This week has certainly been a wild ride. Although, given the fact that most of the movement has been down, I’m not sure how much of a “ride” it has been — more of a free fall. Large-caps, small-caps … everyone felt the pain.
But one thing is clear — interest rates are going up. And much of the bother this week was precisely because rates are no longer protected by the central banks, here or anywhere around the world. That decade is over.
Since the financial collapse, the Federal Reserve — and then other nations’ central banks — took off monetary policy to make sure there wasn’t a massive global financial collapse. It had never been done before. And no one knew if it was even going to work, much less how long it would last.
What we’re seeing now is the ultimate success of that strategy for staving off that ruination. Interest rates are rising again and now portfolio managers are reallocating assets across stocks and bonds.
And at this point in a recovery, small-caps are especially attractive. These 10 small-caps with straight-A potential are well positioned to make the most out of this recovery. These small-caps, and the sectors they represent, are more than ready for the next leg up in this market.
Imprimis Pharmaceuticals (IMMY)
Imprimis Pharmaceuticals (NASDAQ:IMMY) is a San Diego-based pharmaceutical company that specializes in compounded pharmaceuticals. Compounded pharmaceuticals are drugs that are custom built for each particular patient.
It focuses on the opthalmic formulations (pardon the pun). The company also works with pharmacy benefit managers and healthcare insurers to make sure that its formularies don’t cost the patient too much.
All this fits perfectly within the model of healthcare that the U.S. market is transitioning into. Having effective drugs that don’t cost consumers or insurers a lot of money is the perfect combination. And given its focus, as the U.S. population grays — about 10 million baby boomers are hitting 65 every year for the next 20 years — these are the kind of chronic conditions that they will need help and support with.
Even after the big selloff this week, IMMY is up 64% year to date and the best is yet to come. Either this small-cap continues to grow on its own, or a bigger player swoops in and takes it out at a premium.
Espey Manufacturing & Electronics Corporation (ESP)
Espey Manufacturing & Electronics Corporation (NYSEAMERICAN:ESP) is one of those companies that hardly hits anyone’s radar screen. But once it does, you wonder why no one is talking about the stock.
ESP has been testing, designing and manufacturing military and rugged industrial power supplies for more than 85 years. That means, if the military or say an industrial equipment maker needs reliable, heavy duty power supplies for its trucks, tanks or other machinery, it looks to ESP.
This is all ESP does. That makes it a key subcontractor on most military and industrial equipment. And while that may limit its upside, it keeps its growth consistent in slow times. But now that the defense sector is spending again, big programs will boost business for ESP. And the expanding economy means heavy equipment sales should be expanding as well.
ESP is up 17% year to date and it also has a solid 3.6% dividend. At a market cap of $67 million, growth will certainly move the stock price quickly. A $1 per share special dividend was announced last month, and net sales were up more than 20% in its last quarter.
Superior Drilling Products (SDPI)
Superior Drilling Products (NYSEAMERICAN:SDPI) is a specialized company in the exploration and production (E&P) sector of the energy patch. It’s also referred to as the upstream sector of the energy industry.
Basically, SDPI focuses on drill bits and complementary equipment for accessing oil and natural gas in the shale regions. This rock is especially hard, and that means it’s hard on drill bits. As drilling grows, so will demand for SDPI’s specialized products and services.
Its market cap is around $80 million, so it’s a focused player. But when times are good, SDPI reaps the benefits. Year to date, SDPI stock is up 125%. As the economy expands and energy demand increases, business will only get better. Plus, it’s a well-recognized name in the industry, so it will be one of the top choices in this niche sector.
Global Water Resources (GWRS)
Global Water Resources (NASDAQ:GWRS) isn’t a triple-digit small-cap growth stock. This is a long-term growth stock that manages the precious resource on Earth, especially in its home state of Arizona — water.
Focused on the Phoenix area, GWRS is more or less a water utility. It calls itself a water resource management company, which means it has a more modern approach than traditional water utilities.
In recent years, many resource companies — whether electric, water or oil and gas — have realized that by not wasting their product, they increase their ability to provide more of it for sale. That means making sure water is being delivered efficiently and that wastewater that can be recycled is getting treated. This is especially important in the arid Southwest.
