I am a London-based financial writer and editor with a goal to make complex ideas in finance and economics accessible to everyone through plain English…
Adding small-cap stocks to your portfolio is a great way to diversify it and improve its performance. They often carry more risk and volatility than large caps, but they can also have huge growth potential to make up for that. Small-cap stocks tend to have lower prices, making them more affordable for individual investors.
The following list includes 10 of the top small-cap stocks to watch this year. Several of them have seen triple-digit share price growth over the past year. Others have grown more modestly, but thanks to new drivers, could turn into big gainers this year. Small companies may not have the capital that larger companies do, but they can be more agile and innovative, and often become acquisition targets, leading to a price jump.
The definition of small-cap stocks varies, but for the purposes of this article, we’re only including stocks that have a market capitalization of below $3 billion.
Top Small-Cap Stocks to Buy in 2024
ACM Research: The company focuses on cleaning technologies for advanced semiconductor devices and is benefiting from the rise of AI.
OFG Bancorp: The diversified financial holding company operates Oriental Bank, Oriental Financial Services and Oriental Insurance primarily in Puerto Rico and the U.S. Virgin Islands.
NMI Holdings: The parent of the National Mortgage Insurance Corporation, which provides private mortgage insurance. The stock trades at under eight times earnings, well below industry averages.
Pacira Biosciences: The biopharmaceutical company focuses on non-opioid pain management therapies.?
Eyepoint Pharmaceuticals: The clinical-stage biotech company focuses on therapies to treat serious eye diseases.
Root Insurance: The fast-growing auto insurance company keeps rates down by only insuring drivers with clean driving records.
Gigacloud Technologies: It is a pioneer of end-to-end business-to-business (B2B) e-commerce tools for large parcel merchandise.
Lindblad Expedition Company: The company focuses on high-end ecotourism trips on all seven continents, particularly to wealthy clients who are 50 and older.
Esperion Therapeutics: The pharmaceutical company focuses on heart medication. Its litigation settlement with Japanese pharmaceutical company Daiichi Sankyo points to strong potential for growth this year.
Blackrock Capital Investment: The business development company provides debt and equity capital to middle-market companies. It has the smallest market cap on this list and is the only one that pays a dividend.
A Closer Look at the Top Small-Cap Stocks in 2024
Let’s take a more in-depth look at the top small-cap stocks to invest in this year:
1. ACM Research – Best Small-Cap Stock for Continued Growth
Cleaning technology is a critical component of semiconductor manufacturing, and there can be as many as 200 cleaning steps in the process. ACM makes production equipment and service tools for single-wafer or batch wet cleaning, electroplating and stress-free polishing for chipmakers.
ACM posted 2023 revenue of $557 million, up 43% and earnings per share (EPS) of $1.29, up 95.4%. This year, it expects to bring in between $650 million to $725 million in revenue.
The cleaning technology supplier has three facilities in Shanghai, and most of its business is selling high-tech wafer-cleaning equipment to Chinese semiconductor foundries. The growth in AI is driving the need for more semiconductors, and ACM’s sales already appear to be benefiting from that rise.
2. OFG Bancorp – Contributing to Puerto Rico’s Recovery From Hurricane Maria
OFG, based in San Juan, Puerto Rico, is entering its 60th year. It does consumer banking and lending, as well as commercial banking and lending and wealth management for corporate and individual clients. The company has found success through its ‘Digital First’ strategy, which has lowered costs with 93% of routine transactions now done through self-service channels.?
The bank is tied to Puerto Rico’s own recovery after Hurricane Maria devastated the island a little more than six years ago, leading the U.S. Caribbean territory’s government into bankruptcy.
The company said it had a record number of loans, a majority of them commercial loans, customer deposits, and assets. In fiscal 2023, OFG earned revenue of $682.7 million, up 12.3% and had EPS of $3.83, an increase of 11.3%. One concern is the company’s interest rates on its loans will likely contract if the Fed cuts rates, as expected.?
OFG just raised its quarterly dividend by 13.6% to $0.25, increasing it for a third consecutive year. The payout ratio is only around 23%, so dividend increases are likely to continue.
3. NMI Holdings – Rising Housing Costs Lead to Improved Profits
High housing prices and increasing interest rates are expanding the pool of borrowers who are required by their lenders to buy private mortgage insurance, because they can’t come up with the 20% down payment needed to avoid PMI. That’s bad news for borrowers, but good for NMI Holdings, which focuses on PMI.
