Ranking the 7 Top Small-Cap Stocks to Buy From Best to Worst
These top small-cap stocks to buy present daring investors with significant upside. Fundamentally, companies with a relatively diminutive profile typically command higher growth potential. In contrast, larger companies tend to be more mature, thus stymieing potential for outsized gains.
Moreover, the top small-cap stocks to buy may benefit from flying under the radar. Given Wall Street’s focus on various macroeconomic headwinds, in particular, fears of a global recession, analysts now scrutinize popular enterprises for vulnerabilities. However, that same level of scrutiny is nowhere to be found in the small-cap space.
Indeed, investors may be surprised to learn about hidden gems among the top small-cap stocks to buy. While the sector still carries substantial risks, investors may want to diversify with the risk-on portion of their portfolio.
Below are some of the most compelling diminutive enterprises to consider, in ascending order of risk.
Ordinarily, you wouldn’t think of furniture-related companies to provide great value in a market cycle where a recession may be imminent. Nevertheless, La-Z-Boy (NYSE:LZB) presents an intriguing case among the top small-cap stocks to buy. For one thing, the company features a market capitalization of just over $1 billion
More importantly, La-Z-Boy brings surprisingly robust fundamental catalysts to the table. For example, LZB offers a forward yield of 2.85%. While it doesn’t have a sizable history of consecutive dividend increases, its payout ratio is only 20%. That means all other things being equal, this yield is a reliable one as it doesn’t consume a significant portion of earnings.
Moreover, Gurufocus.com labels LZB as significantly undervalued. Notably, the company features strengths across the board. However, it’s best known for posting growth and profitability metrics that stand above sector averages. Finally, La-Z-Boy’s return on equity of nearly 21% ranks better than nearly 82% of its peers.
Sturm Ruger (RGR)
Easily the most controversial name on this list of top small-cap stocks to buy, Sturm Ruger (NYSE:RGR) (to avoid any triggering words or phrases) manufactures “barreled kinesis systems” or BKS. A misunderstood industry, BKSs offer myriad relevancies, from hunting to sports to self-defense. Moreover, while I won’t link out to any sources to maintain sensitivities, more BKSs exist than people in this country.
Put another way, Sturm Ruger features a massive total addressable market. Like La-Z-Boy above, if you can get past certain misconceptions about the industry, Sturm Ruger provides much value. For instance, RGR offers a forward yield of 5.31%. Here, the payout ratio at just under 42% is high but not ridiculously so.
Similarly, Gurufocus.com labels RGR as significantly undervalued. The company features strong financial metrics across the board, including a cash-to-debt ratio of over 96 times. This ranks better than nearly 90% of the industry. As well, Ruger represents a high-quality business as reflected by its top echelon return on equity of nearly 35%.
CrossAmerica Partners (CAPL)
A downstream player in the petroleum industry, CrossAmerica Partners (NYSE:CAPL) specializes in the retailing of gasoline. As well, the company facilitates wholesale distribution of hydrocarbon-based products. Presently, CrossAmerica features a market cap of $726 million. Shares trade hands at $19.14. Since the beginning of this year, CAPL dipped 1% below parity.
Now, one factor to keep in mind is that CAPL represents a master limited partnership or MLP. While MLPs certainly offer advantages – particularly high dividend yields – they impose greater tax-filing requirements. That might be too onerous for some folks. On the flipside, CrossAmerica’s forward yield stands at a stout 11%. Nevertheless, its wickedly high payout ratio brings up sustainability concerns.
Overall, though, the energy dynamics associated with the wild events of this year present cynical opportunities for CAPL. In addition, the underlying firm brings compelling financial metrics to the table. For example, the company features solid growth trends and eight years of consecutive profitability. Finally, CrossAmerica is a high-quality business based on its blisteringly high return on equity of nearly 70%. Therefore, CAPL ranks among the top small-cap stocks to buy for energy speculators.
