When it comes to finding the best returns, smaller really is better. Small-cap stocks have managed to outperform their larger brethren over the long haul.
Since the creation of the S&P SmallCap 600 index back in 1994, the index of America’s smallest 600 stocks has managed to produce a higher cumulative return than the large-cap S&P 500 index. Small-cap stocks in the index have managed to return 209% vs. 188% for their larger twins.
Looking back further, the power of small-cap stocks is even more pronounced.
According to studies conducted by famous economists Eugene Fama and Kenneth French from 1926 to 2012, small-cap stocks managed to outperform large-caps by a cumulative extra return of 253%.
When it comes to finding high returns, small-cap stocks just can’t be beaten. With that in mind, here are three small-cap stocks to buy today.
Small-Cap Stocks to Buy: B&G Foods, Inc. (BGS)
Not all small-cap stocks operate in fast moving industries. There’s nothing particularly exciting about being a purveyor of pickles, hot sauce or taco shells. But for B&G Foods, Inc. (NYSE:BGS) and its shareholders, being boring has worked out very well for their bottom lines.
BGS stock has managed to gain a whopping 220% since its IPO back in 2007. The firm’s brands are pretty well-known and include brands and products such as Ortega, Cream of Wheat and Mrs. Dash.
However, the firm has been on the acquisition hunt in recent months. That included buying vegetable brand major Green Giant from General Mills, Inc. (NYSE:GIS), Victoria Fine Food’s pickle business as well as Spice Islands, and Tone’s from ACH Food Companies. These buyouts have only helped boost sales for the small-cap stock. During its latest quarter, B&G saw sales jump by over 49%.
They’ve also helped boost BGS’ dividend.
BGS has a long history of raising its payout based on the steady and rising nature of its food brands. The latest was a 10% bump. The stock now yields 4.3%.
While dull, BGS exemplifies what makes small-cap stocks great. For investors looking to get their feet wet, B&G Foods is a great pick.
Small-Cap Stocks to Buy: Tetra Tech, Inc. (TTEK)
Many small-cap stocks are big players in their respective industries. A prime example of this is Tetra Tech, Inc. (NASDAQ:TTEK).
While not a household name, TTEK has done some big things over the years. The firm provides engineering, construction and technical services for various infrastructure and environmental projects. This includes everything from environmental regulation compliance to building offshore oil pipelines.
But where Tetra has made a major splash is in the construction/design of water treatment and desalination plants. Tetra Tech has been ranked the No.1 water engineering firm for 13 years in a row.
And its history of water innovation goes back further than that. TTEK has been developing desalination facilities in Florida since the 1990s and developed California’s first plant back in the 1970s.
This focus on designing and planning a full range of infrastructure projects makes Tetra a prime play for President Trump’s plans to rebuild America’s roadways, bridges and other economic backbones. This includes a hefty dose of spending on water. And while TTEK’s domestic environmental offerings may suffer over the next few years, the firm is global and operates on every continent.
This global reach has allowed TTEK to report rising earnings and a big jump to its backlog of new projects. It has also enabled them to raise their — albeit token — dividend over the last few years.
Small-Cap Stocks to Buy: Carrizo Oil & Gas Inc (CRZO)
Without the large cash balances, cheap access to credit and mega-operating cash flows, many small-cap stocks in the energy sector have suffered hard over the last few years as oil prices have dropped.
That hasn’t been the case for Carrizo Oil & Gas Inc (NASDAQ:CRZO). The independent E&P firm is one of the strongest frackers out there.
The small caps’ strength comes from its main stomping grounds. The Eagle Ford, Niobrara, Marcellus and Utica shales are all America’s best-producing regions and this small cap E&P firm drills in them all.
Perhaps more importantly, theses are some of the best margined and lowest cost regions as well. Places like the Eagle Ford feature low breakeven points for operators. Especially those with scale behind them.
And Carrizo has been increasing its already large scale even further with acreage purchases such as its recent buy from Sanchez Energy Corp (NYSE:SN). With oil rising, CRZO should be able to get back on the profit train sooner than later, thanks to this operating area.
That is if it doesn’t get bought out first. Because of its strong operating profile, low debt and prime acreage, CRZO is often touted as a buyout candidate for a larger energy firm.
For investors looking for a small-cap stocks play in the energy sector, you could do a lot worst than Carrizo.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.