While 2016 hasn’t been a great year for the stock market, there’s a light at the end of the tunnel now: 2017 should be a better one for the market than the current year has been.
And while 2017 should be solid for all segments of the market, small-cap stocks are particularly well-positioned for a breakout year.
See, unlike their large-cap counterparts, small caps have continued to grow their top and bottom lines this year, and are expected to remain on that trajectory through next year. Small-cap stocks have been held back all the same,though, which makes them quite undervalued as a result.
With that as the backdrop, here’s a closer look at the top 10 small-cap stocks to buy headed into 2017. These names may have the potential double in price in the coming year, for a combination of fundamental and technical reasons.
In no certain order …
Small-Cap Stocks That Could Double: SkyWest (SKYW)
Most investors would say SkyWest, Inc. (NASDAQ:SKYW) is wrapping up 2016 in an overbought condition, leaving it ripe for profit-taking in 2017.
They’d be mostly right. SKYW shares are up 58% year-to-date, and that’s with a 26% stumble in January.
Even with the big run-up, though, there’s still plenty of value here. SkyWest shares are only trading at 10.6 times the airline’s trailing earnings, and its forward-looking P/E is is sitting right on 10. SKYW also is in the habit of topping estimates, having done so in each of its past nine quarters.
Perhaps more catalytic than the fact that SkyWest’s small size makes it easier to manage, however, is that analysts are just starting to warm up to how well the company is doing.
Small-Cap Stocks That Could Double: Axcelis Technologies (ACLS)
The market has several well-known semiconductor stocks.
Axcelis Technologies Inc (NASDAQ:ACLS) isn’t one of them.
The past year has been forgettable for ACLS shareholders. Revenue and earnings have dwindled, and although it looked as if the stock was finally pulling out of a funk in the latter half of the year, the rally was upended just last week.
Axcelis’ third-quarter earnings report was the culprit. The bottom line topped estimates, but that’s the only positive that came out of the numbers.
Still, 2017 is anticipated to be a huge turnaround year. Profits are projected to grow from 29 cents per share to 84 cents, and revenue is forecast to grow 19% from 2016’s top line. It sounds overly ambitious, but Axcelis Technologies has a not-so-secret weapon — its new Purion line of implanters is being met with firm demand.
Small-Cap Stocks That Could Double: Cogent Communications (CCOI)
Cogent Communications Holdings Inc (NASDAQ:CCOI) offers a handful of web-oriented services, but its flagship product is its broadband service.
And yes, it can compete with the big boys. The proof of the pudding is in the numbers. Last quarter’s top line was up 10% on a year-over-year basis, extending the company’s growth streak to several years.
What’s really apt to drive CCOI to the top of the heap among small-cap stocks, though, is the way margins are starting widen. Cogent Communications has enough scale now that it can really start making some money, and 2017 is the year it’s expected to start happening. The pros say Cogent is expected to report income of 67 cents per share next year, up 81% from 2016’s projected earnings of 37 cents per share.
Small-Cap Stocks That Could Double: Steelcase (SCS)
Steelcase Inc. (NYSE:SCS) shares are down 30% since December, with the bulk of the damage being done that same month in the wake of a disappointing quarterly report and an equally disappointing outlook.
A funny thing happened on the road to disaster, though: Steelcase never got there. SCS didn’t see an enormous sales plunge, and year-over-year earnings continue to rise.
Margins for the maker of furniture settings and interior architectural products really started to widen in a big way too, and started to outright explode last quarter.
Throw in next year’s expected 23% improvement in per-share profits and the trailing P/E under 10, and SCS could dish out some pleasant surprises real soon.
Small-Cap Stocks That Could Double: 1-800-Flowers.Com Inc (FLWS)
Yes, the company that delivers flowers ordered online is also setting up surprisingly significant returns.
Don’t sweat the recent quarterly loss that 1-800-Flowers.Com Inc (NASDAQ:FLWS) booked. That’s the norm. Indeed, the company is usually only profitable one quarter per year. What a quarter it is, though, more than offsetting the losses suffered during the other three.
While the fundamental value is solid enough for 1-800-Flowers.Com right now, what’s really compelling about FLWS here is the chart.