In fiscal 2023, the company reported net income of $322.1 million or $3.84 in EPS, compared to $292.9 million or $3.39 in EPS in 2022. Revenue in 2023 was $579 million, up 10.6%. Other key numbers also rose. Book value per share, a measure of net worth, climbed 23.3% and its cash and cash equivalents more than doubled to $96.7 million.
The number of policies continue to grow. As of the fourth quarter, $197 billion in primary insurance in force (PIF), was up 1% sequentially and 7% year over year. PIF is a metric that shows the total dollar amount of outstanding coverage NMI has on all its active primary mortgage insurance policies, and shows earnings should continue to grow.
4. Pacira Biosciences – Lead Drug Expected to Grow Sales
The Florida biopharmaceutical company, late last year, named a new CEO, Frank D. Lee. It has three non-opioid pain management therapies, but its biggest seller is Exparel, which surpassed 14 million patients in 2023, leading to a record year for revenue. The passage of the Non-Opioids Prevent Addiction in the Nation (NOPAIN) Act late last year, benefits Pacira because it directs the Centers for Medicare & Medicaid Services (CMS) to deliver separate Medicare reimbursement for non-opioid treatments used to manage pain in both the hospital outpatient department (HOPD) and the ambulatory surgery center (ASC) settings.
Pacira had 2023 revenue of $675 million, up 1% and net income of $42 million, up 164%. Exparel saw $538.1 million in 2023 revenue and this year, the company is planning to launch the drug in new nerve-block indications, after approval from the FDA in November. The first, as an adductor canal block as an anesthesia and analgesia for surgery of the knee, medial lower leg, and ankle surgeries. It also gained approval as a sciatic nerve block for foot, ankle, Achilles tendon, and other lower leg surgeries.
The company has two other marketed therapies, Zilretta, a corticosteroid used for osteoarthritis knee pain, which saw sales increase 5% to $111.1 million and iovera, a system that applies cold therapy to block pain from a nerve, whose 2023 sales were $19.7 million, up 29%. The combination of higher sales and increased indications for Exparel has led Pacira to predict 2024 revenue to be between $680 million and $705 million, a rise of 2.5% at the midpoint.
5. EyePoint Pharmaceuticals – A Promising Therapy is Close to the Finish Line
EyePoint isn’t profitable yet and it doesn’t have any marketed therapies, but it’s on the precipice of a very promising therapy in EYP-1901. The sustained delivery contains vorolanib, a selective tyrosine kinase inhibitor that targets specific molecules or pathways involved in the development of a disease.
EyePoint just dosed its first patient in a Phase 2 trial to treat diabetic macular edema (DME), when damaged blood vessels leak fluid and cause swelling, blurring a patient’s vision. It affects approximately 28 million people worldwide. EyePoint also has the EYP-1901 in a pivotal Phase 3 trial to treat wet, age-related macular degeneration (AMD), which is the most common cause of severe loss of eyesight among people 50 and older.?
EyePoint is in a relatively strong position financially. As of the third quarter, it said it had $136 million, enough to fund operations into 2025. In the meantime, it had collaborative revenue of $31.9 million through nine months, up 3%, year over year.
6. Root Insurance – Technology-Driven Auto Insurer
Root is looking to be a disruptor among auto insurers because of its data-driven methods that are designed to weed out bad drivers – and bad risks. The company, which was founded in 2015 and had its initial public offering only four years ago, has shown steady growth.
Root is coming off a record year with $455 million in revenue, up 46.4% and total policies in force of $341.7 million up 55%. It isn’t profitable yet but is definitely headed in that direction. In 2021, it lost $521.1 million in net income. In 2022, it was $297.7 million and in 2023, it was $147.4 million. That trend continued into the fourth quarter with the company losing $24 million, an improvement of 59%, year over year, while adjusted EBITDA improved 99% over the same period last year to a loss of $0.3 million.
The biggest concern with Root is that it relies so much on its mobile app to determine whether drivers are a good risk or not. With growing privacy concerns about data collection, the disruptor’s own business model could be disrupted if privacy laws force it to change its data collection methods.
