[Editor’s note: “8 Stellar Small-Cap Stocks to Buy That Are in Major Industries” was previously published in October 2019. It has since been updated to include the most relevant information available.]
The roller-coaster ride that is the U.S.-China trade war probably has many folks thinking about lesser-known small caps.
If the blue chips are risky in this unpredictable environment, why would anyone consider small-cap stocks? Although admittedly counterintuitive, the small caps may offer a better place to park your money. First and foremost, it just doesn’t take much to move these names. Any positive developments, no matter how much of a reach, could swing shares massively.
Of course, that goes in the opposite direction too. However, the beauty of small-cap stocks is that you don’t need to invest as much money to see robust returns. This leads to another point about the tertiary players of the financial markets: you can potentially advantage their inefficiencies.
Larger organizations, especially those listed on the Dow Jones Industrial Average or the S&P 500, react to all available news. Because they attract the most eyeballs, investors collectively respond in more or less the most rational manner. Think of blue chips as the phone-a-friend=option.
But with small caps, there’s no phoning friends because you might be the only one watching. Okay, that’s an exaggeration, but because small caps don’t generate as much interest, you can better exploit market irrationality.
With that introduction, let’s have a look at eight small-cap stocks to put on your radar:
I’ve said this many times before, but Americans love their pets. And I can completely understand.
Honestly, I’d rather hang out with animals than with most humans. Nevertheless, domesticated animals aren’t going to take care of themselves. That’s the core thesis behind Freshpet (NASDAQ:FRPT) and FRPT stock.
Typically, pet food, especially for dogs, is heavily processed. Essentially, it’s cereal for canines.
But Freshpet has put an entirely new spin on this drab industry. Featuring 100% natural farm raised poultry, beef and fish, Freshpet products are both delectable and nutritious.
According to the latest data, Americans spend $72 billion on their pets. Thus, a viable market exists for Freshpet, bolstering the longer-term case for FRPT stock.
Petmed Express (PETS)
Earlier, I mentioned the greater upside potential of small caps. Because small-cap stocks don’t have the name recognition of blue chips, a sudden burst of positive news could skyrocket shares.
However, Petmed Express (NASDAQ:PETS) represents an example of what can go wrong when the news isn’t so good.
Throughout this year, PETS stock has been under fire for viability concerns. That sentiment came to a head in late July when the underlying company released its fiscal first-quarter earnings report.
Both per-share profitability and revenue missed analysts’ consensus estimates. As a result, PETS stock dropped 12% following the negative disclosure.
It’s only recently that shares have started to pick back up. Ultimately, I think this is a case where the markets are irrationally pessimistic. In 2017, Americans spent over $17 billion in veterinary care. Put differently, PETS stock has a very believable pathway to recovery.
Inspire Medical Systems (INSP)
We all know how important a restful night’s sleep is. Without it, we’re usually cranky or slothful, operating far below our potential. But for the approximately 22 million Americans who suffer from sleep apnea, restful sleep is only a pipe dream.
Fortunately, we have Inspire Medical Systems (NYSE:INSP), which offers a revolutionary approach to this health dilemma.
Rather than prescribe a pill that may only last temporarily, Inspire Medical Systems installs a small device into your body. It’s a same-day, outpatient procedure, minimizing inconvenience to the patient.
Once you’re ready to sleep, you simply activate the device via a remote controller. This opens your airways, allowing you (and your partner) to finally get that satisfying rest. Naturally, this exciting and effective technology underlines the case for INSP stock.
Now, with a current market cap of $1.25 billion, INSP stock reaches into mid-cap territory. However, shares have witnessed sharp volatility recently, which may bring INSP down among the small caps. Given the massive potential for Inspire, I think this is a worthy discount to consider.
B&G Foods (BGS)
B&G Foods (NYSE:BGS) is another name among small-cap stocks that borderlines the unofficial threshold between small-cap and mid-cap companies. However, BGS stock has been under serious pressure ever since the year began.
