Right now, investors would be wise to consider the small-cap stocks that populate the Russell 2000 Index. The Russell 2000 Index represents the smallest firms by market capitalization. Meanwhile, the Russell 3000 Index measures the 3000 largest U.S. firms and 96% of investible U.S. equities.
Historically, these small-cap stocks have beaten large caps by 16.5% in the 12 months after a recession was called. That streak has held true in each of the last 11 recessions. That mathematical truth provides a strong and logical basis for investing currently. Whether we’re currently in a recession, about to enter one, or entirely miss one, these shares are still strong small-cap firms worth considering.
Weatherford International (WFRD)
Weatherford International (NASDAQ:WFRD) is a picks-and-shovels stock investment in the oil and natural gas industry. The Houston-based firm provides services and equipment that spans three segments: Drilling and Evaluation ( ), Well Construction and Completions () and Production and Intervention( ).
Per usual, the energy sector is experiencing multiple factors that make it difficult to pin down definitively. That said, war is one of the strongest catalysts for WFRD at the moment.
Russia’s war in the Ukraine continues. That will continue to have the power to disrupt prices. Likewise, the war in Israel adds another variable into the mix. The upshot is that U.S. producers have reason to increase production due to external uncertainty. In turn, Weatherford International logically is in place to benefit.
The company already increased guidance in its Q2 earnings report months ago. That report showed strong international activity that included multiple year contracts for Aramco, Petrobras and Kuwait Energy. Its international presence is strong and secured by contracts for several years.
There’s potential at home as well, specifically in the Bakken where WFRD has an established presence.
Axcelis Technologies (ACLS)
Axcelis Technologies (NASDAQ:ACLS) stock, like WFRD, is a picks-and-shovels investment. The firm provides services and equipment to help semiconductor manufacturers increase productivity. Specifically, Axcelis Technologies focuses on ion implantation, a form of doping critical to integrated chip ( ) manufacturing.
Briefly, ion implantation introduces impurities into a chip wafer. The implantation increases conductivity in a way that is precise and controlled and avoids damage.
Generally speaking, ACLS shares look strong from the perspective that small-cap stocks have potential at the moment. More specifically, investors should look to catalysts including a Sept. 12 announcement that the company has dedicated an additional $200 million toward share repurchases.
The company also announced that it shipped one of its Purion Dragon implanters to an unnamed European R&D center for sub 3 nanometer logic device development on Oct. 10. In the press release, the firm noted that the shipment occurred in Q3. That seems to imply that the company wants investors to understand that it could have positive material impacts when it releases earnings in early November.
Option Care Health (OPCH)
Investors should consider three broad positive factors in relation to Option Care Health (NASDAQ:OPCH) stock.
First of all, the analysts who cover Option Health Care in depth expect its shares to rise over the coming 12-18 months. Their average price target suggests roughly 33% returns over that time period.
Second, Option Care Health, which operates in the healthcare sector as you likely guessed, provides infusion therapies. The healthcare sector is well-known to be a relative bastion of safety overall and especially in weakening markets. Demand for services such as infusion therapy tends to remain relatively inelastic. Consumers require such services no matter how weak the external environment. That simple truth bolsters the healthcare sector throughout market and business cycles.
Third, OPCH stock looks strong based on its most recent earnings report. Revenues jumped by 9% reading to a 15.6% increase in profitability and a 237% increase in net income.
Simpson Manufacturing (SSD)
Simpson Manufacturing (NYSE:SSD) is, ultimately, a stock to buy for those who believe in the strength of the global building construction sector. The company provides all kinds of products and solutions for residential, commercial and DIY construction.
It should come as no surprise that the company has experienced a slow down of late. Q2 revenue grew by just 0.7% due to a multitude of factors. Generally, it’s attributable to rate hikes that have spiked borrowing costs and stifled new construction broadly.
That said, Simpson Manufacturing has weathered the slow down well. The firm has done particularly well from the perspective of operations. Income increased by 9% while earnings jumped by 15.7% in the second quarter.
It’s clear that the company is biding its time and riding out the downturn. The company has actually increased its employee base by personnel costs which suggests it is gearing up for an expected turnaround.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) has exploded upward in 2023. The catalyst that prompted its boom is the same one that has propelled so many other stocks: AI opportunities in the tech sector.
Super Micro Computer provides IT components that are in high demand which has sent its shares skyrocketing in 2023 from $82 to $301 currently. Shares reached $352 in early August, tapered off, and are rising again with higher prices expected.
Revenues grew very rapidly in the last earnings period, rising by 37% to $2.18 billion. The firm is expected to produce slower growth in the coming quarter on a year-over-year basis but that should not be the only metric by which it is judged. Instead, investors should consider the secular growth opportunity which will continue as AI grows larger.
Additionally, consider that SMCI has a strong history of value creation. That isn’t a nebulous term. Instead, it measures the ability of a firm to produce larger returns on investments relative to the cost of the capital borrowed to create those returns. SMCI clearly utilizes capital well which is particularly important in today’s environment.
Lantheus Holdings (LNTH)
Lantheus Holdings (NASDAQ:LNTH) is a hugely undervalued stock according to the 9 analysts currently covering the medical diagnostics firm. It benefits from the relative safety of the healthcare sector, strong coverage sentiment, the potential of AI and strong fundamentals.
The strength of the healthcare sector and analyst sentiment have been explained so I’ll go no further there. AI is another factor to consider for investors in relation to the company. The potential of AI in helping healthcare workers to better diagnose health issues is large. Put succinctly, pattern recognition is better done by machines than humans. Thus, AI can help clinicians better diagnose potential issues than clinicians can do by themselves.
That potential has become material for Lantheus Holdings which saw revenues jump by nearly 44% in Q2 to $321.7 million and income more than double to $93.7 million. All signs point to the idea that Lantheus Holdings is a hidden gem.
Compass Minerals (CMP)
Compass Minerals (NYSE:CMP) is a smaller mining firm with strong factors that favor its stock. Essentially, it is enacting a turnaround and has entered into the lithium market while making strong connections therein. That should prompt investors to consider buying its shares the more well publicized those connections become.
The connection I’m alluding to is that between Compass Minerals and Ford (NYSE:F). Back in May, Compass Minerals signed a multiyear agreement to supply Ford with battery-grade lithium carbonate. The firm will send 40% of production from its lithium brine project in Utah to Ford for 5 years with production coming online in 2025.
Compass Minerals is concurrently enacting a fundamental turnaround. Operational net income reached $39.9 million in the most recent quarter. That represented a stark difference from the $10.7 million loss a year prior. EV stocks have grown rapidly and should continue to grow as the secular opportunity remains strong overall.
On the date of publication, Alex Sirois 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.