Editor’s note: This story was previously published in April 2018. It has since been updated and republished.
The market was up 22% over the course of the past year, led by giants like Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB), before the bottom finally fell out and investors’ fears for a correction materialized.
There are plenty of off-the-radar, highly compelling names from the small-cap realm that may well shrug off a market downturn and do their own thing.
Which stocks, you ask?
There are several out there, but they might be difficult to find because of their diminutive size. If you’d rather not start that search on your own, here’s a look at ten small-cap stocks to buy. These small caps are not sure things, but they bring as much reward potential to the table as risk.
As with all risky investments, these high-risk stocks to buy have to be kept on a short leash and require plenty of monitoring. But considering their potential, they could be well worth the time and effort.
Axon Enterprise Inc (AAXN)
Year-to-date gain: 22.22%
Axon Enterprise Inc (NASDAQ:AAXN) is anything but a household name. For military and police personnel, however, Axon is a familiar maker of TASER guns, body cameras and a few more related accessories. In fact, the company used to be called TASER International.
Last year was a pretty good year for Axon. It shook off a miserable 2017 and its relatively young Evidence.com venture, which helps law enforcement better manage digital evidence, is a recurring revenue machine that’s starting to get some serious traction. Recurring revenue evens out the inherent swings of selling long-cycle hardware like stun guns and body cameras to organizations that require bureaucratic approval.
Innoviva Inc (INVA)
YTD gain: –17.6%
Innoviva Inc (NASDAQ:INVA) wouldn’t be anywhere without GlaxoSmithKline plc (ADR) (NYSE:GSK). The two companies work hand-in-hand to make and market inhaled drugs like Anoro and the combination drug Relvar/Breo. Both of these therapies are delivered through Innoviva’s Ellipta device and treat respiratory problems asthma and COPD.
While Innoviva may seem reliant on medicines made by Glaxo, Glaxo is no less dependent on Innoviva’s delivery system. Even the FDA approvals are for the combination of the drugs and the device together.
And neither company is eager to leave the arrangement.
Even with royalty rates that are only a small fraction of either drug’s sales, Innoviva’s revenue grew an estimated 63% in 2017.
Axcelis Technologies Inc (ACLS)
YTD gain: 16.83%
Axcelis Technologies Inc (NASDAQ:ACLS) isn’t so much a semiconductor company as it is an outfit that serves semiconductor manufacturers. It makes a variety of equipment (like its Purion Ion Implanter) used by chip companies so its future is more or less the same as that of chip makers.
And the pros think that future is a bright one. After growing the top line an estimated 50% in 2017 it kept moving, adding something like another 11% in 2018. That doesn’t sound like a lot, but bear in mind that the outlooks for the economic boom following recent tax cuts are strong. And these cuts could prove stunningly supportive for small cap stocks.
With an average price target of $34.40, analysts say this small cap stock is undervalued to the tune of 32%.
Craft Brew Alliance Inc (BREW)
YTD gain: -2.4%
Contrary to popular belief, the global craft beer movement isn’t a fad that’s run its course. It’s just matured. We won’t see the booming growth rates of yesteryear, but as of the middle of last year the annual revenue growth rates for the industry had leveled off at 5%.
Enter Craft Brew Alliance Inc (NASDAQ:BREW), one of the more mature players positioned to make the most of the market. Last year’s 3.6% increase in revenue should only marginally improve to 5.7% this year. But, that’s not the point.
That modest revenue growth should be enough to push Craft Brew Alliance well into the black. The per-share profit of 5 cents in 2016 is now up to 23 cents in 2019 and still looks to grow. Most traders just aren’t watching and won’t see it coming.
Crocs, Inc. (CROX)
YTD gain: 4.2%
Crocs, Inc. (NASDAQ:CROX). If the name rings a bell, there’s a reason this company was all the rage a decade ago when its hyper-comfortable shoes were discovered by consumers in search of foot-based bliss. The euphoria eventually died down, and Crocs has almost fallen off everyone’s radars.
Like many other fashion trends though, the goofy-looking foam shoes never died; they just went away for a while. Now they’re back with a vengeance. The shoes recently showed up on fashion show runways flaunting designs from Christopher Kane and Balenciaga.
