The Federal Reserve seems prepared to cut interest rates, perhaps by its next meeting in September. That’s one reason that institutional dollars are starting to rotate into small-cap growth stocks.
These companies are frequently not profitable and have to fund their growth with debt, which has become expensive as interest rates have moved from around 0% to around 5%. But if interest rates move significantly lower in the next 12 months, these stocks will be among the largest beneficiaries.
Should you get involved? All investing requires patience. But investing in small-cap growth stocks requires both patience and discernment. There are many companies that have an idea that has little chance to be a profitable business.
However, this is about finding small-cap stocks that may be ready to take off. The three stocks listed here are in significant sectors and offer investors the chance for growth of 2x, 3x or even higher in the next few years.
Talos Energy (TALO)
Talos Energy (NYSE:TALO) is an upstream oil and gas exploration company. It is the fifth largest operator in the Gulf of Mexico and has the fourth most acreage in that region. The latest piece of the company’s growth through acquisition strategy was QuarterNorth for around $1 billion.
Normally, that might have investors concerned about debt, which particularly impacts small-cap stocks. However, in July, Talos announced it had repaid over $325 million in debt and repurchased 3.8 million shares.
TALO stock is down 25% in 2024 and is down over 19% in the last three months despite posting a solid earnings report in which it beat on the top and bottom lines. That said, analysts are generally bullish on the company. Nine out of 11 analysts give the stock a Strong Buy rating. And the consensus price target of $18.15 gives investors the potential for 70% upside in the next 12 months.
Wolfspeed (WOLF)
Wolfspeed (NYSE:WOLF) is the world’s leading producer of silicon carbide material, particularly semiconductor chips. These chips differ from the silicon chips that are the current industry standard because they combine silicon and carbon. This combination allows them to handle higher voltages and currents than is possible with current electronics.
The majority of the company’s current revenue comes from the electric vehicle sector. In its third quarter 2024 earnings report, Wolfspeed reported that demand continues to outpace supply even while the EV sector faces multiple headwinds on its path to scalability.
However, the North Carolina-based company was recently awarded a contract from the U.S. Department of Defense (DOD) to create directed energy systems. These systems would act like the lasers you might have seen in Star Wars, which would prevent firing expensive missiles to bring down rockets and drones.
As of this writing, Wolfspeed has a $1.92 billion market cap making it one of the larger small-cap stocks. Still, revenue and earnings are down year-over-year. But some of that is due to the start-up costs for its JP facility in Siler City, North Carolina which is expected to start production in the fourth calendar quarter of 2024.
Immunocore (IMCR)
The biopharmaceutical sector is fertile ground if you’re looking for small-cap growth stocks with the potential to be a multi-bagger. But you have to separate hope from hype. The case for Immunocore (NASDAQ:IMCR) starts with its proprietary ImmTAX platform. This is the world’s first approved T cell receptor (TCR) therapy. The ImmTAX platform activates “the immune system to make infected or tumor cells visible and then destroy them.”
Many of these companies fail to get a drug into market. However, those that do can easily turn a small investment into massive gains. To date, Immunocore has one drug, Kimmtrak, that has received FDA approval to treat melanoma of the eyes.
Immunocore has a deep pipeline that includes two late-stage programs for chronic hepatitis delta and chronic hepatitis B. The company also has the backing of the Gates Foundation.
But investors should be advised that these will take time to get to market. However, the company has strong institutional backing. 84% of the company’s float is owned by institution. That will reduce some volatility.
On the date of publication, Chris Markoch 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
