The 7 Hottest Small-Cap Stocks to Buy in January

small-cap stocks - The 7 Hottest Small-Cap Stocks to Buy in January

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What started out as a mediocre year for small-cap stocks in 2020 turned out to be a pretty good one, as the Russell 2000 Index finished this past year with a total return of 19.96%, only 100 basis points less than the large-cap Russell 1000 Index.

“Participation has not been limited simply to large cap stocks. After lagging the S&P 500 by more than 16% in the first quarter of 2020, last week the small cap Russell 2000 Index made its first record high in more than two years and is now outperforming the S&P 500 by 11% thus far in the fourth quarter,” Fortune quoted LPL analyst Ryan Detrick in late November.

The tale of the tape shows small-cap stocks making up major ground in November — the index set an all-time record generating an 18.4% monthly return — and finished strong delivering an impressive 8.65% return, double the large-cap index. 

Early in 2021, I’m looking to recommend seven small-cap stocks to buy for January that were hot late in 2020 and should remain hot in 2021 and beyond.

  • Celsius Holdings (NASDAQ:CELH)
  • Sunrun (NASDAQ:SUN)
  • Plug Power (NASDAQ:PLUG)
  • Churchill Downs (NASDAQ:CHDN)
  • Stitch Fix (NASDAQ:SFIX)
  • Freshpet (NASDAQ:FRPT)
  • Repay Holdings (NASDAQ:RPAY)

For the purposes of this article, the stocks picked will have a market capitalization greater than $1 billion, be a Russell 2000 constituent, and have a one-year total return of 20% or higher.

Small-Cap Stocks to Buy: Celsius Holdings (CELH)

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Market Cap: $3.9 billion

One-Year Total Return (through Jan. 4): 965%

In November 2020, I included Celsius Holdings in a list of seven micro-cap stocks to buy from the AdvisorShares Dorsey Wright Micro-Cap ETF (NASDAQ:DWMC), a modified equal-weight ETF that selects stocks based on relative strength rankings.

“Before you consider shares of Celsius Holdings, a maker of fitness-focused beverages, it’s important to understand that this stock has been on a tear in 2020, up 562% year to date through November 13,” I wrote. 

“At some point, this stock has to take a breather. When it does, you’ll want to pounce on its shares anywhere in the mid-to-high $20s.”

Well, it did no such thing. Since my Nov. 19 article, the stock has gained an additional 64% in the span of eight weeks. 

As I said in November, the maker of fitness-focused beverages continues to increase its gross margins by transitioning to a direct sales model from wholesale distribution. Around 15 percentage points behind big boys like Coca-Cola (NYSE:KO), another year of quarterly margin increases from its transition should get it on par with Atlanta’s own sometime in 2021. 

If so, expect another big year in the markets. 

Sunrun (SUN)

The Sunrun (RUN) logo is displayed on a smartphone screen in front of an American flag.
Source: IgorGolovniov /

Market Cap: $14.4 billion

One-Year Total Return: 387%

Sunrun is one of those stocks that you either love or hate. I’m someone who sits squarely in the former. I believe that is ideally positioned to benefit from the ongoing move to alternative energy sources in the U.S. and around the world. 

Solar is it when it comes to powering residential and commercial real estate.

As InvestorPlace’s Faizan Farooque said in December, Joe Biden’s focus on green energy in 2021 puts Sunrun stock in a good position to benefit from the move to solar. 

Solar is now the cheapest and fastest-growing source of energy for generating electricity. And that doesn’t even account for subsidies. Renewables are here to stay, and with the White House and Congress under full Democratic control, we could be headed for decarbonization sooner than ever,” Farooque wrote on Dec. 1. 

“Fatih Birol, executive director of the International Energy Agency, believes U.S. solar and wind capacity can more than double in five years if Biden sticks to campaign promises.”

With Biden almost certainly a one-term president due to his age, I can almost guarantee he’ll be pushing hard to position America for a greener future. His legacy as a legislator is at stake. And, he’ll want to succeed where Trump failed miserably.

The last time I wrote about Sunrun was in November. At the time, I argued that Sunrun management was wise to use its expensive stock to buy Vivint, one of its biggest competitors in the installation of solar energy systems.  

Sunrun used a play right out of the Capital Allocation 101 playbook. It used its stock as currency to simultaneously add scale and take out a major competitor. In my mind, that’s a case of one plus one equals three.  

Plug Power (PLUG)

3d render image of hydrogen energy fuel cell from Plug Power
Source: Shutterstock

Market Cap: $13.5 billion

One-Year Total Return: 896%

I know what you’re thinking: Plug Power isn’t close to being a small-cap stock. It’s a mid-cap all the way. By definition — small-cap stocks are defined as having market caps between $300 million and $2 billion — you’re absolutely right. 

However, the Russell 2000 Index invests in 2,000 small-cap domestic stocks, a subset of the Russell 3000; it accounts for approximately 7% of the total market cap of all U.S. stocks. 

Plug Power has come a long way since it set upon a growth course that will see it build five green hydrogen plants by 2024. To fund this growth, it has raised more than $1.7 billion in cash to make the plants operational with the first two expected by 2022. 

I first liked Plug Power because of its GenDrive fuel-cell powered vehicles used by both Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) in their e-commerce facilities. 

Now, I’m just impressed by CEO Andy Marsh’s drive for it to be a leader in alternative energy solutions. 

“Walmart is one of our foundational customers, with our relationship rooted in trust and results as we work toward a more sustainable future together,” Marsh said in December announcing its stepped-up partnership with Walmart. 