Primoris Services (PRIM)
Headquartered in Dallas, Texas, Primoris Services (NASDAQ:PRIM) represents a specialty construction and infrastructure firm. It has a particular focus on pipelines for natural gas, wastewater and water. Therefore, Primoris may benefit from inelastic demand. No matter what happens in the economy, society will need these critical areas serviced.
Like some other top small-cap stocks to buy, Primoris offers some passive income. It’s not much at a forward yield of 1.35%. But because of its paltry payout ratio of 8.6%, the company probably won’t attract sustainability criticisms. Presently, Primoris features a market cap of $958.8 million. Shares declined 29% so far this year, reflecting relative value on the charts.
Financially, the infrastructure firm carries a significantly undervalued business. For one thing, Primoris has a forward price-earnings ratio of 6.3 times, below the industry median of 10.7 times. Better yet, it commands above-sector-average ratings for growth. To top it off, Primoris’ return on equity stands at 12.4%, ranked better than 75% of its peers.
An insurance provider, SiriusPoint (NYSE:SPNT) brings an interesting angle to top small-cap stocks to buy. Since the Jan. opener, SPNT lost over 32% of equity value, reflecting significant bearishness. However, over the trailing month, SPNT gained almost 24%. Therefore, it’s one of the recent highflyers. Currently, SiriusPoint features a market cap of $939.1 million.
Like the other top small-cap stocks to buy on this list, Gurufocus.com labels SPNT significantly undervalued. However, the difference here is that the company is more aligned with growth while eschewing other financial metrics.
Specifically, SiriusPoint enjoys a three-year revenue growth rate of 56.2%. In contrast, the industry median is only 7%. Therefore, the company ranks above nearly 96% of the competition. Further, it features a price-sales ratio of 0.41 times, whereas the industry median is 0.98 times. Still, be aware that the company could use a little shoring up of its balance sheet. As well, profitability concerns bring extra risks to the table.
Wesdome Gold Mines (WDOFF)
A mining, exploration and development company, Wesdome Gold Mines (OTMCKTS:WDOFF) (per its brand name) focuses primarily on gold. Fundamentally, this framework presents significant risks. With the Federal Reserve committed to a hawkish monetary policy, the narrative left to its own devices presents deflationary pressures. Ultimately, that’s bearish for gold and commodities in general.
However, no one knows for certain how global economic dynamics will play out. As well, gold also features significantly in the industries of tomorrow. A great example is gold’s incorporation in electric vehicles. Therefore, Wesdome may enjoy under-appreciated relevancies.
What’s quite surprising, though, is that the company presents an attractive financial profile. For example, it enjoys a stable balance sheet, with a debt-to-equity ratio of 0.03 times. In contrast, the industry median is 0.14. Most impressively, Wesdome’s three-year revenue growth rate stands at 29.4%, ranked better than 88% of the competition. Therefore, WDOFF offers an excellent (albeit speculative) idea for top small-cap stocks to buy.
Emergent BioSolutions (EBS)
Arguably the riskiest name on this list of top small-cap stocks to buy, Emergent BioSolutions (NYSE:EBS) is a biopharmaceutical company that develops vaccines and antibody therapeutics for infectious diseases and opioid overdoses. Further, it provides medical devices for biodefense purposes. Currently, Emergent features a market cap of $923.6 million.
Because of the advancements in medical solutions stemming from the coronavirus pandemic, Emergent should enjoy significant interest. However, Wall Street has other ideas. Since the beginning of this year, EBS dropped 61% of equity value. Over the trailing month, shares slipped nearly 12%, reflecting ongoing pessimism.
Still, for those that want to take a shot at a speculative firm, Emergent features a significantly undervalued business. For instance, it features a forward PE ratio of 12.4 times, lower than the industry median of 14.4 times.
As well, Emergent enjoys significant expansion of the top line. Its three-year revenue growth rate stands at nearly 30%, ranked better than almost 88% of the industry. If you’re more of a fundamental investor, EBS could be your ticket among top small-cap stocks to buy.
On the date of publication, Josh Enomoto 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.