In this article, we will take a look at the 15 small-cap stocks with high potential. To skip our analysis of the latest trends, and market activity, you can go directly to see the 5 Small-Cap Stocks with High Potential.
Nearly 9,500 stocks trade on major U.S. stock exchanges with nearly half of them having market capitalizations of less than $2.0 billion. The small-cap stocks offer unique characteristics to investors which can significantly improve their investment outcomes. A major benefit of investing in small-cap stocks is the fact that these stocks, due to their lack of huge “brand values”, typically trade at much lower price/book (P/B) ratios as compared to midcap and large cap stocks. This provides a more attractive entry point for investors with the potential for more attractive returns in the future. In addition, small-cap stocks typically include growth companies as well as companies working in niche markets with established market positions and shares.
The small-cap equities in the United States are trading at some of their lowest valuations on a historical basis. According to Morningstar’s historical valuations, small-cap stocks “remain near some of the greatest discounts to large-cap and mid-cap stocks that we have seen since 2010”. Multiple factors led to this steep discount to small-cap stock valuations including investor fears about small-cap stock abilities to survive economic adversity as higher interest rates mean higher costs of borrowing as well as difficulties in extending bank funding due to higher credit risks.
According to T. Rowe Price’s 2024 Global Market Outlook, it could be a good investment idea to “consider tilting toward asset classes where valuations are undemanding.” The report further stated that “Small‑cap equities trade at historically low valuations, reflecting economic growth concerns and the potential impact of higher rates. Small‑caps could provide significant upside if the economy remains resilient.”
Based on the dovish pivot from the Federal Reserve in December, U.S. stocks have rallied significantly. Major small-cap indices, the Russell 2000 and S&P SmallCap 600 Index recovered some of their gains in 2023 and posted gains of 15.09% and 13.89%, respectively, during the year. The small-cap indices significantly lagged behind the well-known large-cap indices such as the S&P 500 which went up 24.23% and the NASDAQ Composite Index which went up 43.42%, during the same period.
Our list of 15 small-cap stocks with high potential is heavily concentrated with biotechnology companies mainly working on the development of novel therapies to treat rare and debilitating diseases. Investing in these companies can be risky as the viability of the therapies these companies are developing is assessed through rigorous criteria at extensive costs. Our list includes several well-funded biotechnology companies with potentially groundbreaking therapies in clinical stage such as Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX), Immatics N.V. (NASDAQ:IMTX), and Travere Therapeutics, Inc. (NASDAQ:TVTX), among others. You can read more about biotech stocks here: 11 Most Promising Biotech Stocks According to Analysts
Small-Cap Stocks with High Potential
A close up of a bustling financial district with a myriad of skyscrapers, representing the small capitalization companies located in developed countries outside the US.
Methodology
We sifted through the companies listed on major U.S. stock exchanges and identified companies with market capitalizations of $1.0 billion or less. Then we sourced the hedge fund sentiment for each stock from Insider Monkey’s database. We only picked companies with positive analyst recommendations and average analyst price targets more than current price.
We narrowed down our selection to stocks that were the most widely held by hedge funds and removed stocks with negative catalysts. Prime examples of stocks that were excluded from our list based on negative catalysts include Aclaris Therapeutics, Inc. (NASDAQ:ACRS) – a biotechnology company whose stock tanked more than 84% in pre-market trading as the company stopped development of its rheumatoid arthritis treatment as it failed in a trial; and Mersana Therapeutics, Inc. (NASDAQ:MRSN) whose shares plummeted as the company’s lead ovarian cancer drug failed in a phase 1/2 trial.
Finally, we ranked our picks in ascending order of the number of hedge funds that have positions in them to identify the top 15 small-cap stocks with high potential. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm. 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.
Replimune Group, Inc. (NASDAQ:REPL) is a clinical stage biotechnology company focused on the development of a novel class of tumor-directed oncolytic immunotherapies derived from its RPx platform.
The lead product candidate of Replimune Group, Inc. (NASDAQ:REPL) is RP1 which is based on a proprietary new strain of herpes simplex virus engineered and genetically armed with a fusogenic protein.
On June 6, Replimune Group, Inc. (NASDAQ:REPL) released initial data from a Phase 1/2 trial evaluating RP1 for the treatment of cutaneous malignancies in patients who have had a kidney, liver, heart, lung, and/or a hematopoietic cell transplant. RP1 showed meaningful anti-tumor activity.
On December 6, Barclays analyst Peter Lawson lowered the price target for Replimune Group, Inc. (NASDAQ:REPL) shares to $13 from $50 and maintained an ‘Overweight’ rating for the shares. The target price represents a potential upside of nearly 50% based on latest share price and follows company’s latest updates related to its clinical programs.
