The 7 Top Small-Cap Stocks Of 2019

small cap stocks - The 7 Top Small-Cap Stocks Of 2019

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It has been a good year for stocks. In fact, it has been the best year for stocks in over two decades. Year-to-date, the S&P 500 is up more than 17%, marking the biggest year-to-date gain for the index through June since 1997, when stocks were up 21% year-to-date.

Leading the rally? Tech stocks. The Nasdaq 100 index is up more than 20% year-to-date. Lagging the rally? Small-cap stocks. The Russell 2000 index is up just 13% year-to-date.

In the Russell 2000 index, there have been a handful of small-cap stocks that were huge winners in 2019. In that index, 36 small-cap stocks have more than doubled so far. Even more jaw dropping, seven stocks in the index have more than tripled over the past six months.

In other words, while small-cap stocks have largely trailed large-cap stocks in 2019, there have been a handful which have massively outperformed their large-cap peers.

Which small-cap stocks fall under this umbrella? And will they keep rallying into the end of the year? Let’s answer those questions by taking a closer look at those seven small-caps which have more than tripled in 2019.

Top Small-Cap Stocks of 2019: ArQule (ARQL)

YTD Gain: 290%

Top Small Cap Stocks of 2019: ArQule (ARQL)

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The top-performing small-cap stock from the Russell 2000 index so far this year is bio-pharmaceutical company ArQule (NASDAQ:ARQL).

The recipe for success for a small-cap bio-pharma stock is pretty simple: score a few favorable clinical trial results, and report a few favorable earnings reports. This is the exact formula ArQule followed in 2019, and it worked.

The company’s fourth-quarter earnings report, delivered in March, topped expectations by a wide margin. A few months later, in its Q1 report, ArQule reported favorable Phase 1 results for its key pipeline therapeutic, ARQ 531, in which it demonstrated substantial anti-tumor activity and a healthy safety profile. In response to the slew of favorable news, ARQL stock has nearly quadrupled in 2019.

Will the rally continue? Tough to say. The opportunity here in rare disease therapeutics is large. But, small-cap bio-pharma stocks are notoriously volatile. Gains from good clinical trial results for one product can be wiped out by bad clinical trial results for another product. ARQL is no exception: Just look at the stock chart over the past 18 months.

As such, ARQL stock is an “invest with caution” situation at current elevated levels.

Enphase Energy (ENPH)

YTD Gain: 248%

Top Small Cap Stocks of 2019: Enphase Energy (ENPH)Slotting in as the second-best-performing small-cap stock of 2019 is solar energy hardware provider Enphase Energy (NASDAQ:ENPH).

The big, 248% year-to-date rally in ENPH stock can be attributed to two things. First, the solar industry has made a huge comeback in 2019, as lower prices, higher incentives, and better technology have created a surge in consumer and corporate solar energy demand. This rebound in solar demand has provided a natural tailwind for ENPH stock. Second, Enphase stock has steadily grown share in that rebounding market, transforming from a microinverter hardware provider to an ecosystem provider with solutions that comprise solar generation, storage, and management.

The result? Enphase reported blowout first-quarter 2019 numbers which comprised huge revenue growth, huge margin expansion, and a big full-year 2019 guide.

Going forward, ENPH stock is all about valuation versus growth. The growth element is here. Enphase does appear to be in the early stages of expanding dollar share in a booming solar market. But ENPH stock is also fully priced for big growth, at 26-times forward earnings, which is pretty big for a solar stock. As such, while this stock may remain on an uptrend, gains going forward will likely be more muted.

Diebold Nixdorf (DBD)

YTD Gain: 247%

Top Small Cap Stocks of 2019: Diebold Nixdorf (DBD)

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The third-hottest small-cap stock of 2019 from the Russell 2000 is Diebold Nixdorf (NYSE:DBD).

Diebold Nixdorf is a relatively unknown connected commerce company which provides end-to-end commerce solutions for customers in the financial and retail industries. This is a fine industry to be in: At the top end, you have companies like Shopify (NYSE:SHOP) and Square (NYSE:SQ) dominating the industry and firing off huge growth rates. But, Diebold Nixdorf is situated towards the bottom end of the industry, and isn’t firing off the same huge growth rates. Revenues last quarter grew by just 3% in constant-currency.

Still, profit improvements in early 2019 catapulted DBD stock to huge gains, since such improvements happened while the stock was trading at a multi-year-low valuation. That valuation is now back up to historically normal levels, and the pace of profit improvements has meaningfully slowed since. Net net, further upside in DBD stock looks unlikely, unless the valuation compresses and/or the pace of profit improvements re-accelerates.

