Small-cap stocks, or public companies with market capitalizations (caps) ranging from $300 million to $2 billion, have suffered significantly since January. Analysts highlight smaller companies have the potential for substantial growth. But they tend to be highly sensitive to rising inflation and interest rate hikes due to weaker balance sheets and tighter profit margins.
The Russell 2000 Index, a benchmark index for small-caps, has underperformed the broader market, having fallen 25% year-to-date (YTD). In comparison, the S&P 500 and the Dow Jones Industrial Average indices have declined around 21% and 16%, respectively.
According to Morningstar, small-cap stocks are trading at a 19% discount. Thus, they offer better opportunities against the mid-cap (trading at a 11% discount) and large-cap (trading at a 13% discount) stocks.
Yet, this difference should not come as a surprise. Given the risk-reward profiles, small-cap companies typically underperform the broader market during downturns. But they tend to lead when sentiment turns bullish.
With that information, here are seven small-cap stocks to buy that potentially offer momentum in the second half of 2022:
|AVUV||Avantis US Small Cap Value ETF||$68.85|
Arch Resources (ARCH)
52-week range: $53.42 – $183.53
Mining play Arch Resources (NYSE:ARCH) offers metallurgical products and coking coal for the global steel industry. It is the second-largest supplier of coal stateside, operating seven active coal mines.
The miner reported Q1 earnings on April 26. Revenue soared 142.8% year-over-year (YOY) to $867.9 million. Net income represented a record for the second straight quarter and came in at $12.89 per diluted share, up from a net loss of 40 cents. Cash and equivalents stood at $318.7 million.
Management expects revenue growth to continue throughout the rest of 2022, mainly due to stable shipment levels and monetization of the high coking coal inventories. Meanwhile, the board has agreed to pay out 50% of free cash as dividends.
So far in the year, ARCH stock has returned almost 58%. Shares are trading at a still bargain valuation at 3 times forward earnings and 1.1 times sales. Wall Street’s 12-month median price forecast stands at $200.
Avantis US Small Cap Value ETF (AVUV)
52-week range: $66.92 – $84.59
Dividend yield: 1.43%
Expense ratio: 0.25% per year
Our next choice is an exchange-traded fund (ETF), namely the Avantis US Small Cap Value ETF (NYSEARCA:AVUV). This actively managed fund that invests in U.S. small-caps with low valuations with higher profitability ratios.
AVUV, which tracks the Russell 2000 Value Index, has 646 holdings. The fund started trading in September 2019. In terms of sectoral allocations, we see financials (29%), followed by energy (18%), industrials (17%) and consumer discretionary (14%).
The top 10 stocks in the portfolio account for 8.4% of its net assets of $3.15 billion. Independent energy names SM Energy (NYSE:SM) and Matador Resources (NYSE:MTDR); exploration and production play PDC Energy (NASDAQ:PDCE); global oil and natural gas explorer and producer Murphy Oil (NYSE:MUR); and chemicals provider Chemours (NYSE:CC) are among the leading names on the roster.
AVUV has lost around 14% YTD, hitting a 52-week low in recent days. Long-term investors can find value at the current levels.
Consol Energy (CEIX)
52-week range: $16.15 – $59.38
Management issued Q1 results on May 3. Revenue was $ $358.5 million, up 5% YOY. However, the company posted a net loss 13 cents per diluted share, down from a net profit of 75 cents in the previous-year quarter due to rising costs. Cash and equivalents totaled $222.9 million.
Improved coal shipments in the first quarter enabled Consol Energy to generate $118 million in free cash flow while making debt repayments of nearly $39 million. The energy play is almost fully-contracted for 2022 and has improved its 2023 contracted position to 16.3 million tons.
CEIX stock hit a 52-week high on June 7 and has returned around 117% YTD. Shares are changing hands at 1.3 times sales. Wall Street’s 12-month median price forecast for CEIX stock is at $60.
52-week range: $13.36 – $43.78
Coursera (NYSE:COUR) operates an online educational content platform that offers courses and degrees from world-class universities and organizations. It went public in March 2021, and has over 100 million registered learners.
The platform released Q1 metrics on April 27. Total revenue came in at $120.4 million, up 36% from $88.4 million in the prior-year quarter. Adjusted net loss of $15.8 million accounted for 13.1% of revenue. Cash and equivalents totaled $361.3 million.
Management expects full-year 2022 revenue to grow around 42%. It is also hopeful that strategic investments could position Coursera for profitability in the long term. However, Wall Street remains skeptical.
So far in 2022, COUR stock has lost more than 38%. Shares are trading at 5 times sales. Wall Street’s 12-month median price forecast is at $31.50.
Dynavax Technologies (DVAX)
52-week range: $7.26 – $21.39
Dynavax Technologies (NASDAQ:DVAX) is a commercial-stage biopharma group developing vaccines. Its commercial products are the hepatitis B vaccine HEPLISAV-B and an adjuvant for some Covid-19 vaccines.
The biopharma play announced Q1 results on May 5. Revenue increased 37% YOY to $114 million. Net income was 22 cents per diluted share, compared to net income of 1 cent per diluted share in the previous-year period. Cash and equivalents ended the quarter at $503 million.
Management expects revenues of over $550 million from the adjuvant supply business in 2022. Meanwhile, positive results from a clinical trial on improved tetanus, diphtheria, and pertussis, or the Tdap vaccine that uses the CpG 1018 adjuvant, could be the next catalyst for the stock price.
DVAX stock has dropped almost 17% since the beginning of the year. Shares are swapping hands at a relatively cheap 8.9 times forward earnings and 3.2 times sales. Lastly, the 12-month median price forecast for Dynavax Technologies stock stands at $26.50.
Fate Therapeutics (FATE)
52-week range: $17.10 – $97.43
Fate Therapeutics (NASDAQ:FATE) is a clinical-stage biopharma company. Its focuses on developing programmed cellular immunotherapies for patients with cancer.
Management presented Q1 results on May 4. Revenue came in at $18.4 million which was derived from the Janssen and Ono Pharmaceutical collaborations. Meanwhile, research and development expenses stood at $72.1 million. Net loss was 68 cents per diluted share, compared to 49 cents a year ago. Cash and equivalents ended the quarter at $641.7 million.
Potential investors may want to know that Fate Therapeutics has set a meeting with the U.S. Food and Drug Administration (FDA) for mid-2022 to initiate a pivotal study to treat patients with relapsed/refractory diffuse large B-cell lymphoma (DLBCL). If approved, trials could begin in the second half of this year.
FATE stock has recently seen 52-week lows and tumbled more than 58% YTD. Shares are still not cheap, trading at 40 times sales. Meanwhile, the 12-month median price forecast for Fate Therapeutics stock stands at $82.
52-week range: $38.77 – $63.61
Revenue increased 29% YOY to $159.4 million. Adjusted net income came in at 6 cents per diluted share, down from 13 cents in the previous-year period. Cash and equivalents ended the quarter at $526.1 million.
On June 6, Tenable announced closing the acquisition of Bit Discovery, which provides external attack surface management. The company will launch Tenable.asm in Q3 to provide the full capabilities of Bit Discovery’s technology. As a result, customers can gain a better appreciation of the cyberattack in question.
So far in 2022, TENB stock has declined 18%. Shares are still trading at a rich valuation of 303 times forward earnings and 9.3 times sales. Finally, the 12-month median price forecast for Tenable stock is at $70.
On the date of publication, Tezcan Gecgil,Ph.D., 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.