7. GigaCloud Technologies – Delivering Cost Savings, Convenience to Resellers
GigaCloud’s business model of a B2B e-commerce platform for large parcel merchandise sounds complicated, but it isn’t. Basically, a supplier can list a large item, such as a dining room table, on GigaCloud’s online marketplace and resellers such as Target,? Amazon, or Wayfair can purchase those items, then sell them again to the public directly on their websites without having to have the items shipped to their warehouses.?
Instead, the items are sent from one of GigaCloud’s 24 warehouses, directly to the consumer. It saves money for resellers, means less shipping costs and time. GigaCloud makes its money from transaction fees of between 1% and 5%.
In the third quarter, the company reported revenue of $178.2 million, up 39.2%, year over year, with net income of $24.2 million, up 3,357.1% over the same period last year. The company, which began mostly with large furniture from Asia, now has branched out to handling home appliances, fitness equipment and gardening. Late last year, it spent $85 million to buy Noble House Furnishings, a leading B2B distributor of indoor and outdoor home furnishings, as well as $10 million to buy Wondersign, a provider of electronic product catalog systems for retailers. Neither deal contributed to third-quarter earnings, but in the fourth quarter, the company has estimated an increase in revenue to between $217 million and $223 million as an impact.
8. Lindblad Expeditions – Expanding to Meet Increased Demand for Ecotourism
Lindblad partners with National Geographic to provide one-of-a-kind travel experiences, taking clients on cruises and land excursions to exotic locations such as Antarctica, the Galápagos Islands, French Polynesia and Patagonia. Its business has bounced back from its pandemic lull.
In fiscal 2023, Lindblad had revenue of $569.5million, up 35%, with the increased business coming from expanded tour offerings, and a 12% increase in net yield per available guest to $1,097 per night, as well as a 77% higher occupancy rate, up 2% from 2022.
Lindblad isn’t profitable, but it has cut down on its net loss to $50 million from a loss of $116.1 million in 2022. The company’s connection with National Geographic gives its tours cache, and it just extended its agreement with National Geographic through 2040. The one concern is the company has, as of Dec. 31, total debt of $635.1 million, up from the $565.8 million it owed in 2022.
9. Esperion Therapeutics – Big Settlement, Label Expansion
Esperion Therapeutics focuses on cholesterol-lowering medications. The company resolved litigation with Japanese pharmaceutical company Daiichi Sankyo regarding milestone payments. The extra $100 million it earned from the settlement will help it in its expected launch in Europe of two heart medications this year. The settlement also patches up the collaboration between the two.
“We are now exceptionally well positioned to fund our commercial launch, increase our coverage and market share, advance our preclinical pipeline, and bring our first-in-class therapies to millions of patients globally who need them,” Esperion CEO Sheldon Koenig said.
In fiscal 2023, Esperion saw revenue rise 54% to $116.3 million. It also cut its losses a bit, posting a net loss of $209.2 million in 2023 after losing $233.7 million in 2022.
Nilemdo and Nustendi, already approved as Nexletol and Nexlizet in the U.S., are expected to be approved in Europe early this year. Both drugs are non-statin oral medicines designed to help patients who are at a high risk for atherosclerotic cardiovascular disease.
BlackRock Capital Investment is a business development company (BDC) that invests in middle-market companies, providing senior debt securities, a type of loan or loan that has priority over other debts if a company goes into bankruptcy or liquidation. The company’s loans included 85% first-lien loans, compared to just 50% three years ago.
BDCs can set higher interest rates because their clients are considered higher risks, so BDCs are for investors who are less conservative. The good news is BDCs generally pay high dividends. BlackRock’s quarterly dividend of $0.10 equals a yield of 10.61% and it has a 128% total dividend coverage ratio, meaning it has $1.28 in net income for every $1 it pays in dividends, a good sign.?
BlackRock has a diverse portfolio, led by healthcare technology companies, software businesses and diversified financial services. In 2023, the company reported net income of $36.6 million, up 24.4%. The company also increased net asset value per share (which shows the inherent value of a company’s investments, minus liabilities, divided by the total number of outstanding shares) to $4.39, compared to $4.35 in 2022.
Companies with smaller market caps can be great stocks for building wealth, provided they are seeing growth in revenue and in profits. They generally are not set-it-and-forget-it stocks as they are more vulnerable to economic downturns. You also need to do more research before buying them as they are often not well covered by analysts or financial media.?