Like other stocks such as Cogent Biosciences, Inc. (NASDAQ:COGT), Immatics N.V. (NASDAQ:IMTX), and Everi Holdings Inc. (NYSE:EVRI), Replimune Group, Inc. (NASDAQ:REPL) is among the 15 small-cap stocks with high potential.
14. Evolv Technologies Holdings, Inc. (NASDAQ:EVLV)
Number of Hedge Fund Holders: 26
Market Capitalization: $722 million
Waltham, Massachusetts-based Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) is a leader in weapons detection for security screening. Its technology combines powerful, advanced sensors with artificial intelligence (AI), security ecosystem integrations, and venue analytics to detect threats. The company boasts more than 4,000 active, long-term subscriptions of Evolv Express weapons detection systems.
On November 9, Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) released its financial results for Q3 2023. It generated total revenues of $20 million and a net income of $6 million. At $0.03, the EPS exceeded consensus estimates by $0.17.
Following the earnings release, Cantor Fitzgerald analyst Brett Knoblauch lowered the price target for Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) shares to $8 from $9 and maintained an ‘Overweight’ rating for the shares.
As of Q3 2023, Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) shares were owned by 26 leading hedge funds with the total shares held by them valued at $92 million. It is the only stock that belongs to the Industrials sector on our list of 15 small-cap stocks with high potential.
Las Vegas, Nevada-based Everi Holdings Inc. (NYSE:EVRI) is a provider of land-based and digital casino gaming content and products, financial technology, player loyalty solutions, and bingo.
On November 8, Everi Holdings Inc. (NYSE:EVRI) released its financial results for Q3 2023. It generated total revenues of $207 million and a net income of $26.6 million. At $0.29, the company’s EPS exceeded consensus estimates by $0.05.
During the first nine months of 2023, Everi Holdings Inc. (NYSE:EVRI) repurchased nearly $74 million worth of its shares. The company had $106 million of share repurchase authorization under its $180 million share repurchase program.
As of Q3 2023, Everi Holdings Inc. (NYSE:EVRI) shares were owned by 26 leading hedge funds with the total shares held by them valued at $163 million. Jeffrey Jacobowitz’s Simcoe Capital Management was the leading hedge fund shareholder with ownership of 3.9 million shares valued at $52 million.
12. BrightSphere Investment Group Inc. (NYSE:BSIG)
Number of Hedge Fund Holders: 26
Market Capitalization: $780 million
Boston, Massachusetts-based BrightSphere Investment Group Inc. (NYSE:BSIG) is a global asset management holding company with one operating subsidiary, Acadian Asset Management, with nearly $97 billion of assets under management as of September 30, 2023. It offers a wide range of quantitative and solutions-based strategies to institutional investors.
BrightSphere Investment Group Inc. (NYSE:BSIG) released its Q3 2023 financial results on November 2. Its revenue increased by 24% y-o-y to $107 million while net income increased by 10% y-o-y to $20 million. Its normalized EPS of $0.45 exceeded consensus estimates by $0.16.
On December 20, the Board of Directors of BrightSphere Investment Group Inc. (NYSE:BSIG) authorized the purchase of up to $100 million of the company’s common shares. The company repurchased $100 million worth of its common shares during the first nine months of 2023.
On our list of 15 small-cap stocks with high potential, BrightSphere Investment Group Inc. (NYSE:BSIG) has one of the highest percentage of shares owned by hedge funds. Its shares worth $364 million were held by 26 prominent hedge funds tracked by Insider Monkey, as of September 30, 2023.
11. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO)
Number of Hedge Fund Holders: 27
Market Capitalization: $855 million
New York-based Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is one of the world's largest out of home (OOH) media providers. It connects advertisers with millions of consumers every month across more than 330,000 print and digital displays in 19 countries.
On October 31, Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) completed the sale of its business in France to Equinox Industries. The company also announced that it has initiated a process to sell the businesses in its Europe-North segment and initiated a strategic review of its Latin American businesses.
Earlier in 2023, Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) sold or agreed to sell multiple businesses in a bid to optimize its portfolio and strengthen its balance sheet. The list included sale of Switzerland business for cash proceeds of $89.4 million, Italy business for $5 million, and an agreement to sell Spain business for $64 million, among others.
The only communication services company on our list of small-cap stocks with high potential, Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) shares worth $149 million, were owned by 27 hedge funds held, as of Q3 2023. Legion Partners Asset Management was the largest shareholder on record with ownership of 26.5 million shares valued at $42 million.
Santa Clara, California-based SI-BONE, Inc. (NASDAQ:SIBN) is a global leader in technology for surgical treatment of musculoskeletal disorders of the sacropelvic anatomy. It pioneered a proprietary minimally invasive surgical system, the iFuse Implant System®, to fuse the SI joint and treat SI joint dysfunction.
