We recently published a list of the Top 10 Small Cap Stocks to Buy with the Highest Upside Potential. In this article, we are going to take a look at where Materion Corporation (NYSE:MTRN) stands against other top small cap stocks to buy with the highest upside potential.
What Would 2025 Look Like for Small Cap Stocks?
On December 30, MJP Wealth Advisors chief investment officer Brian Vendig appeared on Yahoo! Finance’s Catalysts to discuss the potential outlook of small cap stocks in 2025. He said that as long as the economy stays stable and policy decisions are not taken to the extreme, small cap stocks could see the perfect environment to outperform in 2025. However, a little cooperation from the Fed is essential to maintaining this perfect environment.
He also believed that the market is likely to come back to earnings. Vendig explained that the market is expected to be choppy in the first few months of 2025. This trend is likely to materialize throughout the first half of 2025, with the choppiness attributed to policy uncertainties. But Vendig believed that if earnings remain intact, he will likely stay constructive on stocks. He even thinks that bonds might be a good opportunity as well. He said:
“I’m definitely not one to recommend to add to megacap tech at this point, but I think taking a look at some of those value-oriented sectors that help to play into innovation and growth for the economy still makes sense.”
He also highlighted that potential opportunities may emerge in the industrial sectors, such as infrastructure, electric grid enhancements, and power generation, along with some in pharmaceuticals and biotech.
Will the Fed and Incoming Trump Administration Bolster Small Cap Stocks?
Several other analysts have similar predictions as Vendig’s. On December 24, Global Advisors’ managing partner, Tom Lee, appeared on CNBC and highlighted the potential of small and mid-cap stocks in 2025, saying that this year will likely be a positive one for these companies. He reasoned that the incoming Trump administration and interest rate cuts are likely to make companies more expansionary, boosting their confidence regarding mergers. He even said that small caps may outperform by more than 100% in the coming years.
Our Methodology
We used the Finviz stock screener to compile a list of 30 small cap stocks. We then selected the top 10 stocks with the highest analyst upside potential as of January 9, 2025. We have also included the market capitalization of the stocks as of the same date. The list is sorted in ascending order of analysts’ average upside potential. These stocks are also popular among elite hedge funds as of fiscal Q3 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small cap and large cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Materion Corporation (NYSE:MTRN) produces engineered materials for various thermal, electrical, electronic, and structural applications. Its operations provide engineered solutions comprising beryllium and non-beryllium through its Performance Materials segment. Through its Electronics Materials segment, it produces precious and non-precious metals, chemicals, microelectronics packaging, and other specialty metal products. The company also operates in optical filters, precision thin-film coatings, and assemblies through its Precision Optics segment.
Although the market has been soft for the company over the last several quarters, it is optimizing its footprint, improving the cost structure of the company, and aligning its portfolio with global megatrends to improve its operations. Materion Corp. (NYSE:MTRN) has taken several steps to optimize its footprint over the last year. With a focus on driving efficiency and scale, it closed a facility in China, consolidating production into other facilities in North America and Asia. It is in the process of right-sizing two additional facilities in Asia, which is expected to be completed early in fiscal 2025, and is closing a facility in New Mexico. These actions are focused on improving the performance of the company’s electronic materials business. As a result of these initiatives, the business is now delivering around 20% EBITDA margins, reflecting approximately 400 basis points improvement on lower volume.
Fiscal Q3 2024 was the second consecutive quarter that the company saw year-over-year growth in overall semi-sales in the semiconductor sector. Since the increased demand for logic and memory applications is boosting this volume increase, Materion Corp. (NYSE:MTRN) is capitalizing on opportunities in the sector with its broad semiconductor solutions and product portfolio. The company recently entered into an agreement to serve as the technology partner for a major supplier of semiconductor processing equipment.
Overall, MTRN ranks 8th on our list of top 10 small cap stocks to buy with the highest upside potential. While we acknowledge the potential of small cap stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MTRN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
