Now trading at lows, some small-cap stocks have seen setbacks and disappointed investors lately. But being in the bargain bin also means opportunity. Investors can now bet that a handful of these small caps are facing temporary challenges. And as their fortunes reverse? Their share prices will be due to recover, too.
Of course, investors still need to differentiate between which stocks fell on lost momentum and which are undervalued. In the former, positive momentum and higher trading volume is likely a one-time event. The market participants who pumped up a stock and bought without thinking will not return.
In the latter category, however, the markets create undervaluation by punishing the stock price more than necessary. For example, investors may have waited for a company to announce a product certification from its client, but when the company reports a delay, investors may lose patience and sell the stock. So long as the project is progressing, the market is overreacting.
True, buying a stock from this second scenario is not without risk. The company may report a project cancellation later, devastating its future revenue prospects. But those names may still be worth the risk.
In the Stock Rover chart to the side, only two small-cap stocks from this list score over 80 out of 100 on value. However, although the rest of the picks have lower value, they still have growth potential.
So, without further ado, here are seven companies that investors should consider buying today:
- Akebia Therapeutics (NASDAQ:AKBA)
- Alto Ingredients (NASDAQ:ALTO)
- Babcock & Wilcox (NYSE:BW)
- ClearSign Technologies (NASDAQ:CLIR)
- 1847 Goedeker (NYSEAMERICAN:GOED)
- Himax Technologies (NASDAQ:HIMX)
- Sundial Growers (NASDAQ:SNDL)
Small-Cap Stocks to Buy: Akebia Therapeutics (AKBA)
First up on this list of small-cap stocks is AKBA stock. Currently, Akebia is stuck in a trading range. However, the company has some potential wins incoming; for example, it recently filed a new drug application (NDA) with the U.S. Food and Drug Administration (FDA) for a candidate called vadadustat. CEO John Butler said the following about the drug in the company’s second-quarter report:
“As there are currently no approved HIF-PHIs to treat anemia due to chronic kidney disease (CKD) in the U.S., we believe vadadustat is positioned as a potential first-in-class product with a broader opportunity in the dialysis market.”
In anticipation of approval, Akebia is preparing for a successful U.S. launch in 2022. What’s more, in its most recent quarter, Akebia posted net revenue for Auryxia of $33 million, up 7.4% year-over-year (YOY). As a whole, the company saw a net loss of $83 million, but that was also down from a $175.8 million loss in Q2 2020. Last year, it had a $115.5 million non-cash impairment charge.
Vadadustat is a $2 billion estimated U.S. dialysis market opportunity, according to Slide 10 of Akebia’s slide deck. But that market opportunity for the drug is also broader than what was first believed. This suggests the company has bigger revenue potential ahead — more than the market expects. All told, the sales potential here could climb.
Alto Ingredients (ALTO)
Alto is a “leading producer of specialty alcohols and essential ingredients.” The company posted strong revenue growth in Q2. However, profits still fell for this pick of the small-cap stocks.
Specifically, in Q2, Alto posted revenue growth of over 40% YOY to $298.1 million. That said, gross profit fell by half, from $31.2 million to $15.2 million.
No doubt, markets are unhappy with the falling profits. But Alto has transformation efforts in the works that should focus the business on its most profitable and strategic operations.
For example, the company will enhance its service offerings and products. It will also invest in infrastructure to lift margins. To lift profits, Alto will also transition to higher-margin businesses, focusing further on things like specialty alcohols. As far as near-term results, it is targeting $60 million in gross profits this year, due mostly to specialty alcohol production.
When it comes down to it, an improved balance sheet will win back investor confidence in ALTO stock. Plus, as it continues retiring its debt, Alto will have higher liquidity. From there, the company can fund capital projects.
Small-Cap Stocks to Buy: Babcock & Wilcox (BW)
Next up on this list of small-cap stocks, Babcock & Wilcox is a firm focused on environmental, renewable and thermal-energy technologies. BW stock has trended lower in recent months. However, it has been moving again after the company announced a few contracts as well as acquired a renewable services firm.
On Sept. 30, BW announced a “$38 million technology award for a new waste-to-energy facilities in East Asia.” Chief Operating Officer Jimmy Morgan said the following about the company’s efforts:
“Our advanced waste-to-energy technologies help customers provide reliable, baseload power, while also protecting the environment.”
Investors can expect carbon capture demand to increase as companies implement BW’s green strategies. But that’s not all. On Sept. 27, this company also announced a $35 million contract “to supply waste-to-energy technologies for facilities in Greenland.”
No doubt, these contract wins are encouraging. In Q2, the company posted an unexpected profit of 2 cents per share. That’s compared to a 39-cent loss last year. CEO Kenneth Young forecast adjusted EBITDA of $70 million to $80 million in 2021. In 2022, Young sees it rising to between $95 million and $105 million as well.
