3 Small-Cap Stocks to Buy for Long-Term Disruption

small-cap stocks - 3 Small-Cap Stocks to Buy for Long-Term Disruption

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Right now, I’m going to give you one very good reason that long-term investors with multi-year horizons should buy small-cap stocks: The reality we live in today is being rapidly disrupted on all fronts.

Electric vehicles are replacing diesel and gas cars globally. Autonomous driving is quickly becoming a reality. Plant-based foods are taking over grocery stores and fast food chains.

Shopping and payments are increasingly becoming digitized. Consumer and legislative attitudes towards formerly taboo drugs like marijuana and psychedelics are fundamentally shifting. Gambling and sports betting are being legalized.

Data is transforming and optimizing every facet of business. Clean energy costs have fallen to grid-parity, and consumer adoption is soaring. AR/VR technology is revolutionizing gaming.

Robots are becoming a real, useful thing. Cloud computing is becoming ubiquitous. The space tourism boom is starting…

I could go on and on.

But the point couldn’t get any clearer.

The world is rapidly changing. Faster than ever before. And where there’s change, there’s opportunity.

So, over the next 5 to 10 years, there will ample opportunity for small companies on the cutting edge of these disruptive, next-generation megatrends to unseat incumbent giants who have fallen asleep at the wheel.

Much like Tesla (NASDAQ:TSLA) is unseating Ford (NYSE:F) and General Motors (NYSE:GM).

Much like Amazon (NASDAQ:AMZN) has unseated Walmart (NYSE:WMT) and Target (NYSE:TGT).

And much like Netflix (NASDAQ:NFLX) has unseated movie theaters.

All three of those disruptors used to be small-cap companies, and right now — given the accelerated pace of technology disruption happening across the globe — is as good a time as any to find the next Tesla, the next Amazon and the next Netflix in the small-cap world.

To that end, here are three of my favorite small-cap stocks to buy for long-term investors:

  • Luminar Technologies (NASDAQ:GMHI)
  • Celsius Holdings (NASDAQ:CELH)
  • Mind Medicine (OTCMKTS:MMEDF)

Small-Cap Stocks to Buy: Luminar Technologies (GMHI)

The corporate office of Luminar, the company Gores Metropoulos (GMHI) plans to acquire.
Source: JHVEPhoto / Shutterstock.com

In short, Luminar is the world’s best LiDAR company, and therefore, represents a compelling long-term investment opportunity as LiDAR technology becomes ubiquitous across the automobile world over the next decade.

Taking a step back, the key to making semi-autonomous and fully autonomous vehicles lies in enabling cars to have complete “vision” – or, more specifically, giving them a human-like ability to see and respond to their surroundings.

Ideally, you want to do this with built-in cameras, since cameras are space and cost efficient. But computer vision has significant limitations, so it has become commonplace across the AV space to equip cars with add-on, laser light perception sensors called LiDAR which – while less space-efficient and more costly – are presently a much more robust solution for 3D sensing/perception than cameras.

Over the next decade, as every car on the road becomes semi-autonomous or fully autonomous, every car on the road will be equipped with these LiDAR sensors.

Because of this, the LiDAR space has become exceptionally competitive, crowded with tons of hardware tech companies trying to make the best LiDAR sensors.

But the cream-of-the-crop in this industry is Luminar Technologies, a company that has created the industry’s only independent viable long-range LiDAR.

Specifically, Luminar’s sensors feature max resolution of 300 PD (pixels/degree) and 250 meter range. All other independent LiDAR sensors in the world have a max resolution of less than 100 PD, and a range of less than 150 meters. Meanwhile, Luminar’s LiDAR is also weather resilient and interference-proof.

That’s why 7 of the top 10 passenger car OEMs have partnered with Luminar, while one — Volvo — is set to start rolling out cars with Luminar LiDARs by 2022.

So will begin a huge ramp in Luminar from no installations today, to being installed on tens of millions of cars every year by the end of the decade. As that ramp happens, Luminar stock will morph into a huge winner.

Celsius Holdings (CELH)

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One huge and rapidly growing vertical in the food and beverage market that is primed for disruption over the next decade is the energy drink category.

At $60 billion, the global energy drink market is one of the larger beverage markets in the world. With a 7% compounded annual growth rate, it’s also the fastest growing beverage category.

The major players in this space – Red Bull, Monster, and Rockstar – have innovated over the past several years, coming out with new flavors, new packaging, and new marketing. But they haven’t innovated where it matters… on the healthy eating front… and for the most part, they all still sell sugar-loaded, not-that-good-for-you energy drinks.

This reality represents an enormous opportunity for Celsius Holdings, a $1.7 billion beverage company that is optimally positioned to significantly disrupt the $60 billion energy drink market with its breakthrough functional healthy energy drink.

Leaning into its proprietary scientific formulation which combines green tea with EGCG, ginger, and guarana seed to catalyze thermogenesis, Celsius has a created a portfolio of unique, functional healthy energy drinks that have been proven to energize, accelerate metabolism, and burn body fat and calories… all at once.

Plus, the drinks are vegan. Gluten-free. Non-GMO. Contain zero sugar. Zero preservatives. Zero artificial colors or flavors. Zero aspartame.

You know… all the good stuff that young consumers are looking for in a “clean label” these days.

To that end, Celsius has created a scientifically superior and socially more relevant energy drink which has the potential to turn into the next big thing in this massive category.

Indeed, this is already happening.

Celsius has grown its sales by 337% since 2015. Revenues are up another 90% through the first half of 2020. And the company is already the 11th ranked brand in the U.S. energy drink market despite only being in ~10% of potential distribution channels.

A 10X increase in that U.S. distribution – coupled with international expansion, healthy eating mega-tailwinds, and the company’s best-in-breed functional energy drink products – create a clear pathway for Celsius to keep growing revenues at a robust rate for the foreseeable future, and for CELH stock to turn into a multi-bagger.

Small-Cap Stocks: Mind Medicine (MMEDF)

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Last, but not least, on this list of small-cap stocks to buy for long-term investors in psychedelics leader Mind Medicine.

In case you haven’t heard, we are in the first inning of the Shroom Boom — a wave wherein shifting scientific research coupled with social de-stigmatization will pave the way for legalization and widespread usage of psychedelic-inspired medicines for things like anxiety, depression and addiction.

It all started in 2014, with a small study at Johns Hopkins University which found that psilocybin – aka “magic mushrooms” – helped people quit smoking. Specifically, the study found that psilocybin led to an 80% quit rate among active smokers, more than double what was standard across other, non-psychedelic studies at the time.

Since then, a wave of academic research has emerged which supports the notion that psychedelic-inspired medicines are effective and superior treatments for things like addiction, ADHD, depression, anxiety and anorexia. At the same time, the media – much as it did with marijuana a decade ago – is helping destigmatize psychedelics today, with multiple Netflix shows and documentaries like Have a Good Trip: Adventures in Psychedelics.

Broadly, then, the psychedelics industry today is where the marijuana industry was in 2015/16, in the midst of the changing public perception phase. What comes next? The legalization and commercialization phases.

That’s when Mind Medicine stock will explode higher.

Mind Medicine’s portfolio of psychedelic medicines are aimed at two huge markets: addiction and ADHD. Both treatments are in Phase 1/2 trials.

If MindMed is successful in bringing psychedelic-inspired medicines for addiction and ADHD to market – and the company should be – the potential upside in MindMed stock is enormous, mostly because this is a $145 million company attacking a $12.1 billion market in terms of opiod abuse and ADHD treatments.

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

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