Springtime — or the second calendar quarter of the year — generally isn’t a great one for the broad market. While the S&P 500 tends to do well during the first three months of the year, it hits a headwind in the second three. Not so for small-cap stocks.
The S&P 600 Small Cap Index, which measures the performance of companies with market capitalizations between $300 million and $2 billion, may start the year slow, but really shines in the spring. On average, the S&P 600 advances 4% between the end of March and the end of June. It’s not a lot, but bear in mind there were some tough years in there dragging down the average.
That said, it wouldn’t be off base to favor small caps during the upcoming second quarter, particularly considering that they’re flat for the year so far, while large caps are alarmingly overbought. And if you need a little help getting started with such a search (and can stomach a little extra risk), here’s a closer look at ten small-cap stocks to buy based on their potential to double in value before the midpoint of the year.
It shouldn’t come as a surprise that several of them come from the biopharma industry. Of course, bear in the mind that the flipside of a huge potential gain is a huge potential loss. Obviously there are no guarantees in trading, and a lot of things would have to fall in place for these small-cap stocks to achieve gains of 100% or more in just three months.
Even if they only produce a fraction of that result, though, that ain’t bad. Just be smart. It could never hurt to use a stop-loss and a trailing stop with any trades on small-cap stocks.
Small-Cap Stocks to Buy: Taser International (TASR)
The past couple of years haven’t been great ones for TASR shares, but they haven’t been bad ones either. Mostly TASR stock has been bouncing around in a sideways (though narrowing) trading range. The company’s top and bottom line never stopped growing, though, with sales up a fairly typical 46% year-over-year last quarter.
OK, margins slipped a little during Q4, but that was mostly due to non-recurring expenses. With a pro-police president in place and earnings expected to nearly double next year, investors are apt to discover this undervalued name again real soon.
Small-Cap Stocks to Buy: Coeur Mining (CDE)
To be clear, silver mining name Coeur Mining Inc (NYSE:CDE) is only on a list of promising small-cap stocks to buy because silver — like gold — has the potential to fly higher from here. That will ultimately depend on a decreasing value of the U.S. dollar, though. If the greenback doesn’t stumble, this silver trade could tarnish.
The good news: The U.S. Dollar Index is still developing a technical downtrend, and silver, as well as gold, is laying the foundation for a bullish thrust.
Granted, it would take a massive move from silver to double the value of Coeur Mining shares. But never say never. The precious metals miners are highly sensitive to the price of gold, and what that leverage can’t accomplish, the stock’s forward-looking price-earnings ratio of 10.8 can.
Small-Cap Stocks to Buy: Epizyme (EPZM)
Epizyme Inc (NASDAQ:EPZM) is the first, though certainly not the last, of the small-cap stocks that could see a huge price bump this quarter, stemming from a key announcement regarding one of its drugs. Just keep in mind the downside risk of disappointing news is just as great as the upside potential in the wake of a positive development.
The catalyst is a drug called Tazemetostat, for the treatment of solid tumors. The company will discuss interim Phase 2 results at this year’s ASCO event in early June. It’s also going to be discussing Phase 2 results of the same drug as a therapy for refractory B-cell NHL (non-Hodgkin lymphoma) at the International Conference on Malignant Lymphoma (ICML) in mid-June.
Between the two, EPZM could feasibly double, though keep in mind the bulk of any bullish action could materialize before the two events.
Small-Cap Stocks to Buy: Halozyme Therapeutics (HALO)
Small-cap drugmaker Halozyme Therapeutics, Inc. (NASDAQ:HALO) is going to give traders another high-risk/high-reward scenario to think about during Q2.
The drug is called rituximab, though you’ll also hear it called by its brand name, Rituxan. Whatever it’s called, it’s already on the market as a treatment for a handful of cancers. Halozyme Therapeutics’ is different, though, in that it’s a subcutaneous form of the drug. This delivery method is already approved overseas, but is up for an approval decision in the U.S. on June 26.
It would take a lot to get HALO shares moving by triple-digits on that news alone, considering it’s not exactly a new drug or even a new delivery approach. The stock could potentially smolder between now and then, though, particularly if some other news helped in the meantime.
Small-Cap Stocks to Buy: Baozun (BZUN)
When most investors think of Chinese e-commerce companies, the name Alibaba Group Holding Ltd (NYSE:BABA) comes to mind. As it well it should. It’s a giant in the business, and it’s difficult to ignore the 800-pound gorilla in the room.
That doesn’t mean there aren’t other worthy small-cap stocks in the arena, however. In fact, the smaller size of those other companies in many may make them better, more nimble opportunities than BABA is. Baozun Inc (ADR) (NASDAQ:BZUN) is one of those names.
