To say the market is signaling anxiety would be quite an understatement. With about three weeks registered for 2022, the benchmark S&P 500 index saw its capitalization shed 7% while the technology-centric Nasdaq is below parity by almost 12%. But it’s not just the posted red ink since the volatility sharply contrasts with prior bullishness. Therefore, the idea of small-cap stocks to buy seems risky.
I’m not going to keep the leering attorneys in suspense: small-cap stocks are risky. Bull market, bear market, sideways and running in circles market, companies that command a fraction of the valuation of their blue-chip counterparts will — all things being equal — always be more treacherous than established stable businesses. It’s the nature of the beast, yet the present volatility may be time to consider going below the radar.
According to Bloomberg, famed investor Jeremy Grantham stated that the “historic collapse in stocks he predicted a year ago is underway and even intervention by the Federal Reserve can’t prevent an eventual plunge of almost 50%.” Yeah, that’s right, 50%. If this thesis pans out, in many ways, you don’t want to be levered up on blue chips but rather small-cap stocks.
To clarify, it’s all about context. With larger companies, you need to acquire plenty of shares to accrue sizable gains since the law of large numbers means that blue chips are comparatively lumbering investments. On the other hand, small-cap stocks are agile and therefore, you don’t need to put as much money down to see similar gains with blue chips acquired with a large personal stake.
Furthermore, the big dogs of the market naturally attract institutional money. While that’s awesome during bull markets, the problem in corrective periods — let alone bear markets — is that these same institutions run for cover to protect themselves. Typically lacking such exposure to a high degree, these small-cap stocks could be more attractive during this storm.
- Talos Energy (NYSE:TALO)
- One Stop Systems (NASDAQ:OSS)
- Turtle Beach (NASDAQ:HEAR)
- AMMO Inc. (NASDAQ:POWW)
- Joint Corp. (NASDAQ:JYNT)
- Lazydays (NASDAQ:LAZY)
- Patriot One Technologies (OTCMKTS:PTOTF)
To reiterate, small-cap stocks are risky. While they benefit from the law of small numbers (that is, it doesn’t take much to move them), they also can become victims of the same principle. Therefore, interested investors must practice strict money management and extreme due diligence. Above all, make your decisions because you’re comfortable with it, not because some internet dude like me said something interesting.
Small-Cap Stocks to Buy: Talos Energy (TALO)
As an oil and gas company focused on offshore exploration and production, Talos Energy is also engaged in the “development of future carbon capture and storage opportunities in the United States Gulf Coast, Gulf of Mexico and offshore Mexico,” per its website.
Admittedly, on the surface, TALO stock doesn’t necessarily sound like one of the small-cap stocks to buy based on its core business. As you know, ample evidence supports the concept that millennials and Generation Z care deeply about sustainability-related issues. Furthermore, the otherwise vituperative political environment manages to find some reasonable framework for clean-energy solutions such as electric vehicles (EVs). Such circumstances don’t seem to augur well for Talos Energy.
However, the transition to a net-zero-emissions economy will take many years; even the pro-green administration of President Joe Biden is targeting the lofty goal by 2050. In the meantime, America needs to get moving and that, like it or not, means immediate relevancy for fossil fuels.
Moreover, even when we build out a greener infrastructure, fossil fuels are unlikely to be phased out altogether. As the Brookings Institution mentioned, they’re more energy dense than other sources. Therefore, it’s worth considering TALO stock among your small-cap stocks to buy with speculation-geared funds.
One Stop Systems (OSS)
Although innovations in artificial intelligence (AI), machine learning and advanced sensors have contributed to groundbreaking developments in areas like autonomous driving and industrial automation, the mainstream media tends to focus on the “headline” companies fronting the platforms. However, behind the scenes are many firms undergirding small-cap stocks that make everything function.
A key example is One Stop Systems, a manufacturer of specialized computing platforms. Obviously, advanced solutions like autonomous vehicles can’t rely on computers you buy from your local big-box retailer. Instead, companies like One Stop craft application-specific systems that maximize performance under various specified conditions. Having been in business for over 20 years, OSS knows a thing or two about keeping their enterprise-level clients happy.
Furthermore, this might be an idea to consider adding shares to your list of small-cap stocks to gamble on. For one thing, OSS stock has been discounted about 23% year-to-date (YTD), possibly presenting a more attractive entry point. In addition, 26% of OSS is owned by insiders (as opposed to 13% institutional ownership), suggesting a better ability to navigate the current market downturn.
Small-Cap Stocks to Buy: Turtle Beach (HEAR)
I’m not going to sugarcoat Turtle Beach, which specializes in video gaming-related headsets and other accessories. Following the spring doldrums of 2020 when the novel coronavirus pandemic initially upturned the global economy, shares of HEAR stock soared, making them one of the best small-cap stocks to buy. Naturally, with people incentivized to stay indoors, the gaming sector expanded substantially.