Look for a Unique Advantage
The best small-cap stocks have found a successful niche that isn’t easily duplicated by competitors. Companies such as Lindblad Expeditions, Root and GigaCloud Technologies have their own moats that are helping them grow revenue and earnings.
Thinking Small Can Be an Edge
Many of these top small-cap companies aren’t well known yet to investors. In some cases, such as GigaCloud Technologies, that’s because they do most of their businesses with other companies, not consumers. Or they may be a relatively small pharmaceutical company with a new drug that is growing sales. In either case, their stock prices haven’t been driven up yet by people with a fear of missing out, despite their financial improvements.
Consider Small-Cap ETFs
Small-cap ETFs are a good way to cut down on the risk that may be associated with investing in just one small-cap company while still finding the growth potential in small-cap stocks. Some successful ETFs to consider:
Invesco Dorsey Wright SmallCap Momentum ETF (DWAS): It focuses on small-cap stocks with strong momentum, and it has returned 18.54% over the past 12 months.
Pacer US Small Cap Cash Cows 100 ETF (CALF): It screens the S&P SmallCap 600 for the top 100 small-cap companies based on free cash flow yield and it has returned 23.56% over the past year.
Invesco S&P SmallCap Value with Momentum ETF (XSVM): The ETF combines value and momentum investing strategies for small-caps and has seen a 12.17% return over the past year.
AltIndex uses AI to analyze various factors and assign a ranking score for stocks. The ranking may help point the way with growth stocks that are still early in their developmental stages.?
Small-cap stocks don’t get the coverage that larger stocks do, either in the media or from analysts. AltIndex’s AI analysis might uncover companies with promising fundamentals that haven’t yet gained mainstream attention, potentially leading to undervalued stocks.
The service utilizes a variety of sources for its data, including social media, app downloads, customer satisfaction ratings, and other information regarding a company.
AltIndex gathers the information regarding a company, compares it to similar companies and uses machine learning to come up with investment insights. Stocks are scored from 1 to 100, simplifying the decision-making process for investors.
AltIndex has more than 10,000 members and is widely used. It provides more than 100,000 unique daily stock insights and alerts, and has a very strong win rate of 75% from its AI stock picks.
You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well many other useful features.
Investing in small-cap stocks is a great way to diversify your portfolio. Historically, they can yield better returns than large-cap stocks, as long as you are comfortable with a higher level of risk. If you’re willing to do the research, small-cap stocks can be a great way to build wealth.?
Unlike larger companies, small-cap stocks can be more agile in adapting to market changes. They also may have years of price appreciation and growth ahead and they provide the opportunity to get in on the ground floor of an up-and-coming business. Long-term investors in small-cap stocks can be amply rewarded.
ACM Research is in the right place at the right time as it is a good pick-and-shovel business connected to semiconductor companies in its position as a manufacturer of cleaning technology in semiconductor manufacturing. The stock is up more than 100% over the past year and last year, it saw double-digit growth in revenue and earnings.
What are the benefits of small-cap stocks?
By their very nature, small-cap stocks are not as well-known as regular stocks, so they are less likely to be overpriced. It’s also worth noting that they generally trade at more accessible prices and fortunes can be made by investing early in small-cap stocks that have strong potential. While their lack of capital can make small-caps riskier than larger companies, it’s worth noting that some of the most successful companies in the world began trading as small-caps, including Apple (NASDAQ: APPL), Amazon (NASDAQ: AMZN) and Microsoft (NYSE: MSFT). Imagine what your net worth might look like if you had invested heavily in those stocks’ IPOs.
What are the risks of small-cap stocks?
Small-cap stocks are generally more volatile than larger companies. So, if the company is facing bad news, the downward pressure on the stock can be overwhelming. If Johnson & Johnson is facing a billion-dollar lawsuit, investors shrug. If a small-cap is facing a huge lawsuit, that can be catastrophic to its business model and certainly to its stock price.
I am an experienced journalist who has also worked as an editor and writer at the Savannah Morning News, Salt Lake Tribune, USA Today, Stars and Stripes, and The Motley Fool. I spent the first half of my career in sports journalism, but in recent years have switched to writing about my other passion, stocks, particularly healthcare, real estate and consumer staples stocks. I've won numerous journalism awards from the Associated Press and state press associations and have been a judge for the Georgia Sportswriters Association. I've written one non-fiction book, Just One More Time, about Georgia Southern football, and…
