U.S. stock markets witnessed an impressive rally in 2024 after an astonishing bull run in 2023. Following the 24.2% ascent in 2023, the S&P 500 rallied 23.3% last year. The Dow and the Nasdaq Composite rallied 12.9% and 28.6%, respectively, last year, after advancing 13.7% and 43.4%, respectively, in 2023.
However, the Wall Street rally of the last two years was predominantly dominated by the technology sector, especially by the giant generative artificial intelligence (AI)-centric stocks. The participation of small-cap stocks was relatively subdued. This was evident from the performance of the small-cap-centric Russell 2000 index, which appreciated 12.9% and 10% in 2023 and 2024, respectively.
However, the highly overstretched valuation of large-cap stocks, together with a few positive developments may shift market participants’ preference from large to small-cap stocks. At this stage, we recommend small cap stocks with a favorable Zacks Rank that have strong growth potential for 2025.
Five such stocks are: Travelzoo TZOO, EverQuote Inc. EVER, Lindblad Expeditions Holdings Inc. LIND, Rigel Pharmaceuticals Inc. RIGL and Graham Corp. GHM.
Trump Tariff to Boost Small Businesses
Since the onset of the COVID-19 pandemic in March 2020, small businesses have suffered a lot. During the pandemic, the main concern was demand, as social distancing resulted in a slowdown in U.S. consumer spending, which hurt this segment. The global breakdown of supply-chain systems and the shortage of manpower have affected these companies the most.
Donald Trump’s implementation of tariffs on foreign products is primarily aimed at strengthening U.S. industries by forcing companies to bring back jobs to the country. Small businesses have no geographical diversification and depend on U.S. consumers.
Imposition of tariffs on foreign products, especially those used as inputs to final products will make cheaper imported goods (particularly Chinese inputs) more costly. This will help indigenous small businesses to achieve a level playing field. Moreover, the Trump administration’s business-friendly policies such as reduction of corporate tax rate and anti-regulatory steps will aid small business owners.
Rate Cut to Benefit Small Businesses
After the pandemic, the major issue for U.S. small businesses was galloping inflation. This space suffered significantly due to a higher interest rate regime. The companies operate on a thin profit margin, and most new businesses take time to achieve profitability.
Small businesses are unable to pass on the total hike in input costs to their final products, which is taking a toll on their financial condition. Small businesses are generally dependent on cheap sources of credit for their survival.
Therefore, a gradual decline in the benchmark interest rate should benefit this space. The Fed reduced the benchmark lending rate by 1% in 2024 to the range of 4.25-4.5%. The central bank has indicated at least two more rate cuts of 25 basis points each in 2025.
Moreover, the National Federation of Independent Business (NFIB) small business optimization index came in at 101.7 for November. For the first time after 34 months (since June 2021), the reading came in above the 50-year average of 98.
5 Small-Cap Stocks to Buy in 2025
We have picked five small-cap stocks that have strong growth potential for 2025 and have seen positive earnings estimate revisions in the last 60 days. These stocks have solid upside potential for the short term. Each of our picks sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past year.
Zacks Investment Research
Image Source: Zacks Investment Research
Travelzoo
Travelzoo is an Internet media company. TZOO engages in the provision of information to subscribers and website users about travel, entertainment and local deals available from companies. TZOO’s operating segment consists of Asia Pacific, Europe and North America.
Excellent Short-Term Upside for TZOO Shares
Travelzoo has an expected revenue and earnings growth rate of 14.6% and 10.8%, respectively, for 2025. The Zacks Consensus Estimate for 2025 earnings has improved 1.7% over the last 60 days.
The average short-term price target of brokerage firms represents an increase of 23.5% from the last closing price of $20.18. The brokerage target price is currently in the range of $17 - $35. This indicates a maximum upside of 73.4% and a downside of 15.8%.
EverQuote Inc.
EverQuote is an online insurance marketplace in the United States. Through its Internet websites, EVER operates an online marketplace for consumers shopping for auto, home and renters and life insurance. EVER is presently reporting two main verticals — Auto and Home and Renters. EVER aims is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers shopping for insurance.
Massive Short-Term Upside for EVER Stock
EverQuote has an expected revenue and earnings growth rate of 18.8% and 10.7%, respectively, for 2025. The Zacks Consensus Estimate for 2025 earnings has improved 3.9% over the last 60 days.
The average short-term price target of brokerage firms represents an increase of 67.7% from the last closing price of $18.93. The brokerage target price is currently in the range of $28 - $38. This indicates a maximum upside of 100.7% and no downside.
Lindblad Expeditions Holdings Inc.
Lindblad Expeditions Holdings is an expedition travel company. LIND produces marine expedition programs and promote conservation and sustainable tourism. LIND operates expeditions on intimately-scaled ships and allows interaction between guests, crew and teams of scientists, naturalists, researchers and photographers.
Robust Short-Term Upside for LIND Shares
Lindblad Expeditions Holdings has an expected revenue and earnings growth rate of 10.2% and 93.1%, respectively, for 2025. The Zacks Consensus Estimate for 2025 earnings has improved more than 100% over the last 60 days.
The average short-term price target of brokerage firms represents an increase of 36.1% from the last closing price of $11.74. The brokerage target price is currently in the range of $12 - $18. This indicates a maximum upside of 53.2% and no downside.
Rigel Pharmaceuticals Inc.
Rigel Pharmaceuticals is a clinical-stage drug development company that discovers and develops novel, small-molecule drugs for the treatment of inflammatory diseases, cancer and viral diseases. RIGL’s goal is to file one investigative new drug application in a significant indication each year.
RIGL’s pioneering research focuses on intracellular signaling pathways and related targets that are critical to disease mechanisms. RIGL’s productivity has resulted in strategic collaborations with large pharmaceutical partners to develop and market our product candidates. RIGL has product development programs in inflammatory/autoimmune diseases such as rheumatoid arthritis, thrombocytopenia, asthma and allergy, and in cancer.
Enormous Short-Term Upside for RIGL Stock
Rigel Pharmaceuticals has an expected revenue and earnings growth rate of 14.7% and more than 100%, respectively, for 2025. The Zacks Consensus Estimate for 2025 earnings has improved 26% over the last 60 days.
The average short-term price target of brokerage firms represents an increase of 83.3% from the last closing price of $16.25. The brokerage target price is currently in the range of $14 - $57. This indicates a maximum upside of 250.8% and a downside of 13.9%.
Graham Corp.
Graham designs and builds vacuum and heat transfer equipment for process industries and energy markets worldwide. GHM’s products include steam jet ejector vacuum systems and liquid ring vacuum pumps, surface condensers, Heliflows, water heaters, and various types of heat exchangers. GHM markets to chemical, petrochemical, petroleum refining, and electric power generating industries, including cogeneration and geothermal plants.
Impressive Short-Term Upside for GHM Stock
Graham has an expected revenue and earnings growth rate of 11.9% and more than 100%, respectively, for the current year (ending March 2025). The Zacks Consensus Estimate for 2025 earnings has improved 8.4% over the last 60 days.
The average short-term price target of brokerage firms represents an increase of 19.2% from the last closing price of $43.19. The brokerage target price is currently in the range of $52 - $52. This indicates a maximum upside of 20.4% and no downside.
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