Last year was downright miserably for 1-800-Flowers.com shareholders. The stock pulled back from a high of $13.46 to a low of $6.11 hit in January of this year. FLWS has rebounded in the meantime, but not fully. In fact, it has stagnated since July. The undertow is shifting, though, and shares are knocking on the door of a breakout that looks an awful lot like a the last part of a cup-and-handle pattern.
Once this stock gets rolling, it probably won’t slow down.
Small-Cap Stocks That Could Double: Oxford Immunotec Global (OXFD)
Oxford Immunotec Global PLC (NASDAQ:OXFD) is a bit of a tough sell in that it’s neither profitable nor expected to become profitable in 2017.
It’s a biotech stock, though, and in the world of small-cap stocks in the biotech sector, progress is the key. Oxford Immunotec Global is making progress.
Oxford Immunotec Global is the name behind several diagnostic tests, but its claim to fame is its tuberculosis test. The company also is the only national laboratory that performs T-SPOT diagnostics. It got a slow start, and for a long while the bigger the top line got, the bigger the loss grew. But with last quarter’s 45% top-line growth, OXFD finally started to cut into its loss.
With newfound hope in hand, OXFD shares are starting to pull out of a long-term funk.
Small-Cap Stocks That Could Double: Dave & Buster’s (PLAY)
Restaurant and entertainment name Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) may have undermined its solid second-quarter report a couple of months ago with a lackluster Q3 outlook. Same-store sales guidance wasn’t what it was hoped to be.
PLAY shares fell a total of 17% from high to low in the wake of the report.
However, BMO Capital Markets was right about the stock shortly thereafter — it became a buy after the pullback. BMO wrote, “We believe PLAY is among the best ways to position in the current restaurant environment given its amusement-led business model, while also offering compelling near- and long-term growth potential and opportunities created by strong cash generation at a valuation misaligned with its growth profile.”
Small-Cap Stocks That Could Double: Solaredge Technologies (SEDG)
In light of the painful drama that solar stocks have performed this year, it would be easy to conclude the industry is fundamentally flawed. But solar power isn’t the problem — it’s management efficiency.
There are several small-cap stocks to buy within the sector, however, that aren’t hitting those systemic headwinds that make it impossible to turn a profit in the business.
Solaredge Technologies Inc (NASDAQ:SEDG) is one of those small caps.
SEDG offers a soup-to-nuts set of solutions to the solar power industry, including panels, power inverters and storage.
The company is profitable, too. Better still, SEDG is valued nicely at a trailing P/E of 8.2 and a forward-looking P/E of 7.9.
The projected 2016 per-share profit of $1.79 isn’t leaps and bounds better than last year’s $1.74, and 2017’s expected $1.81 isn’t a show-stopper either. Solaredge has a history of sizeable earnings beats, though, and is apt to perform better than currently anticipated.
Small-Cap Stocks That Could Double: Albany Molecular Research (AMRI)
Albany Molecular Research, Inc. (NASDAQ:AMRI) is categorized as a biopharma, but it’s not a drug developer in the traditional sense. AMRI does contract work, taking someone else’s science and doing the R&D work for them.
In many ways, it’s a better (lower-risk) way of being in the business.
A cursory look at the stock doesn’t reveal the value. The company has lost $33 million over the course of the past four quarters, and AMRI shares are down 27% for the past couple of years. However, analysts expect Albany Molecular Research to swing back to a profit next year, on sales growth in strong double-digit territory.
In fact, the forward-looking P/E of 11.6 arguably undervalues AMRO relative to its growth pace.
Small-Cap Stocks That Could Double: Sucampo Pharmaceuticals (SCMP)
Finally, add Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP) to your list of small-cap stocks to buy before the new year begins.
Sucampo Pharmaceuticals is a one-trick pony, but it’s one heck of a pony. Called Amitiza (lubiprostone), the drug has proven a great treatment for chronic constipation, chronic idiopathic constipation (CIC) in adults, irritable bowel syndrome with constipation (IBS-C) in adult women and opioid-induced constipation (OIC) in adults with chronic non-cancer pain.
No, it’s not sexy. It is marketable, though, and it’s becoming more marketable every day. Last year’s top line was up 33%, and this year’s is expected to grow 35%.
Profits are projected grow by that much next year, proving SCMP is on the right track.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.