Shares are down nearly 44% in the last year. Needless to say, the packaged foods company doesn’t inspire confidence.
While this disappointment isn’t uncommon in the packaged foods industry, B&G is noticeably lagging in terms of last year’s sales. Thus, investors haven’t given much thought to BGS stock.
But based on the growing unease in our economy, that could change. If we do suffer a recession, discretionary spending is out but the necessities are in. That naturally benefits BGS stock, along with other food-related small caps.
Northern Oil & Gas (NOG)
This year, crude oil prices have moved in a somewhat surprisingly negative direction. Despite the Federal Reserve’s dovish attitude toward monetary policy, “black gold” values have been muted since May.
Obviously, that doesn’t really help small caps in the oil sector like Northern Oil & Gas (NYSEAMERICAN:NOG) and NOG stock.
However, geopolitical catalysts may once again drive up energy prices. Particularly, I’m worried about an increasingly tense situation in the Middle East.
Of course, no one wants an armed conflict to erupt. That said, this region has been mired in violence over the decades. Thus, as a cynical hedge, you may want to consider energy-related small caps like NOG stock.
Speaking of armed conflicts, another market segment that benefits from geopolitical flashpoints are defense companies. Although the big names like Lockheed Martin (NYSE:LMT) or Raytheon (NYSE:RTN) get the most attention, small-cap stocks like Astronics (NASDAQ:ATRO) offer much potential.
That’s especially true in this environment. Obviously, with the Trump administration bulking up our military presence in Saudi Arabia, this is a boon for defense spending.
But other conflicts and potential flashpoints exist as well, including our failed diplomacy with North Korea, along with a brewing cold war with China and Russia. While no one wishes for a situation to turn hot, the necessity for deterrence boosts ATRO stock.
Another factor to consider is that defense projects don’t occur in a vacuum. For instance, a single manufacturer may develop a fighter jet’s airframe. However, companies like Astronics specialize in less sexy but still critical components, such as communications or electrical power systems. Thus, a win for a defense blue chip may also be a win for ATRO stock.
One of the many highly anticipated tech-related initial public offerings to come out in the last few years, Elastic (NYSE:ESTC) has fortunately avoided the curse of hyped IPOs. That said, ESTC had a bumpy year riding ups and downs to about a 25% stock price decline in the last year. However, this slow down also represents why Elastic is among the small caps to watch closely.
Today, searching isn’t just about typing in text; instead, people swipe, point or talk within an app’s architecture. Bringing these actions toward usable information is what makes Elastic, and by deduction, ESTC stock so compelling.
Moreover, you’ve probably used Elastic without even knowing it. The company is behind the open-source technology that drives ride-sharing outfits like Uber Technologies (NYSE:UBER) and Lyft (NASDAQ:LYFT).
Now, with a market cap of nearly $7 billion, I wouldn’t normally regard ESTC as belonging to small-cap stocks. Nonetheless, I believe its relatively lesser known profile justifies its inclusion.
Wallbridge Mining (WLBMF)
More belonging to the micro caps as opposed to small-cap stocks, Wallbridge Mining (OTCMKTS:WLBMF) is an extremely risky play.
With shares trading at only a quarter — and I mean that literally — WLBMF stock is the epitome of speculative. Please don’t say I didn’t warn you as I warned you twice in consecutive fashion!
However, I believe the current environment for gold and silver prices is the best it has been in a long time. Just in this write-up, we’ve discussed the trade war, tensions in the Middle East and rising global adversaries. People are very much scared, and when fear rises, they typically run to gold.
Therefore, I view WLBMF stock as an anticipated play on broader emotions. When more people get wind of the precious metals opportunity, this will naturally spike up prices. And when that happens, invariably, some folks will seek out cheaper, more accessible stocks.
As of this writing, Josh Enomoto is long gold and silver.