In this article, we will look at the 10 Best Small-Cap Growth Stocks to Buy Now.
Are Small-Cap Stocks Poised for Growth?
On November 4, 2024, Nick Sheridan, Portfolio Manager at Janus Henderson released a report on small-cap stocks exploring how these stocks offer unique growth and diversification opportunities. Sheridan highlighted that maintaining visibility amidst the dominance of mega-cap tech stocks has been a challenge for small-cap stocks. Historically, small caps have been overshadowed by larger companies, which have captured investor attention with themes like artificial intelligence and have seen ever-higher multiples as a result. However, Sheridan notes that this is not a new phenomenon. Small caps have consistently delivered higher earnings growth than large caps over time, therefore, making them an attractive option for investors seeking growth and diversification.
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In recent years, mega-cap tech stocks have been the driving force behind the stock market, but cracks have begun to appear in their performance, leading investors to seek value elsewhere. On the other hand, as interest rates are expected to decrease, small caps are poised to benefit, as they historically perform well in such environments. Sheridan highlighted that the key to small-cap outperformance lies in their ability to grow earnings more rapidly than large-caps, which struggle to achieve significant growth due to their size and market penetration. Small caps can expand into new markets, acquire new clients, or broaden their product range more easily than larger companies.
Moreover, small caps also serve as a diversification tool for investors. They often operate in different sectors, such as industrials and materials, and are more focused on local markets, providing exposure to structural trends like de-globalization. Sheridan noted that despite their potential, small caps remain under-researched and undervalued, offering opportunities for investors willing to conduct thorough research to identify quality growth companies. In addition, the persistent merger and acquisition activity, where larger companies acquire smaller ones at a premium, further supports the case for investing in small caps. According to Bloomberg, 95% of M&A deals involve a small-cap target, thereby adding substance to Sheridan’s argument. Lastly, Sheridan concluded by mentioning that small caps remain an undiscovered territory for many investors, requiring more effort to uncover hidden gems but offering substantial rewards for those who do.
With that let’s take a look at the 10 best small-cap growth stocks to buy now.
A close-up of a computer screen with a graph of the CRSP US Small Cap Value Index.
Our Methodology
To curate the list of the 10 best small-cap growth stocks to buy now, we used the Finviz stock screener, Seeking Alpha, and Insider Monkey’s Q4 2024 hedge funds database. Using the screener we compiled an initial list of small-cap growth stocks. Next, we used Seeking Alpha to shortlist stocks that have grown more than 30% during the past 3 years. Lastly, we ranked the stocks in ascending order based on the number of hedge fund holders sourced from Insider Monkey’s database.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Best Small-Cap Growth Stocks to Buy Now
10. Red Cat Holdings, Inc. (NASDAQ:RCAT)
3-Year Sales Growth: 31.25%
Number of Hedge Fund Holders: 9
Red Cat Holdings, Inc. (NASDAQ:RCAT) specializes in providing products and services for the drone industry. It creates drones that are utilized by the military, government, and for consumer applications. Some of their notable drones include Golden Eagle drones that have been approved by the US Department of Defense for reconnaissance and public safety tasks.
The company recently came under the spotlight when it announced its partnership with Palantir Technologies Inc. to enhance the capabilities of its Black Widow drones. Under this partnership, Palantir’s VNav software will be integrated into Black Widow drones to enable autonomous navigation without relying on GPS. The partnership will make Black Widow drones more capable of military operations by enabling them to operate effectively in GPS-denied environments.
In addition to this, Red Cat Holdings, Inc. (NASDAQ:RCAT) on January 23, announced securing new orders worth $518,000 for its Edge 130 drones from the US Army National Guard and another U.S. Government Agency. This indicates a strong military and government use case for its drones. It is one of the best small-cap growth stocks to buy now.
9. Navitas Semiconductor Corporation (NASDAQ:NVTS)
3-Year Sales Growth: 63.13%
Number of Hedge Fund Holders: 13
Navitas Semiconductor Corporation (NASDAQ:NVTS) is a technology company that specializes in power semiconductors, which are essential components used to manage and convert electrical power in various electronic devices. It is known for its Gallium Nitride Power Integrated Circuits, these advanced chips help improve the efficiency and speed of power conversion. The GaN technology is highly effective in laptop and mobile fast chargers, consumer electronics, data centers, and electric vehicles.
Meridian Contrarian Fund in their third quarter 2024 investor letter announced increasing their position in the company on the back of the long-term outlook for energy efficient semiconductors. The fund mentioned GaN technology to be one of the key differentiators for Navitas Semiconductor Corporation (NASDAQ:NVTS) and they are also confident in the company’s ability to surpass the current cyclical downturn.
In addition, the company is set to showcase significant advancements in its gallium nitride and silicon carbide technologies at the APEC 2025 conference. According to the company’s press release, it will present GaNFast Power ICs, integrated circuits that are designed for fast and efficient power conversion, and SiCPAK High-Power Modules, which offer enhanced endurance and performance for applications like EV charging and energy storage systems. Navitas Semiconductor Corporation (NASDAQ:NVTS) is one of the best small-cap growth stocks to buy now.
Meridian Contrarian Fund stated the following regarding Navitas Semiconductor Corporation (NASDAQ:NVTS) in its Q3 2024 investor letter:
“Navitas Semiconductor Corporation (NASDAQ:NVTS) designs and produces highly efficient power semiconductors, leading the way in Gallium Nitride (GaN) technology, which enables superior energy efficiency and charging speeds compared to traditional silicon. Handling GaN is challenging, and Navitas has a significant competitive advantage with its technology. We initially invested in early 2023 when the company lost favor due to a downturn in the highly cyclical mobile phone end-market. The stock declined in the period when revenue guidance came in lower than expected, driven by continued weak conditions in the EV and solar markets, which delayed customer product launches. During the quarter, we increased our position, confident in the long-term secular outlook for energy-efficient semiconductors, Navitas’ ongoing technological leadership, and its strong balance sheet, with over $100m in net cash. We believe the company is well-positioned to weather the current cyclical downturn.”
