In this article, we’re going to talk about the 10 best-performing small-cap stocks in 2024.
The Case for Small Caps
The recent Fed rate cut has made the market cautiously optimistic. Despite the unusual timing, historical data suggests a continued upward trend. Recently, we discussed the Dow’s new all-time high. The major stock index recently surpassed its previous peak, closing at a record-breaking level. This surge was fueled by a combination of factors, including positive investor sentiment following a central bank rate cut and broader economic optimism. This record-breaking performance reflects a strong upward trend in the market, indicating robust investor confidence and a favorable economic outlook.
Here’s an excerpt from the article on 10 Best Performing Stocks in 2024:
“The Dow Jones Industrial Average has recently made headlines by closing above the 42,000 mark for the first time, a significant milestone that reflects a surge in investor confidence following a substantial interest rate cut by the Fed. This momentous achievement occurred on September 19, when the Dow jumped over 500 points, closing at 42,063.36. This rise was part of a broader trend in the stock market, with major indices experiencing overall gains throughout the week, largely fueled by optimism surrounding the Fed’s decision to lower interest rates by 0.5%.
On September 21, Edward Yardeni, president of Yardeni Research, while acknowledging that the market tends to keep rising, also discussed the warning signs of a melt-up, in the context of the markets’ response to the September rate cut on CNBC’s ‘Closing Bell’. He doubted the necessity of such a large rate cut, suggesting that the economy is currently growing at about 3% year-over-year and could potentially grow even faster. Yardeni noted that while productivity gains are expected to be more pronounced shortly, he would have preferred to see the market stabilize for a while instead of continuing its upward trajectory.”
Richard Bernstein, CEO of Richard Bernstein Advisers, joined CNBC’s ‘The Exchange’ on September 24 to provide insights on the performance of small-cap stocks. He noted that while small caps have been performing well, they have not kept pace with more speculative investments, such as cryptocurrencies, which have seen significant gains. Bernstein expressed concern that this trend could signal to the Fed that their liquidity measures may have been excessive, as funds are not being directed towards productive uses in the economy.
He elaborated on his bullish stance regarding mid-cap and small-cap stocks, emphasizing that these categories are expected to experience substantial earnings growth. By the end of this year or early next year, Bernstein forecasts that small caps will grow at a rate significantly higher than the MAG 7 tech stocks. He pointed out that this phenomenon is typical when profit cycles hit a trough; small caps tend to be more sensitive to upturns in profitability, and noted the Fed’s current easing policies are occurring simultaneously with an environment of accelerating profits, an unusual combination that could fuel economic growth.
When asked about the current market dynamics favoring mega-cap stocks over smaller ones, Bernstein acknowledged that many managers are indeed gravitating towards these larger companies. However, he cautioned that from a fundamental investment perspective, mega-cap stocks are generally slower-growing and more expensive compared to other market segments. He argued that historically, a combination of cheaper and faster-growing stocks has proven to be advantageous for investors.
Bernstein also discussed the implications of rising gold prices and the performance of cryptocurrencies following recent Fed actions. He distinguished between gold and cryptocurrencies, suggesting that while gold has legitimate economic uses, cryptocurrencies often do not serve productive economic functions. He expressed concern over the speculative fervor in the market, arguing that excessive financial asset inflation can be as detrimental as real asset inflation. This misallocation of capital can lead to inflationary pressures as resources are diverted from essential sectors like infrastructure to less productive areas such as cryptocurrencies.
Overall, Bernstein’s insights reflect a cautious optimism regarding small-cap stocks amidst broader market trends. With that, we’re here with a list of the 10 best-performing small-cap stocks in 2024.
Methodology
We used stock screeners to look for companies trading between $1 billion and $10 billion, that’s our definition of small-cap stocks. We then selected the top 10 stocks with the best year-to-date performance and that were also the most popular among elite hedge funds. The stocks are ranked in ascending order of their year-to-date performance.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Performing Small-Cap Stocks in 2024
10. Vera Therapeutics Inc. (NASDAQ:VERA)
Year-to-Date Performance as of September 23: 185.18%
Market Cap as of September 23: $2.40 billion
Number of Hedge Fund Holders: 43
Vera Therapeutics Inc. (NASDAQ:VERA) is a clinical-stage biotechnology company focused on developing treatments for immunological and inflammatory diseases, aiming to improve the lives of patients with conditions like lupus and myasthenia gravis. The mission is to advance innovative treatments that address unmet medical needs in the field of immunology.
