There are small-cap stocks to buy and hold that can be mid-caps or large-caps in the next five to ten years.
It’s relatively easy to pick blue-chip stocks for the portfolio. Investors can expect steady capital gains in addition to cash dividends from these stocks. However, the real test in terms of stock selection is when investors are picking growth stocks or small-cap stocks. Particularly, for the long term.
It’s these potential multi-bagger stocks that can change the shape of the portfolio. Investors who desire to be millionaires by investing in equities need to hold small-cap growth stocks. Of course, the exposure needs to be limited. That being said, even a 20% allocation to small-cap stocks can do wonders if the business grows.
Let’s, therefore, talk about four small-cap stocks to buy and hold for the next five years. These stocks represent companies from diversified industries that have positive long-term tailwinds.
If business developments remain positive, multi-bagger returns will come easily.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is possibly the top name among small-cap stocks to buy and hold. A single impending catalyst of federal-level cannabis legalization would imply multi-bagger returns.
In December 2022, President Biden signed the marijuana research bill. This bill will encourage higher investments in medicinal cannabis. The U.S. Food and Drug Administration is also contemplating regulation of cannabis-based food supplements. All these developments are positive for the cannabis industry.
Specific to Tilray, business developments have been positive on several fronts. The company has acquired two brewing companies in the U.S. This has helped Tilray boost its strategic infrastructure in the country.
Additionally, Tilray continues to report positive adjusted EBITDA. The company has also guided for all key business units to be free cash flow positive in the current financial year. With steady revenue growth, cash flows are likely to accelerate. TILRY stock is therefore worth holding for the next five years.
Borr Drilling (BORR)
Borr Drilling (NYSE:BORR), as a provider of offshore drilling rig services, is an attractive investment opportunity. BORR stock has trended higher by 125% in the last 12 months. However, considering business developments, the uptrend is likely to sustain.
Borr Drilling reported 22 new contracts in the first nine months of 2022. These contracts imply $1.36 billion in potential revenue. The latest rig status report indicates further contract awards. Overall, the company has contracted 21 rigs out of the 22 delivered rigs.
It’s also worth noting that the new contracts are at a higher day rate. EBITDA margin expansion seems likely throughout the year. Last year, the company extended its debt maturity profile and increased the cash buffer through equity dilution.
As cash flows accelerate, Borr will be positioned to deleverage. Furthermore, with most operating rigs contracted, it’s likely that Borr will pursue fleet expansion in the coming years.
Among small-cap stocks from the electric vehicle space, Fisker (NYSE:FSR) looks attractive. After a correction of 53% in the last 12 months, FSR stock seems to have bottomed out.
While there has been a broad-base correction in EV stocks, the long-term outlook for the industry remains positive.
As an overview, Fisker is yet to deliver an electric vehicle. However, the company has commenced production of its first model, Fisker Ocean. The company has guided for production of 42,400 Fisker Ocean units in 2023. The model already has a backlog of 63,000 units. As the backlog accelerates, FSR stock is likely to trend higher.
Since the company is at an early growth stage, cash burn is likely in the next few years. As of Q3 2022, Fisker reported a cash balance of $824 million.
Further dilution of equity can be expected in 2023. The stock is however oversold and if the production guidance is met, FSR stock will remain firm. From a long-term perspective, the introduction of new models and global expansion will drive growth.
Riot Platforms (RIOT)
Even as the cryptocurrency industry remains depressed, I am willing to take some risk and invest in a quality crypto stock. Riot Platforms (NASDAQ:RIOT) stock looks attractive after having corrected by almost 76% in the last 12 months. Assuming a Bitcoin (BTC-USD) recovery scenario, the stock is poised to deliver multi-bagger returns.
As of December 2022, Riot reported hashing capacity of 9.7EH/s. The company expects to increase capacity to 12.5EH/s by Q1 2023.
Riot also reported production of 659 Bitcoin for December 2022. On a year-on-year basis, production increased by 55%. Business developments have remained positive even as Bitcoin struggles below $20,000.
There are two more reasons to like Riot. First and foremost, the company reported a cash balance of $255 million and has no debt.
With swelling digital assets, financial flexibility remains strong. Furthermore, Riot reported gross margin of 65.4% for the first nine months of 2022. The company is a low-cost producer and cash flows are likely to be robust on any renewed Bitcoin rally.
On the date of publication, Faisal Humayun did not hold (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.
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