On November 6, SI-BONE, Inc. (NASDAQ:SIBN) released its financial results for Q3 2023. The company posted a revenue of $34 million, which represents nearly 29% y-o-y growth, and a net loss of $10 million, 29% lower on y-o-y basis. Its normalized EPS of -$0.25 surpassed consensus estimates by $0.09.
On December 22, Truist Securities analyst David Rescott raised the price target for SI-BONE, Inc. (NASDAQ:SIBN) shares to $26 from $25 and maintained a ‘Buy’ rating for its shares. The price target represents a potential upside of 24.76% based on the latest share price.
Vimeo, Inc. (NASDAQ:VMEO) operates a leading video experience platform allowing users to create, collaborate, share, and communicate with videos. The platform boasts nearly 300 million users including more than 1.5 million paid subscribers spread across more than 190 countries worldwide.
On November 6, Vimeo, Inc. (NASDAQ:VMEO) released its financial results for Q3 2023. Its revenue declined by 2% y-o-y to $106 million, while it reported a net income of $8.5 million, compared to a net loss of $21.4 million. It generated a normalized EPS of $0.09 which surpassed the consensus estimates by $0.08.
According to Insider Monkey data on 910 hedge funds, 28 hedge funds held shares of Vimeo, Inc. (NASDAQ:VMEO), valued at $114 million, as of Q3 2023. The largest shareholder was Joshua Kushner’s Thrive Capital holding 5.9 million shares valued at $21 million.
Cambridge, England-based Bicycle Therapeutics plc (NASDAQ:BCYC) is a clinical-stage biotechnology company developing a novel class of medicines based on its proprietary bicyclic peptide technology.
On October 19, Bicycle Therapeutics plc (NASDAQ:BCYC) announced that BT8009, the company’s lead investigational therapy in development to treat metastatic bladder cancer, has been selected to participate in an FDA program to facilitate development and expedite commercial manufacturing readiness of BT8009.
Bicycle Therapeutics plc (NASDAQ:BCYC) raised net proceeds of nearly $215 million from a public offering in July 2023 and raised an additional $19.4 million through its at-the-market offering program during Q3 2023.
As of Q3 2023, Bicycle Therapeutics plc (NASDAQ:BCYC) shares were held by 28 out of 910 hedge funds tracked by Insider Monkey with a total value of $352 million. Its largest hedge fund shareholder was David Kroin’s Deep Track Capital with ownership of nearly 3.5 million shares valued at $70 million.
Like other stocks such as Cogent Biosciences, Inc. (NASDAQ:COGT), Immatics N.V. (NASDAQ:IMTX), and Everi Holdings Inc. (NYSE:EVRI), Bicycle Therapeutics plc (NASDAQ:BCYC) is among the 15 small-cap stocks with high potential.
Eventbrite, Inc. (NYSE:EB) is a global events marketplace that serves event creators and event goers in nearly 180 countries. The company distributed more than 280 million tickets for more than 5 million events in 2022.
The quarterly revenue of Eventbrite, Inc. (NYSE:EB) increased by 21% on a y-o-y basis in the quarter ended September 30. The company posted a revenue of $82 million and a net loss of $10 million, which translated to an EPS of $-0.10, in-line with consensus estimates.
As of Q3 2023, Eventbrite, Inc. (NYSE:EB) shares were held by 29 of the 910 hedge funds tracked by Insider Monkey with the total shares held by hedge funds valued at $249 million. Richard Scott Greeder’s Broad Bay Capital was its leading hedge fund shareholder with ownership of 3.7 million shares valued at $37 million.
Olema Pharmaceuticals, Inc. (NASDAQ:OLMA) is a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of targeted therapies for women’s cancers.
Palazestrant, the lead product candidate of Olema Pharmaceuticals, Inc. (NASDAQ:OLMA), has been granted FDA Fast Track designation for the treatment of ER+/HER2- metastatic breast cancer that has progressed following one or more lines of endocrine therapy with at least one line given in combination with a CDK4/6 inhibitor.
During Q3 2023, Olema Pharmaceuticals, Inc. (NASDAQ:OLMA) completed a combined financing for up to $180 million including an equity private placement of $130 million of common stock and a new senior secured credit facility with an aggregate principal amount of up to $50 million.
Hedge funds are bullish about Olema Pharmaceuticals, Inc. (NASDAQ:OLMA) shares as the number of hedge funds that own its shares increased from 18 in Q1 to 29 in Q3 2023. These hedge funds together held shares worth $351 million, the 4th highest on our list of 15 small-cap stocks with high potential.