But now that the fear of Covid-19 has subsided rather dramatically — in part, due to a strong desire to reclaim lost social experiences — HEAR stock is taking it on the chin. Actually, it’s doing more than that. With a YTD loss of 21% and a 42% loss over the trailing six months, the security is downright hemorrhaging.
Therefore, I’m not in a mood to acquire shares now. Instead, I’d like to wait until the volatility clears itself. Nevertheless, over the long run, HEAR stock could again be one of the small-cap stocks to buy. As data from Syracuse University shows, the trend for esports is only booming, which augurs well for Turtle Beach but perhaps at the expense of real sports.
AMMO Inc. (POWW)
Easily one of the most controversial small-cap stocks to buy, Ammo Inc is clearly not for everyone. As you might expect from the brand name, Ammo specializes in ammunition — it’s not pulling any ironic punches here. Furthermore, the company probably has the most cynically humorous ticker symbol in POWW stock.
Good job, marketing team. Good job.
But if you can get over the controversial nature of its business, Ammo offers plenty to like with respect to speculative investments. Primarily, the ammo shortage that afflicted firearms enthusiasts during the new normal may worsen this year. A myriad of factors, ranging from a major supplier bankruptcy to ravenous firearms demand to the Biden administration’s sanctions on Russian ammo have crimped supply and skyrocketed demand.
Additionally, as Benzinga contributor Margaret Jackson mentioned, Ammo acquired GunBroker.com, which gives the company the reach of “the world’s largest online marketplace dedicated to firearms, hunting and shooting-related products.”
Finally, even if domestic ammo manufacturers open new facilities to ramp up production, such endeavors could take three to five years to materialize, according to experts. This all bodes quite well for POWW stock.
Small-Cap Stocks to Buy: Joint Corp. (JYNT)
As you’ll have noticed throughout this list of small-cap stocks to consider, I’m really focusing on the small aspect. While other publications feature similar themes, they usually come up with ideas that command multi-billion-dollar market capitalizations. Personally, once you get into $2 billion or $3 billion territory, you’re stretching it.
But at a market cap of $709 million, Joint Corp is in my opinion a sweet spot: not too big, not crazy small. To be fair, though, you’ll want to hold off on acquiring JYNT stock for a bit until the volatility cools down. With a loss of 25% YTD and almost 41% in the red over the trailing six months, JYNT stock is super-risky at the moment.
But over the long haul, the business — which represents the nation’s largest network of chiropractors — may do well. According to IBISWorld, the underlying industry features a sizable tailwind due to the combination of an aging population and rising incomes.
Moreover, it might not be a stretch that the increased sedentary lifestyle that the mass work-from-home experiment prompted could cynically lead to more chiropractor visits, thus boosting JYNT stock.
Operating as a holding company, Lazydays through its subsidiaries retails recreational vehicles and related accessories in addition to offering repair and maintenance services. Back in 2020 when the mysterious coronavirus rippled throughout the nation, the smartest and boldest contrarians bought shares of RV firms, which represented one of the best small-cap stocks to buy.
The thesis was logical and alarmingly simple, especially from hindsight. With people concerned about contracting the virus, air travel absolutely cratered in the early months of the crisis. However, the health threat didn’t tame the appetite for American consumers to vacation. So, those who had the means used RVs and the freedom of the open road as an alternative.
However, now that fears have faded, so too did demand for RVs apparently. On a YTD basis, LAZY stock is getting slammed, shedding nearly 23% of value. Frankly, it wouldn’t surprise me if shares slipped even more due to outside negative conditions.
Nevertheless, the bull thesis may not be entirely extinguished due to the rise of another pandemic: air rage. Thus, the well-to-do may hit the open road once again.
Small-Cap Stocks to Buy: Patriot One Technologies (PTOTF)
Overall, Patriot One Technologies is more of a micro-cap play than something you will find among the most promising small-cap stocks to buy. And while I appreciate the underlying business, it is incredibly risky. I don’t care what the company or any of its supporters say: you should only engage with funds earmarked for speculation — and only after extensive due diligence.
That said, the business is not only compelling but unfortunately relevant. As a security solutions platform utilizing multi-sensor covert threat detection technologies — that’s a fancy way of saying the system can detect concealed weapons like guns and knives — Patriot One users can potentially neutralize mass-casualty events before they happen.
It’s not the most comfortable topic, but the world didn’t stop because of Covid-19. If anything, nefarious agents have used the new normal to exploit vulnerabilities in our security infrastructures. As well, the negativity directed toward law enforcement has likely put more innocent civilians at risk. Patriot One can help mitigate some of these concerns through objective, data-driven threat recognition.
Still, PTOTF is a penny stock. So proceed (if at all) with extreme caution and vigilance.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.