Baozun is self-described as “a leading, digital and e-commerce service partner in China, helping brands and retailers build e-commerce success.” The company, “connects brands and consumers using our deep local know-how and robust e-commerce supply chain technology and services. We strive to protect and enhance brands’ images online while enabling increased engagement with consumers to drive sales and profit.”
Perhaps more important, the company’s product is getting traction. Last quarter’s top line was up 25% year-over-year, and that’s been pretty much the norm. BZUN shares have sometimes reflected that growth, and other times they haven’t. The stock’s been fairly stagnant since October of last year, but with a forward-looking P/E of 13.5, that could easily change in a hurry.
Small-Cap Stocks to Buy: Harmony Gold Mining (HMY)
Harmony Gold Mining Co. (ADR) (NYSE:HMY) is in the same basic boat as the previously-discussed silver miner Coeur Mining. That is to say, its future depends on the future of gold, which is ultimately a function of the U.S. dollar.
With the greenback chipping away at lower lows though, that stage is set. HMY is one of the better bets in the business, however, because of a very compelling valuation.
Harmony Gold Mining is a standout in the gold-mining business in that it’s profitable. It swung back to a respectable profit a couple of quarters ago, and assuming nothing else changes, is currently trading at a forward-looking P/E of 4.9.
A little more bullishness in the price of gold could drive an oversized benefit for Harmony.
Small-Cap Stocks to Buy: MeetMe (MEET)
Speaking of extreme values among small-cap stocks, MeetMe Inc (NASDAQ:MEET) has plenty of it. MeetMe is the owner of a website and app that go by the same name, and ultimately perform the same function. That is, introducing people to one another based on their geographical locations at any given time.
The app and website have actually been around for a while, but for whatever reason the bottom line didn’t start to reach a critical mass until last year. Once it did though, the company never looked back. Analysts expect last year’s per-share bottom line of 47 cents to swell to 53 cents this year, though realistically speaking, a beat is in the cards.
Yet, MEET shares are only trading at a projected P/E of 7.6. They could double in price and still be fairly cheap. The lethargy that’s been holding the stock back since August could let up sooner than later, and it would take a monster-sized move to right-value this overlooks small cap.
Small-Cap Stocks to Buy: Neurocrine Biosciences (NBIX)
Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the third and last of the biopharma names on this list of stocks to buy for a potential home run, but don’t read anything into where it’s placed within the deck. It packs just as much possible wallop as Epizyme or Halozyme Therapeutics do.
If it’s going to happen, however, it’s most apt to happen on the heels of one drug being tested in two different trials. One of those trials of INGREZZA as a treatment for tardive dyskinesia (involuntary shaking) is slated for a PDUFA decision — a yes or no from the FDA — on April 11, and for the other, an update on Phase 2 trial of the drug as a therapy for juvenile Tourette syndrome is due sometime next month.
Like Epizyme it might take both catalysts to get NBIX over the 100% hump, if it’s possible to do so. Whatever the case, it’s the PDUFA outcome that will drive the lion’s share of any action.
That said, the odds look very good. INGREZZA as a treatment for tardive dyskinesia was given a priority review, suggesting the agency sees a dire need and wants to get a therapy on the market as soon as possible.
Small-Cap Stocks to Buy: JinkoSolar Holding (JKS)
JinkoSolar Holding Co., Ltd. (NYSE:JKS) isn’t a tough one to figure out — it makes solar panels and system, primarily serving the Chinese market.
It’s not been an easy business to be in of late. The company missed its fourth-quarter sales and earnings estimates, and JKS shares paid the price for it. In fact, down more than 50% since its early-2014 highs, JKS owners have been paying the price for a lot of missteps.
Things seem to be turning around, however, with the company penetrating foreign markets. Last week it inked a deal that will bring it deeper into the U.S. market, and the week before that it won a piece of the solar market in Abu Dhabi.
Traders may finally start to warm up to it.
Small-Cap Stocks to Buy: Lannett Company (LCI)
Last but not least, add pharmaceutical stock Lannett Company, Inc. (NYSE:LCI) to your list of small-cap stocks to buy for the second quarter.
Don’t misread things here. Lannett is a fine company, and brings a solid amount of value to the table. Though it booked a big one-time charge a couple of quarters ago, it’s turning a consistent operating profit, and that’s not expected to change anytime soon.
Those who know the Lannett story will likely also know LCI shares have fallen more than 40% since their August peak, calling into question any suggested bullish potential. There’s a little detail to that pullback that’s been mostly overlooked, though.
That selling has driven the short interest on the stock to a whopping 49% of the float, which makes LCI a prime short squeeze candidate.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.