc. (NASDAQ:SLGC), Akero Therapeutics, Inc. (NASDAQ:AKRO), and Mirion Technologies, Inc. (NYSE:MIR), National Vision Holdings, Inc. (NASDAQ:EYE) is a top small-cap growth stock.
OmniAb, Inc. (NASDAQ:OABI) is a biotechnology company headquartered in Emeryville, California. The firm was set up in 2012. It is one of the more interesting biotechnology companies which has a platform to generate antibodies and other substances to aid in drug development. OmniAb, Inc. (NASDAQ:OABI) owns a platform of animal intelligence that uses rats, chickens, and mice to generate antibodies.
After digging through 943 hedge funds for their Q4 2022 portfolios, Insider Monkey discovered that 16 had held a stake in the OmniAb, Inc. (NASDAQ:OABI).
SMART Global Holdings, Inc. (NASDAQ:SGH) is a semiconductor firm headquartered in Milpitas, California. The company designs and sells memory modules, provides supply chain services, and computing solutions.
By the end of last year's fourth quarter, 17 of the 943 hedge funds part of Insider Monkey's database had held a stake in SMART Global Holdings, Inc. (NASDAQ:SGH). Out of these, the firm's largest investor is Jonathan Guo's Yiheng Capital with a $43.9 million stake that comes courtesy of 2.9 million shares.
LiveRamp Holdings, Inc. (NYSE:RAMP) is a technology company headquartered in San Francisco, California. The firm provides data management platforms such as identity management, data integration, and data enablement.
Insider Monkey took a look at 943 hedge funds for their investments as of December 2022 and found out that 17 had invested in LiveRamp Holdings, Inc. (NYSE:RAMP). '
Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) is a biotechnology company that was set up in 1987 and is headquartered in San Diego, California. The firm develops several different technologies to treat or manage myeloma, osteoporosis, COVID-19, pneumonia, lymphoma, and other diseases. Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) also has partnerships with all kinds of pharmaceutical firms such as Pfizer, Merck, Amgen, and Gilead.
During 2022's final quarter, 17 of the 943 hedge funds surveyed by Insider Monkey had bought Ligand Pharmaceuticals Incorporated (NASDAQ:LGND)'s shares. Out of these, the firm's largest investor is Ian Simm's Impax Asset Management since it owns 234,320 shares that are worth $15 million.
Akero Therapeutics, Inc. (NASDAQ:AKRO), Ligand Pharmaceuticals Incorporated (NASDAQ:LGND), SomaLogic, Inc. (NASDAQ:SLGC), and Mirion Technologies, Inc. (NYSE:MIR) are some great small-cap growth stocks.