“This application expansion signifies the next step in our relationship as we support Walmart in their scaling eCommerce business while helping them meet the operational goals important to both Walmart and consumers.”

If you care about the planet, two words should jump out at you in that statement: sustainable future. 

I like its chances. 

Churchill Downs (CHDN)

Entrance to the Churchill Downs (CHDN) venue featuring a statue of the 2006 Kentucky Derby champion Barbaro.
Source: Thomas Kelley /

Market Cap: $7.8 billion

One-Year Total Return: 40%

If you had told me at the beginning of 2020 that the Kentucky Derby would be run with no fans in attendance at Churchill Downs in the month of September — and not the traditional first Saturday in May — there’s no way I would have bet on its stock gaining 40% over the next year. 

But that’s precisely what happened. 

As stocks go, leisure or otherwise, CHDN remains one of the best. A $10,000 bet on its stock a decade ago would be worth $135,752 today. By comparison, the same $10,000 bet on the iShares Russell 2000 ETF (NYSEARCA:IWM) would be worth $28,394, 79% less. 

Some stocks always perform. CHDN is one of those stocks.

That’s why I picked it in early March along with six other services stocks to buy on coronavirus weakness. At the time, it was trading around $105, down from $165 in February. It proceeded to fall further, all the way to a 52-week low of $52.90. If you were brave enough to buy on March 18, you’re up 273% in less than 10 months.

Except for Church & Dwight (NYSE:CHD), CHDN might be the most consistent stock I know among small-cap stocks.

Stitch Fix (SFIX)

Homepage of StitchFix website on the display of PC
Source: Sharaf Maksumov /

Market Cap: $5.9 billion 

One-Year Total Return: 123%

Of all the stocks on this list, Stitch Fix is the one I’m most surprised about. For most of the year it was struggling in a range between $10 and $30. And I’d forgotten about it having last covered it for InvestorPlace in September 2019. 

At the time, I called Stitch Fix “one of the five retail stocks investors should hold for the next decade,” I wrote on Sept. 20, 2019. The other four names on the list included Lululemon (NASDAQ:LULU), LVMH (OTCMKTS:LVMUY), Costco (NASDAQ:COST) and Amazon (NASDAQ:AMZN).

As a group, they’ve all done really well over the past 16 months. I suspect they’ll all do well over the next 16 months and beyond. 

So, why has SFIX gained 58% in the past month alone?

On Dec. 8 it announced its Q1 2021 results that included a surprise 9-cent profit compared to the analyst estimated 17-cent loss. Equally important, its revenues were higher than the consensus and its active clients grew to 3.8 million, 150,000 higher than expectations. 

“We’re excited about the momentum in our business, confident in the future ahead, and we expect to deliver between 20% and 25% growth for the full year,” CEO Katrina Lake said.

Quite frankly, Katrina Lake is one of the brightest people in retail. Her focus on meeting the needs of its customers will do well by shareholders. 

Freshpet (FRPT)

a puppy and a kitten sniggling together. represents pet stocks
Source: Shutterstock

Market Cap: $5.7 billion

One-Year Total Return: 128%

Investor’s Business Daily, which made its name by covering momentum stocks, wrote about the growth of pet-related businesses in early December due to Covid-19. 

“Freshpet (FRPT) is the IBD Stock Of The Day as the pet food maker enters buy range while the coronavirus pandemic fuels pet ownership and spending,” IBD wrote on Dec. 8.

“Since stay-at-home orders went into effect earlier this year, Americans have rushed to animal shelters and rescues, looking for quarantine companions.”

And given Freshpet’s business model provides fresh, natural pet food from refrigerators in grocery stores across the nation, many of these new pet owners turned to the company to keep their felines and canines happy and fed. 

“Despite capacity limitations and the Covid pandemic, Freshpet continued to deliver incredibly strong and consistent growth on the top line and even stronger growth on the bottom line in the third quarter,” CEO Billy Cyr said in a news release.

Analysts expect Freshpet to make a 13-cent profit in 2020 and 59 cents in 2021. 

As consumer stocks go, I believe it will continue to be one of the best stock buys in 2021 and beyond. 

Repay Holdings (RPAY)

a person holding a smartphone over a check out scanner representing payments stocks to buy
Source: Shutterstock

Market Cap: $1.9 billion

One-Year Total Return: 77%

By definition, Repay Holdings is the truest of the small-cap stocks on my list, just squeaking in under the ceiling. 

I only found out about the payment processing platform after doing an article in March 2020 about 10 IPO stocks to buy to ride the SPAC wave, which was gaining popularity around the same time Covid-19 was getting going. 

Repay merged with Thunder Bridge Acquisition in January 2019. Interestingly, unlike most SPACs, Thunder Bridge paid for Repay — it had an enterprise value of $653 million — with cash in trust from its June 2018 IPO that raised $258 million along with traditional debt financing. 

So, based on a current share price of $26.32 as I write this, investors who bought Thunder Bridge units for $10 each in June 2018, and are still holding, are sitting on a 163% return over 3o months, a compound annual growth rate of 47%.

Now that’s how you do a SPAC. 

As for Repay’s business today, it said in November it expects to process at least $14.75 billion in card payment volume in 2020, double what it processed in 2018 before it was acquired by Thunder Bridge.

More importantly, it continues to grow its adjusted EBITDA. In 2017, it was $25.4 million. A year later it was $36.8 million. In 2019, it was $48.4 million, and in 2020 it expects adjusted EBITDA of at least $63 million, 30% higher than last year. 

There are a lot of junk SPACs out there. This wasn’t one of them. 

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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