After that, things could get really interesting. Stifel Nicolaus analyst Jim Duffy recently upgraded Crocs, explaining:
“In combination with growth opportunities in Europe, China, and Korea, we have more confidence in 2018 revenue potential. With evidence of brand relevance and more deliberate communication of SG&A reduction objectives, we expect increased appreciation for 2019 earnings potential as the year unfolds and believe shares outperform.”
AeroVironment, Inc. (AVAV)
YTD gain: -0.05%
Drone mania isn’t exactly new, but we’ve only scratched the surface of how these flying tools can be utilized to make life better and easier. They don’t have to just be military hardware.
That’s something AeroVironment, Inc. (NASDAQ:AVAV) knows quite well . Though AeroVironment is best known for supplying flying hardware for the military, it’s making new headway in the civilian market too.
Last month AeroVironment unveiled a $16,5000 autonomous drone that analyzes crops and ultimately improves crop yield. And that’s just a microcosm of the mainstreaming of drones.
Once institutional-level organizations realize what all a drone can do (aside from farming), AeroVironment is perfectly-positioned to capitalize on the opportunity.
TiVo Corp (TIVO)
YTD gain: -1.4%
The cord-cutting movement is not only undeniable, it’s accelerating. But there’s a problem: Switching between aerial antennas and OTTV boxes can be a pain. Plus, when cable customers give up their cable television boxes, they also give up their digital video recorders.
Enter TiVo Corp (NASDAQ:TIVO). Yes, this is the same TiVo that powers the DVR portion of some cable and satellite television receivers. It also makes a variety of air-wave receivers and over-the-top streaming boxes as well. More recently, it’s making all-in-one solutions that combine the convenience of recording, the option of airwave-delivered television and the accessibility of on-demand video services like Netflix or Hulu.
The more cord-cutting we see, the better it is for TiVo.
Comtech Telecomm. Corp. (CMTL)
YTD gain: -2%
The average investor may not fully understand what Comtech Telecomm. Corp. (NASDAQ:CMTL) makes and markets. Its technologies are used in satellite-based cellular connections, HD television broadcasting, military and law-enforcement tracking systems and more. Basically, Comtech produces a collection of technologies — like solid-state amplifiers — whose time has finally come.The company is looking to come back in a big way.
In its most recent quarterly report,
“[G]iven the successful execution of our business strategies to-date, we are updating our fiscal 2019 target guidance and increasing our revenue goal to a range of approximately $645 million to $660 million, and increasing our adjusted EBITDA goal to a range of approximately $85 million to $89 million. We’re also updating our GAAP diluted EPS goal to a range of $0.86 to $0.98. We also believe if order flow remains strong as we think it will, it is possible that the consolidated net sales and adjusted EBITDA could be higher than our targeted amounts.
It looks as if the Comtech turnaround is fully underway.
Ligand Pharmaceuticals Inc. (LGND)
YTD gain: -7.2%
Last year was a big breakout year for Ligand Pharmaceuticals Inc. (NASDAQ:LGND). Profit margins widened to levels that make too good a value to pass up until it all came tumbling back down in December. But this stock is already on its way back up.
Ligand’s business model relies primarily on partnering with bigger players by owning the rights to either pharmaceuticals or the underlying IP needed to make them. For instance, Captisol is a chemical structure that improves the efficacy of the active ingredients in drug treatments like VFEND, from Pfizer Inc. (NYSE:PFE), and Naxafil-IV from Merck & Co., Inc. (NYSE:MRK). Amgen, Inc. (NASDAQ:AMGN) also relies on Ligand’s technology to make cancer treatment Kyprolis.
Quantenna Communications Inc (QTNA)
YTD gain: 7.14%
Last but not least, add Quantenna Communications Inc (NASDAQ:QTNA) to your list of small cap stocks to buy now — if you can stomach the risk.
You may be using Quantenna Communications’ technology without even realizing it. The company designs and builds Wi-Fi platforms for consumers and corporations. It’s particularly impressive in the HD video arena — a market that’s only going to heat up as the lines between telecom and video entertainment service providers are blurred.
For instance, AT&T Inc. (NYSE:T) already owns DirecTv, and it’s trying to acquire Time Warner Inc (NYSE:TWX). Soon, they’re all going to be packaged together, and delivered in new — and wireless — ways.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.