Finally, Babcock’s ClimateBright platform is a compelling hydrogen-combustion and carbon-capture opportunity. Customers need quick solutions to reduce their emissions and this company can certainly help them. As such, BW stock should rise as it pursues its pipeline of more than $6 billion in projects.
ClearSign Technologies (CLIR)
Next up on this list, ClearSign is an emerging leader in emission-reducing “industrial combustion and sensing technologies.” In Q2, however, it provided a frustrating update.
Essentially, the firm received a verbal notification from Exxon Mobil (NYSE:XOM) to put its ClearSign Core process burner testing on hold. The reason? The energy giant said there was not enough time for it to “engineer their inclusion during the targeted 2022 refinery turnaround.”
ClearSign ended Q2 with $10.6 million in cash. On the conference call, CEO Jim Deller also noted that the delay was due to a timing miss. However, Deller looks at this delay as a “bump in the road.” Exxon is a very big firm and still committed to the project. Moreover, ClearSign is keen on proving itself. So, after the certification, it stands to gain plenty of future business with the energy giant.
Investors sold CLIR stock instead of waiting. And sure, with no timeline, shareholders had plenty of uncertainties weighing on them — not to mention that the market is volatile this month. Still, investors should consider this pick of the small-cap stocks after the downtrend ends.
Small-Cap Stocks to Buy: 1847 Goedeker (GOED)
Goedeker is an e-commerce player in the U.S. household appliances market. What’s more, its recent Q2 results suggest that it has the potential to grow market share — potential that’s bigger than investors realize.
For Q2, 1847 Goedeker posted revenue that rose more than 53% YOY to $140.1 million. Moreover, the company’s pro-forma net income was $17.3 million. The firm also achieved operational synergies from its Appliances Connection acquisition during the quarter.
That acquisition has since inspired an ambitious goal of $1 billion in annual revenue for the company. However, GOED stock is not trading like the company will meet that sales target.
True, the appliances market is highly elastic. Higher prices could hurt demand. But to gain investor confidence, Goedecker is “integrating new technology into the supply chain.” It’s also putting a lot of effort into negotiating favorable terms with its vendors and suppliers.
Investors should expect Goedeker’s customer-satisfaction levels to rise as it builds a seamless e-commerce experience. Expect revenue to rise every quarter for this pick of the small-cap stocks as well. Furthermore, margins from the addressable market should expand as the company establishes more vendor and supplier relationships (in Q2, it hit over 57,000 stock-keeping units (SKUs)).
Himax Technologies (HIMX)
Next up on this list of small-cap stocks, Himax recently peaked at just under $15 per share in August and has since trended lower. Now, markets have already forgotten about the company’s strong Q2 financial results.
For Q2, Himax — which is a fabless semiconductor solutions provider — posted revenue of $365.3 million. That revenue was more than 18% higher quarter-over-quarter, exceeding the low end of the company’s guidance. What’s more, the gross margin rose to 47.5%, up from 40.2% sequentially.
All in all, Himax benefited from a rise in both medium-sized driver integrated circuits (ICs) and large driver ICs. True, the company acknowledged capacity shortages across its business. However, its profits did not suffer because it concentrated on high-margin products and key customers.
Now for Q3, this company expects revenue to grow between 13% and 17% sequentially. Likewise, the gross margin is forecast to rise again in the range of 50.5% to 52%. Moving forward, the company’s WiseEye solution business is also a tailwind for HIMX stock — it won two new awards in Q2 for “utility meter, battery camera and panoramic video conferencing applications.” Himax’s revenue growth could accelerate as some of those applications enter mass production in Q4.
Small-Cap Stocks to Buy: Sundial Growers (SNDL)
Last up on this list of small-cap stocks is infamous penny stock Sundial Growers. Recently, Reuters reported that U.S. cannabis sales could reach $41.3 billion in 2026. As such, investors may want to consider buying SNDL stock for exposure to this market.
In Q2, Sundial posted revenue of $9.2 million. Furthermore, gross cannabis revenue grew by 8% to $12.7 million. Its net loss of $52.3 million was also better than the $60.4 million loss last year. In fact, had the firm excluded a $60 million impairment, it would have actually earned $7.7 million.
Sundial is a compelling cannabis investment because it is now vertically integrated. It recently acquired Spiritleaf and its retail network, too. The upstream cultivation also continues to improve, among other things.
When it comes down to it, the cannabis market is consolidating and is on the verge of regulatory reform. Sundial is financially healthy and ready for the change. Its capital expenditures will also build on its joint venture with SAF Group.
Finally, the company has reduced costs and rightsized its workforce ahead of the competition. As a leaner, more nimble firm, look for this pot stock to climb from here.
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On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.