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7 Best Small Cap Stocks to Buy Heading Into Q4

stocks to buy - 7 Best Small Cap Stocks to Buy Heading Into Q4

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Small cap stocks are companies that have small market capitalizations relative to the broader market. Generally speaking, companies with $300 million to $2 billion in market capitalization are considered to be small cap stocks. Many investors have questions about which small cap stocks to buy.

However, just because a company has a small market capitalization does not mean that it is not a well-run going concern or that its share price cannot outperform benchmark stock indexes. As you’ll see in this article, many small cap stocks offer big gains to investors at affordable prices.

Here are seven of the best small cap stocks to buy as we head into the fourth and final quarter of the year.

  • Cowen (NASDAQ:COWN)
  • Dine Brands Global (NYSE:DIN)
  • Clear Channel Outdoor (NYSE:CCO)
  • Hostess Brands (NASDAQ:TWNK)
  • Citi Trends (NASDAQ:CTRN)
  • Duolingo (NASDAQ:DUOL)
  • Standard Motor Products (NYSE:SMP)

Small Cap Stocks to Buy: Cowen (COWN)

Image of a grey cityscape with a large corporate building that features the word bank on it

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Cowen is a small but mighty U.S. investment bank. The company is not nearly as well known as Wall Street powerhouses Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), but it more than holds its own considering its size. Cowen is one of the oldest continually operating investment banks in the U.S. having been founded in 1918.

Today, the company has 1,300 employees and over $14 billion of assets under management. Over the past decade, trailing 12 month revenues have grown from $245 million to $2 billion, representing a compound annual growth rate of 23%.

With a market capitalization of around $1 billion, Cowen is definitely a small cap stock. But it’s a best-of-breed one. As an investment bank, Cowen specializes in identifying and investing in emerging and cutting edge industries such as cannabis and biopharmaceutical concerns.

The bank has also been heavily involved in special purpose acquisition companies (SPACs) over the past year. COWN stock has been a capable performer, up 33% year-to-date at just under $34 per share. The share price is up 105% over the past year.

For this year’s second quarter, Cowen reported net income of $45 million and earnings per share of $1.62, beating the consensus forecast of analysts by 10 cents. The bank is also aggressive about repurchasing its own shares having bought back $50 million worth in Q2 alone. And despite being a small cap, the company’s stock pays a quarterly dividend of 10 cents per share.

Although it’s had a big run over the past 12 months, analysts expect COWN stock to continue rising. The median price target on the shares is currently $54.50, implying a 58% gain from current levels.

Dine Brands Global (DIN)

din stock

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Dine Brands Global may not be a household name in America, but its restaurant holdings sure are. The Glendale, California-based company operates two of the most famous restaurant brands in the U.S., the International House of Pancakes (IHOP) and Applebee’s.

Between the two franchises, Dine Brands Global operates over 3,530 restaurant locations in 17 countries around the world. DIN stock has been a strong performer this year as Covid-19 restrictions ease and dining out resumes. Since January, the company’s share price has risen 34% to a bit under $79 per share.

The economic reopening has helped to lift Dine Brands Global’s earnings. In this year’s second quarter, the company reported revenue of $233.6 million, up from $109.7 million in the same period last year at the height of the global pandemic. Q2 EPS came in at $1.94 and beat analysts’ expectations by 27 cents.

In spite of its gains already this year, Wall Street remains bullish on Dine Brands Global’s prospects. The median price target on the stock is currently $110, suggesting that the share price has a further 41% to run.

Small Cap Stocks to Buy: Clear Channel Outdoor (CCO)

A photograph of a building with the logo for Clear Channel (CCO) on the side.

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Clear Channel Outdoor is not only a small cap but also a penny stock. At $2.51 per share at the start of Sept. 15, CCO stock is below the $5 penny stock threshold. However, even though the company’s share price is low, the stock has delivered big gains to investors, having risen 50% year-to-date and jumped 74% over the past 52 weeks.

The company, an outdoor advertising firm, has a market capitalization of just $1.2 billion. However, Clear Channel today has more than 450,000 billboard and digital display ads in 31 countries worldwide.

Clear Channel Outdoor’s revenue have been climbing as companies around the world begin spending on advertising again. In the second quarter, Clear Channel reported that its revenue grew 63% to $531 million.

While it remains a penny stock, Clear Channel’s financial performance and stock price appreciation has garnered attention from Wall Street. In July, Morgan Stanley raised its price target on CCO stock to $3.15, which would represent a 27% gain from where the share price currently sits.