Adverum Biotechnologies (ADVM)

YTD Gain: 240%

Top Small Cap Stocks of 2019: Adverum Biotechnologies (ADVM)

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Next up, we have another biotech company — Adverum Biotechnologies (NASDAQ:ADVM) — which, much like ArQule, has scored a few favorable clinical trial results and reported a positive earnings report en route to a huge gain in 2019.

Adverum Biotechnologies is a gene therapy company targeting cures for ocular diseases. This is a promising but risky market which simultaneously comprises a lot of speculation and potential long-term upside. When you have a company that is in a high-risk, high-reward situation like that, the stock tends to rally big on any favorable developments which support the long-term bull thesis. That’s exactly what has happened with ADVM stock, which has rallied more than 240% in 2019 on the back of favorable developments throughout the gene therapy space. A favorable FDA ruling with regards to its OPTIC Phase 1 trial for wet age-related macular degeneration (wet AMD) didn’t hurt either.

Can the big rally in ADVM stock continue? Much like ARQL stock, this is a “proceed with caution” situation. The potential long-term upside in the ocular end-market is huge. But, the company still has to pass a lot of hurdles to realize all that potential. As such, this stock isn’t for the faint of heart.

Array Biopharma (ARRY)

YTD Gain: 230%

Top Small Cap Stocks of 2019: Array Biopharma (ARRY)

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Surprise, surprise. Coming in as the fifth-hottest small-cap stock of 2019, we have yet another bio-pharma company, Array Biopharma (NASDAQ:ARRY). Unlike the other bio-pharma stocks on this list, the big year-to-date rally in ARRY stock is due to M&A.

In mid-June, bio-pharma giant Pfizer (NYSE:PFE) inked a deal to acquire Array Biopharma for $48 per share. After the deal was announced ARRY stock soared to $47. It has since retreated to $46 on concerns over regulatory approval, but at that price, ARRY stock is only 4% below the proposed takeout price. It is unlikely that there will be any other bids in this situation.

As such, further upside in ARRY stock seems limited from here. The stock is trading exactly where it should be given the takeout offer, the high likelihood of regulatory approval, and the low likelihood of a competing bid.

Roku (ROKU)

YTD Gain: 212%

Top Small Cap Stocks of 2019: Roku (ROKU)

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The sixth-best-performing small-cap stock of 2019 is one that is more widely covered by mainstream media and Wall Street alike — streaming device maker Roku (NASDAQ:ROKU).

ROKU stock has gone parabolic in 2019 (up more than 200% year-to-date) for two reasons: First, the stock came into 2019 significantly depressed, as amid the market sell-off in late 2018, investors mistakenly took a “sell first, ask questions later” approach with ROKU stock. Second, Roku has reported stellar quarter after stellar quarter in 2019, broadly reaffirming that this company continues to dominate the over-the-top video access market despite escalating competition.

The result? Investors have rushed into ROKU as they remember that this is one of the best growth stories out there, and ROKU stock has soared.

Can Roku stock stay on this parabolic path? No. At $94, it seems maxed out given its long-term growth potential. But the long-term growth trajectory is very robust and healthy, and does support Roku stock at $94 by the end of 2019. Thus, while Roku stock is due for a pullback here, such a pullback should be viewed as buying opportunity into a growth stock that is going higher in the long run.

Ziopharm Oncology (ZIOP)

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YTD Gain: 237%

In 2019, it has been nothing but good news for bio-pharma company Ziopharm Oncology (NASDAQ:ZIOP).

First, the FDA granted Fast Track Designation for Ziopharm’s Control IL-12 program for the treatment of recurrent glioblastoma multiforme (rGBM) in adults. Second, Ziopharm scored a partnership with the National Cancer Institute in which the company gained exclusive rights to IP for the development and commercialization of cell therapies for cancer. Third, ZIOP leveraged that partnership to launch an NCI-sponsored study evaluating T-cell receptor therapy for the treatment of solid tumors. Fourth, the FDA signed off on that study.

ZIOP stock has responded to all this good news with a 237% year-to-date rally.

All the good news for Ziopharm positions the company to continue to be a leader in its field. As such, while ZIOP stock may be a bit overextended here, it does appear that this stock is in the midst of a longer term uptrend.

As of this writing, Luke Lango was long SHOP, SQ, and ROKU. 

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