Thursday, February 1, 2024

The 10 Best Small Cap Stocks to Buy Now

Good morning,

Let's talk about small cap stocks. It's common knowledge that tilting your stock portfolio toward smaller-capitalization companies will generally outperform the S&P 500 over a long enough period of time. Companies that have a market value between $300 million and $2 billion tend to outperform their large cap counterparts simply because they have a lot more room to grow and haven't saturated their markets yet.

While small cap stocks provide some of the best growth opportunities in public markets, they are also much more volatile than their large cap counterparts. Many large cap companies that are name brands among retail investors (Apple, Tesla, etc.) move in unison with the total direction of the market.

It's a different situation with small cap stocks. There are clear winners and losers over the course of the year. Price performance is much more dependent on a small cap's stock performance (earnings per share) and how much interest there is in the company among retail investors. If a small cap stock has strong earnings and gains a following on sites like Seeking Alpha and MarketBeat, they can see their stock price double or triple over the course of a year. That typically doesn't happen with their large cap counterparts.

How do you find the winners though? Sure, you can buy a small cap index ETF and get average returns and you'll do fine over the course of time. But, what if there was a way to identify the best small caps to buy now without having a crystal ball? It's impossible to say with certainty what the best performing small cap stocks will be next year, but we polled the most-accurate and best-performing research analysts on Wall Street to see what they have to say.

Wall Street analysts publish more than 48,000 research notes on small cap companies each year. We've compiled a list of the 10 stocks that they are consistently issuing "buy", "strong buy", and "conviction buy" ratings on.

View the 10 Best Small Cap Stocks to Buy Now

Laycee Kluin
MarketBeat


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Investing in stocks is a bit like choosing players for a sports team. Just like there are different players, there are different kinds of stocks. Today, let's talk about a special kind called "small-cap stocks." These are like the younger players in a team, not as big or well-known as some others, but with their own unique strengths and possibilities.

First off, "cap" in small-cap stocks stands for market capitalization. That's a fancy way of saying how much the company is worth in the stock market. Small-cap companies are like smaller, younger companies. They're not as big as companies like Apple or Disney, but they can be growing and changing quickly.

One cool thing about small-cap stocks is that they can grow a lot. It's like a young athlete who starts out unknown but becomes a star player. Because these companies are smaller, they have more room to grow and become bigger. If you pick a good small-cap stock, and the company does really well, you might make more money than you would with a bigger, more established company's stock.

But, just like in sports, not every young player becomes a star. Investing in small-cap stocks can be risky. These companies can be newer and not as stable as big companies. They might have great ideas but not enough money to make them happen, or they might face tough competition. So, their stock prices can go up and down a lot, which is riskier than stocks of bigger companies.

When you're thinking about investing in small-cap stocks, it's a lot like picking a team for a game. You want to choose carefully. Look for companies that have good ideas, strong leaders, and a clear plan for how they're going to grow and succeed. It's like choosing players who are not only strong and fast but also work well with the team and have a good strategy.

Another important thing is not to put all your money in just small-cap stocks. It's like not having your whole team made up of young players. You want some experienced players too. In investing, this means having different kinds of stocks in your portfolio. Some can be small-cap stocks, but you should also have stocks from bigger, more stable companies. This way, if the small-cap stocks don't do well, you have other stocks that might be doing better.

Remember, investing in small-cap stocks is for the long term. It's like training a young athlete. You don't expect them to be the best right away. They need time to grow and get better. The same goes for small-cap stocks. You need to be patient and give them time to grow.

So, small-cap stocks can be an exciting part of your investment adventure. They offer the chance to grow your money and be part of a company's journey from being small to possibly becoming big and successful. But always remember to be careful, do your research, and think about how these stocks fit into your bigger investment plan. Just like in a game, the key to success is often to have a good mix of players, a solid strategy, and the patience to see how things play out.


 

 
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