Hostess Brands (TWNK)

A package of two HA package of two Hostess Twinkies

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Who doesn’t love a Twinkie? Believe it or not the Lenexa, Kansas-based maker of popular sugary snacks such as Ding Dongs, Ho Hos and Snoballs, as well as the aforementioned Twinkies, is a small cap stock with a market capitalization of only $2 billion.

Yet the company’s appeal and success is undeniable. In its most recent second quarter, Hostess Brands, which also owns Voortman Cookies, reported net income of $29.8 million and EPS of 23 cents, which beat consensus estimates by a penny. The company’s revenue rose 14% in the quarter to $292 million.

Yet despite the enduring popularity of its many products, Hostess Brands stock has only achieved middling success this year, up 9% so far in 2021 to $16.07 per share at the start of Sept. 15. In the past 12 months, TWNK stock is up a more impressive 31%.

However, Wall Street seems to view Hostess Brands stock as undervalued at current levels. Nine analysts who cover the stock have a median price target on the shares of $19, which would amount to an 18% gain from its current price. On the plus side, Hostess Brands’ products are generally viewed as recession proof. Consumers tend to eat Twinkies in good economic times and bad.

Small Cap Stocks to Buy: Citi Trends (CTRN)

colorful clothes on a white rack with a bright yellow background

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Citi Trends is a retailer that specializes in selling clothes at discounted prices in American urban areas. The Savannah, Georgia-based company opened its first store back in 1958 and today has 585 stores across 33 U.S. states.

Like the other securities on this list, CTRN stock has had a strong run this year, rising 39% to $70.85 as of Sept. 15. Over the past 52 weeks, the share price is up a stellar 182%. Citi Trends behaves as a growth stock even though its clothing retail business is decidedly old school and its market capitalization is less than $1 billion at $624 million.

In this year’s second quarter, Citi Trends generated $237 million of revenue compared with $216 million during the same period of 2020. The company recently raised its guidance for the full year to a range of $970 million to $990 million.

Owing to its strong earnings and massive stock run, many analysts have started referring to Citi Trends as a growth stock rather than a value stock. And the outlook for the shares remains positive with the median price target on CTRN stock currently at $135, representing a potential 96% increase from here — even with the massive run over the past year.

Duolingo (DUOL)

DUOL stock: A phone displaying the duolingo logo in front of a computer screen displaying the duolingo site

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Duolingo has only been a publicly traded company since the end of July. But the Pittsburgh-based language-learning website and mobile app has a lot to offer and it could prove to be long-term growth story for investors.

Duolingo just issued its first quarterly earnings as a public traded company, showing a 64% year-over-year increase in the number of paid subscribers, which drove revenues up by 97%. Duolingo has an addressable market of 1.8 billion language learners worldwide.

Currently, Duolingo has 40 million active users but, owing to its addressable market, it has plenty of growth potential in front of it. Duolingo also manages to take advantage of free users on its website and app through a highly effective advertising program.

Since going public in July, DUOL stock has risen a respectable 19% to $161.33 per share at the start of Sept. 15. The company now has a market capitalization of $5.99 billion. And while it is still early days for the stock and its shareholders, there is every reason to feel optimistic about Duolingo.

Small Cap Stocks to Buy: Standard Motor Products (SMP)

A close-up photograph of a car engine.

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Long Island, New York-based Standard Motor Products is a leading manufacturer and distributor of replacement parts for cars and heavy duty trucks. Its products are sold all over the world, from North America to Asia, under brands such as Standard, Intermotor and Four Seasons.

Currently, Standard Motor Products operates two business segments — engine management and temperature control, which focuses on parts for air conditioning and heating systems. Both segments of the company’s operations have been performing well this year.

In the second quarter, Standard Motor Products reported 38% year-over-year sales growth and EPS of $1.26, representing a 142% year-over-year increase and nearly double the 67 cents expected by analysts. The company has also been expanding its heavy duty and commercial vehicle parts business, which should help drive future earnings growth. Year-to-date, SMP stock is up a slight 2.5% to $41.10 per share as of the start of Sept. 15, giving the company a market capitalization of $921 million.

The median price target on the stock is currently $57, implying 38% upside over the next year.

On the date of publication, Joel Baglole held a long position in COWN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

Article printed from InvestorPlace Media, https://investorplace.com/2021/09/7-best-small-cap-stocks-to-buy-heading-into-q4/.

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