GWRS is up 14% year to date and delivers a solid 2.7% dividend. If you’re looking for a good, solid small-cap growth stock with long-term potential, look no further.
ACNB Corporation (ACNB)
ACNB Corporation (NASDAQ:ACNB) is a holding company for ACNB Bank, which has been operating in central Pennsylvania for the past 160 years. It also operates a property and casualty (P&C) insurance division for businesses and consumers.
The one thing to remember with banks and insurers is they have a lot of cash that they put into ultra-safe investments like U.S. Treasuries. When rates go up, they make more off their cash.
Having managed the ups and downs of markets for more than a century and a half puts them in great shape during this kind of economic revival.
The 2.7% dividend also helps boost this small-cap’s 21% year to date return.
iRadimed Corporation (IRMD)
iRadimed Corporation (NASDAQ:IRMD) has a great niche and has built a significant moat in its sector.
It makes equipment like intravenous infusion pumps and patient monitors that are compatible with MRI equipment. Magnetic resonance imagining (MRI) equipment uses very powerful magnets to scan parts of the human body for various maladies as well as diagnostic use.
The upside of the equipment is, it doesn’t use radiation, so there’s less risk of over exposing a patient to their use. The downside is, there can’t be any metal in the room, which poses significant issues for most medical equipment.
IRMD is the leader in MRI-friendly equipment. And as MRIs become more available for diagnostics, demand for its equipment will only increase.
Allied Motion Technologies Inc (AMOT)
Allied Motion Technologies (NASDAQ:AMOT) makes motors. Electric motors. Brush and brushless DC motors. Cordless motors, digital servo drives, motion controllers and a host of similar equipment.
AMOT stock is up 33% so far this year. Why?
These are the kind of motor that are used in next-generation equipment like robots and other automated machines. This is a company that helps build the new machines that consumers usually see as a final package. We see the robots and don’t think about the companies that build the parts to make them.
Allied Motion Technologies is such a company. And the more electrified and automated our world gets, the more opportunity there is for AMOT.
B Riley Financial (RILY)
B Riley Financial (NASDAQ:RILY) is a financial services company that focuses on working with companies to raise capital and manage their financial portfolios with a variety of services. It also works with high net worth individuals.
With a half billion dollar market cap, RILY is a substantial player but it’s not one of the global powerhouses — it’s still among the small-caps. This allows it to work with firms that the bigger outfits don’t have the resources to find and in today’s tech age, grabbing some of these tech companies when they’re young can pay off handsomely.
Regardless, the better the economy does, the better it is for RILY on all fronts. This isn’t a triple-digit grower, but it will deliver solid performance for years to come. And it’s been in acquisition mode this year, this promises to pay off quickly.
DMC Global Inc (BOOM)
DMC Global (NASDAQ:BOOM) basically has two divisions that are influential players in the energy sector as well as other industrial sectors.
NobelClad specializes in explosion-welded clad metal plates that are used in corrosion resistant industrial processing equipment, like pipelines and refinery equipment.
DynaEnergetics specializes in equipment to access oil and gas wells.
Both of these companies are influential players in upstream and midstream sectors of the global energy markets, and that means, now is a great time to be in business.
With oil managing to stay above $70 a barrel during this recent market downturn, that’s a bullish sign on both the demand and supply sides for energy companies.
It’s up 47% this year so far, and there’s plenty of upside ahead.
Dorchester Minerals LP (DMLP)
Dorchester Minerals LP (NASDAQ:DMLP) is limited partnership that basically is a land holder of producing and non-producing properties in the U.S. energy patch.
Basically, this means DMLP owns land that exploration and production companies lease to look for oil or natural gas and pay part of their take as well as lease rights, to DMLP.
Set up as a limited partnership, that means investors are considered owners and receive net income distributions as dividend payments. Right now, DMLP is distributing a 11.1% dividend on top of a 26% return, year to date.
Bear in mind, we’re just at the beginning of a long-term upcycle in energy demand, so these kinds of returns could continue for years in small-caps.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, 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.