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3 Small-Cap Stocks To Buy For Large Cap Potential

3 Small-Cap Stocks To Buy For Large Cap Potential

Source: Shutterstock

It doesn’t matter who wins the U.S. election; small cap stocks could outperform either way.

That’s because, according to CNN Business contributor Paul R. La Monica, there’s a renewed focus on domestic issues following presidential elections. In fact, the average return on the Russell 2000 in a post-election year is 15%. That’s about four percentage point higher than large cap stocks on average, he added.

“Small caps definitely could do better next year. They’ve lagged versus blue chips and usually in a recovery, small caps…lead,” Todd Lowenstein, managing director and equity strategy executive of The Private Bank at Union Bank, told CNN Business.

In addition, when the U.S. economy comes out of recession, small-caps have historically outperformed large-cap stocks. In fact, that’s held true in nine out of the last 10 recessions.

With that in mind, some of the top small cap stocks to consider include:

  • iShares Core S&P Small Cap ETF (NYSE:IJR)
  • Vaxart (NASDAQ:VXRT)
  • Lithium Americas (NYSE:LAC)

Also keep in mind that small cap stocks are U.S.-centric, so they aren’t as sensitive to international geopolitics, unlike larger cap stocks.

Small Cap Stocks With Large Cap Potential: iShares Core S&P Small Cap ETF (IJR)

graphic of the phrase ETF sitting on a computer in front of an increasing line graph on top of a bar graph
Source: Shutterstock

One of my favorite ways to diversify portfolios is through exchange traded funds (ETFs). Not only do they allow you to own a piece of several companies, but they allow you to own them on the cheap. For example, some of the top holdings in the IJR ETF include Momenta Pharmaceuticals (NASDAQ:MNTA), Neogen (NASDAQ:NEOG), Stamps.com (NASDAQ:STMP), and NeoGenomics (NASDAQ:NEO).

If I were to buy just those four stocks, it’d cost me $384 just to own one share of each. At the same time, I can own a piece of those four, and about 600 more stocks, for just $68/share buying the IJR ETF. At the same time, the IJR has an expense rate of just 0.06%.

Vaxart (VXRT)

The Vaxart (VXRT) logo is surrounded by face masks, syringes and pills.
Source: Ascannio / Shutterstock.com

After pulling back from a July high of $16.88 to a low of $4.72, Vaxart is gaining a good deal of momentum. All on hopes the company can begin its clinical trials for its coronavirus vaccine later this year. The US FDA already completed its review of the company’s Investigational New Drug (IND) application for its Phase 1 clinical trials.

Granted, the market for vaccines is already crowded. However, what sets Vaxart apart is that its vaccine is an orally administered tablets. Many competitors have injectable solutions.

Better, according to B. Riley FBR analyst Mayank Mamtani, “the long awaited initiation clears the path for the ‘show me’ story” to make a mark in a crowded yet still uncertain landscape.”

Lithium Americas (LAC)

a lithium mine
Source: Shutterstock

We’re nearing another lithium boom.

With supply issues mounting, and increased demand, especially from electric vehicle companies like Tesla (NASDAQ:TSLA), higher lithium prices are on the way.

That being said, small cap stock Lithium Americas could benefit nicely. Already, since bottoming out at $2.98 in May, the LAC stock has exploded to $9.60. However, it could easily race to higher highs.

According to Reuterscontributor Andy Home:

“A new demand surge is already looming in the form of the multiple ‘green stimulus’ packages as governments try and kick-start locked-down economies. You don’t have to be a market genius to see that another price boom is coming sooner or later as an under-powered supply chain has to catch up with the next demand surge.”

In addition, according to a Wood Mackenzie report, the world needs about 800 kt. LCE of lithium just over the next five years to meet battery demand.

On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/3-small-cap-stocks-to-buy-for-large-cap-potential/.

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