In the stock-market world, large-cap stocks are the big stocks with market caps of $10 billion plus (calculated by multiplying the number of shares times the share price). Mid-caps are about $10 billion to $2 billion and small caps are $2 billion and below.
While these are not tiny companies, they are relative to large- and mid-cap stocks.
But the attractive thing about small caps, which has been true for some time now, is they continue to actually post positive earnings.
You see, many of their larger-cap brethren have had pretty stagnant earnings for several quarters now and only continue to keep their stocks moving up by buying back massive amounts of shares.
The market favors real growth over manufactured, balance-sheet growth. And that means small caps are well-positioned to dominate the markets going forward.
Here are eight small-cap stocks with straight-A potential.
Small-Cap Gems: Kingold Jewelry (KGJI)
Kingold Jewelry Inc (NASDAQ:KGJI) is China’s leading producer of 24-carat gold jewelry. But don’t think of this as a fashion play.
The Chinese are different kinds of investors than U.S. investors. They still see the stock markets like casino gambling or betting on horses.
Little regulation and transparency are the reality of many industries, and political connections also weigh on the success of many companies. But that doesn’t mean their fundamentals are strong, so it’s not unusual for companies to simply slip away.
Gold is a hard asset. It’s a store of value you can hold. And gold jewelry is a way to buy gold in smaller increments, beyond its ornamental value.
In challenging economic times like these, Chinese investors don’t look to the stock and bond markets for solutions, they look to hard assets. And KGJI is a major player that will continue to grow as markets’ volatility grows.
Small-Cap Gems: Spark Energy (SPKE)
Spark Energy Inc (NASDAQ:SPKE) is a retail natural gas and electricity producer for households and commercial businesses.
While it’s headquartered in Houston, it operates in 20 states, delivering natural gas and electricity to communities for reasonable rates.
Part of its advantage over massive utilities is the fact that SPKE is more nimble. By managing its trading portfolios well, it can offer better prices to consumers. The big utilities’ trading portfolios are so big that sometimes it’s more difficult for them to take advantage of fast-breaking opportunities.
SPKE is up 32% year to date and it still throws off a 5.3% dividend. Now, this dividend likely isn’t as safe as it would be for a big utility, but at these levels, it’s a pretty solid one.
Small-Cap Gems: Hudson Technologies (HDSN)
Hudson Technologies, Inc. (NASDAQ:HDSN) is all about refrigerants.
Now, that doesn’t sound like a really sexy niche, and it isn’t. But it is a crucial component of having a thriving economy and comfortable living standards. And after the tough summer that won’t seem to leave, it is obvious how much we rely on refrigerants on a daily, if not hourly, basis.
Refrigerators, air conditioning, shipping containers, refrigerated tractor trailers, grocery stores, vending machines, laboratories, you name it. And since the banning of freon, it has meant a new demand for more environmentally friendly R-22 refrigerant that can be used in freon-based technologies.
It is also the world’s largest refrigerant reclaimer. That means it swaps out old refrigerant for new, standard refrigerant.
This is still a small company, which means there is a lot of growth potential here; the stock is up 93% year to date and still only sits at a price-to-earnings ratio of 25.
Small-Cap Gems: Sodastream (SODA)
Sodastream International Ltd (NASDAQ:SODA) is an Israel-based company that brought the soft-drink market to the home, for DIY soda makers.
The only problem in the U.S. was, while cool, SODA had inventory and distribution problems that made it hard to get to like the product, when Coke and Pepsi were so readily available at very reasonable prices. Plus, many Americans are moving away from overly sweet drinks, and that trend hit just as SODA was gaining a foothold.
In many other countries, their access to iconic U.S. soda brands is limited by price and availability, so demand for Sodastream’s soda kit is more compelling.
And that is why 2015 turned out to be a very tough year for SODA. But in the first two quarters of 2016, SODA has rebranded and is reviving. Now, it’s a sparkling water company. In the U.S., this has meant a boom in business which is likely to continue.
Small-Cap Gems: Smith & Wesson (SWHC)
Smith & Wesson Holding Corp (NASDAQ:SWHC) is the iconic gun maker.
Few things drive up the demand for guns more than a presidential election. That’s because in an election cycle, there are usually two major candidates diametrically opposed to one another about gun rights.
If the ‘anti-gun’ candidate looks strong, then gun owners buy as many guns as they can in preparation for more restrictive purchasing laws.
Plus, because gun rights is a hot-button issue, most politicians use fearmongering as a way to raise money, and presidential election cycles are the biggest money raisers of them all.
SWHC started the year strong and then sold off in the second quarter. But it’s back now and momentum is on its side at least through the end of the year, if not longer. It’s up 23% year to date but has plenty of dramatic upside left.
Small-Cap Gems: China Lodgings (HTHT)
China Lodging Group (NASDAQ:HTHT) is the leading hotel owner, franchise and ‘manachise’ player in China. The manachise sector is its most vibrant and is a combination of management and franchise operator — it owns the franchise and then operates the hotel.
It manages a dozen brands in various capacities and has over 3,100 properties under some form of management. Just five years ago, it had 639 properties under management. That’s some significant growth.
Also bear in mind that much of the China economic engine had slowed down by then, so HTHT has been doing a very good job selling its value to hotel owners and lessors.
The Chinese hotel market is still in a growth boom, having been underserved for decades. But now, as the country opens up and its middle class expands, travel is growing significantly.
The stock is up 44% year to date, but this is just the beginning.
Small-Cap Gems: Fair Isaac (FICO)
Fair Isaac Corporation (NASDAQ:FICO) may not be a household name … unless you know what a FICO score is. This company invented it and has sold 100 billion of them around the world so far.
But the FICO credit score is just a very obvious extension of what FICO does. It has been working with financial companies in data and analytics since 1956. Now it uses Big Data to crunch the numbers and build out credit profiles for consumers as well as building financial products for its corporate clients.
Want to lease a BMW? FICO helped the company build its lease programs. There are 2.5 billion credit cards that are protected by FICO’s fraud systems. Its business niche is one of the hottest in the financial markets today.
And the reality is, it represents real growth. This isn’t just manipulating numbers on a spreadsheet, this is real, organic growth that will be sustained.
Small-Cap Gems: Meta Financial (CASH)
Meta Financial Group Inc. (NASDAQ:CASH) is a regional bank that serves South Dakota. Founded in 1954 with $10,000, it now controls about $2 billion.
There are two things that make CASH a compelling buy currently. First is the amount of new money in the Dakotas due to the energy boom in the US. Granted, the past couple of years have been tough, but now many companies are re-entering the market and turning their cash flow positive.
Even during this period, CASH was growing its revenue while keeping its non-performing loans at very low levels. And economic upturn from here will really boost Meta Financial.
Second, the growth is in smaller regional banks, not the big institutional banks. They are still a mess, by and large. But banks like CASH know the lay of the land they operate in and have a much better view of risk and reward than larger institutions that will ‘securitize’ their risk in risky derivatives. Smaller banks don’t do that.
Up 33% year to date, CASH still has plenty of headroom.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.