The company’s Atacicept, a promising treatment for IgAN and lupus nephritis, is showing significant progress in clinical trials. With its FDA Breakthrough Therapy Designation earlier this year, Atacicept could soon be available to patients, potentially revolutionizing the treatment of these conditions. Positive data from the ORIGIN trial suggest that Atacicept effectively reduces markers of IgAN, offering hope for improved outcomes.
There was a loss per share of $0.62 in the second quarter of 2024, compared to $0.46 for the same period in the previous year. Net loss in this period was $33.7 million, higher than the net loss of 20.2 million in the year-ago second quarter, due to primarily due to high operating expenses associated with its research and development activities. As of June 30, 2024, the company had $384.4 million in cash, which it believes is sufficient to fund operations through Atacicept’s potential approval and US launch (topline results anticipated in Q2 2025).
It expects to present 96-week ORIGIN trial data in Q4 2024 and complete patient enrollment in the pivotal ORIGIN 3 trial by Q3 2024. Topline data from ORIGIN 3 is anticipated in Q2 2025, which could lead to regulatory approval for Atacicept as a potential first-in-class B-cell modulator for IgAN.
As the company is focused on developing treatments for autoimmune diseases, it is also developing MAU868, a monoclonal antibody for BKV, a threat in kidney transplants. The company owns all global rights to both MAU868 and Atacicept.
Vera Therapeutics Inc. (NASDAQ:VERA) has strengthened its executive team with the appointment of David Johnson as COO. This strategic move positions the company to effectively advance its drug pipeline and prepare for potential commercialization, positioning it to become an industry leader.
9. Sweetgreen Inc. (NYSE:SG)
Year-to-Date Performance as of September 23: 221.74%
Market Cap as of September 23: $4.15 billion
Number of Hedge Fund Holders: 27
Sweetgreen Inc. (NYSE:SG) is an American fast casual restaurant chain that serves salads, hence specializing in healthy, seasonal salads and bowls. It is known for its commitment to using fresh, high-quality ingredients and offering customizable menu options to inspire healthier eating habits and make healthy food accessible to everyone.
It has partnered with growers to control its vegetable supply chain, offering a competitive advantage. While selling salads has low barriers to entry, developing a supply chain does, giving the company a unique edge over potential competitors.
The company’s focus on digital innovation and plant-based food aligns with growing consumer trends. This enhances customer experience and positions it to capitalize on the rising demand for health-focused food. In Q2 2024, the company was able to make $184.64 million in revenue, up 21.06% year-over-year.
Team source sales grew 9%, consisting of a 5% benefit from menu price and 4% positive traffic and mix. A lot of growth was driven by the launch of Caramelized Garlic Steak, disciplined operational execution, and strong restaurant openings. Dinner now represents 40% of sales, excluding the 2 p.m. to 4 p.m. midday day part.
Sweetgreen Inc. (NYSE:SG) opened 4 new restaurants in Q2, including its first in New Hampshire. New restaurants are performing well, outpacing the existing fleet average. It relaunched the new openings playbook to prioritize real estate, leadership, and brand awareness. The Infinite Kitchen retrofit in Penn Plaza is performing well and the company is on track to open 7 more in 2024.
With strong top-line performance in the emerging markets, management expects a growth rate of 15% to 20% annually, with 2025 at the lower end and 2026+ at the upper end. Sweetgreen Inc.’s (NYSE:SG) specialty business requires careful market penetration and store location, and the business is cyclical but benefits from the growing popularity of healthy foods among younger generations.
Meridian Small Cap Growth Fund stated the following regarding Sweetgreen, Inc. (NYSE:SG) in its first quarter 2024 investor letter:
“Sweetgreen, Inc. (NYSE:SG) operates restaurants serving fresh and healthy foods in the United States. The salad-focused restaurant concept has invested heavily to develop a captive network of growers that help ensure the freshness of its produce, a distinct competitive advantage. Additionally, management’s investment in automation technology, known as the “Infinite Kitchen,” has shown strong promise of significant labor cost savings, a reduction of order fulfillment errors, and increased restaurant throughput. While Infinite Kitchen has only been tested in a handful of stores to date, initial data supports the potential for automation technology to significantly improve both margins and average unit volumes. The stock rose in the quarter on accelerating same-store sales growth and better than expected guidance from management. In addition, investors took notice that material margin improvements could quickly reduce Sweetgreen’s cash burn, a prior source of concern. Sweetgreen was a new position for the Fund in the quarter.”