10 Best Small Cap Stocks To Buy for 2022

In this article, we discuss the 10 best small-cap stocks to buy for 2022. You can skip our comprehensive analysis of these stocks, go directly to 5 Best Small Cap Stocks To Buy for 2022.

Almost every monolith on the stock market began trading as a small-cap stock. A company’s market cap, or market capitalization, is known as the number of the company’s outstanding shares multiplied by the share price. A small-cap stock is generally one with a market cap of between $300 million and $2 billion.

Historically, small-cap stocks have performed better than large-cap stocks, particularly during financial crises. In nine out of the last ten recessions, small-cap stocks continued to outperform the large-caps, as reported by Anchor Capital Advisors LLC. Take 2020 for example, the pandemic year in which Russell 2000, a benchmark for small-cap stocks, posted returns of 20%, in comparison to the 16.3% gains posted by the S&P500 during the year. 2021 was also a similar story, with the Russell 2000 growing its market cap to $3.5 trillion, a whopping 84.2% increase. This is in contrast to the 49.5% growth in market cap posted by the large-cap benchmark, Russell 1000.

Now with the markets regaining pre-pandemic momentum, investors can ascertain excellent growth opportunities by taking a closer look at small-cap stocks. Although these small companies come with the potential to become blockbuster investments, they also carry certain risks that we must take into account. In this article, we’ll talk about some of the promising small-cap stocks.

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Our Methodology

The following stocks have been selected on the basis of strong fundamentals, positive analyst ratings, growth potential, hedge fund sentiment, and market perception. Hedge fund sentiment around each stock has been derived from Insider Monkey’s database of 867 elite hedge funds.

Best Small Cap Stocks To Buy for 2022

10. Titan Machinery Inc. (NASDAQ:TITN)

Number of Hedge Fund Holders: 16

Titan Machinery Inc. (NASDAQ:TITN) sells agriculture and construction equipment, and related machinery through its stores in the United States. As of February 8, shares of Titan Machinery Inc. (NASDAQ:TITN) gained 21.91% in the last 12 months.

On November 24, Craig-Hallum analyst Steve Dyer kept a ‘Buy’ rating on Titan Machinery Inc. (NASDAQ:TITN) shares, raising the price target to $40 from $35. Dyer assessed that the factors behind impressive Q3 results and higher FY22 guidance will continue to improve financial results for the company, which looks set to record growth in profitability, free cash flow, and operating margins in the upcoming cycle.

16 out of 867 elite hedge funds reported ownership of stakes in Titan Machinery Inc. (NASDAQ:TITN) at the end of September, holding stakes worth $45.27 million. Peter Schliemann’s Rutabaga Capital Management was the leading shareholder in Titan Machinery Inc. (NASDAQ:TITN) at the end of the third quarter, with 177,000 shares worth $5.95 million.

Titan Machinery Inc. (NASDAQ:TITN) is a top small-cap stock to buy in 2022, while companies like Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and Alphabet Inc. (NASDAQ:GOOG) are some of the best options if you’re looking to invest in large-cap stocks.

9. Origin Materials, Inc. (NASDAQ:ORGN)

Number of Hedge Fund Holders: 29

Origin Materials, Inc. (NASDAQ:ORGN) is a company specializing in carbon-negative materials and has developed a mechanism to turn carbon from biomass into useful materials such as plant-based PET plastics. Origin Materials, Inc. (NASDAQ:ORGN) has partnerships with big names such as Nestlé, PepsiCo, Inc. (PEP), and Ford Motor Company (F).

On January 6, BofA analyst Steve Byrne upgraded Origin Materials, Inc. (NASDAQ:ORGN) to ‘Buy’ from ‘Neutral’, stating that he recommends buying fertilizer stocks, and expects the company to post commercial production and revenues by 2023. After the COP26 summit held last year in Glasgow, climate change is a high-priority concern of governments and companies around the world. Origin Materials, Inc. (NASDAQ:ORGN) is set to benefit in the long run from this trend, as climate change concerns and ESG start to play a big role in where future investments are made.

Origin Materials, Inc. (NASDAQ:ORGN) has recently increased the worth of its agreements to $4.2 billion, signifying growing interest in carbon-negative plastics. With new manufacturing plants due to open in 2022 and 2023, Origin Materials, Inc. (NASDAQ:ORGN) looks set to continue its growth trajectory and keep up with the immense demand for its products.

On February 7, Origin Materials, Inc. (NASDAQ:ORGN) agreed to enter into a strategic partnership with the Green Chemistry Division of the Minafin Group, to establish joint operations that will industrialize high-value specialty materials, under the carbon-negative materials blueprint founded by Origin Materials, Inc. (NASDAQ:ORGN). This partnership will allow the production of bio-based products that are cost-competitive, with applications in a range of industries including pharmaceutical, agricultural and automotive.

8. BlueLinx Holdings Inc. (NYSE:BXC)

Number of Hedge Fund Holders: 14

BlueLinx Holdings Inc. (NYSE:BXC) features next on our list of the best small-cap stocks to buy in 2022. The firm offers building products for commercial and residential projects in the United States. 14 hedge funds were long BlueLinx Holdings Inc. (NYSE:BXC) at the close of the third quarter.

Residential construction in the United States saw a boom in 2021, and this trend looks set to persist in 2022 as work from home trends giving rise to the demand of making new homes and remodeling old ones.

On December 17, DA Davidson analyst Kurt Yinger initiated coverage of BlueLinx Holdings Inc. (NYSE:BXC) with a ‘Buy’ rating and $102 price target. Yinger noted that the company is poised to benefit from cyclical increases in new residential construction activity in the United States, and its improved balance sheet and modest valuation forecast a positive medium-to-long term trajectory for the company.

As of February 8, BlueLinx Holdings Inc. (NYSE:BXC) shares have gained 72.04% in the last 12 months, and 2.10% in the last 3 months.

Voss Capital mentioned BlueLinx Holdings Inc. (NYSE:BXC) in its Q3 2021 investor letter. Here’s what the fund said:

“We believe those calling for a peak in housing activity have grown too cautious too soon. Most of the bearish arguments we encounter appear more sentiment based, e.g., prices have come too far too fast. Setting aside this understandably inherent acrophobia-induced caution and focusing more squarely on empirical evidence, the supply/demand picture remains on solid footing thanks to continued record low housing inventory accompanying fresh 30-year lows in single family and multifamily vacancies.6 Furthermore, roughly 2 million more people will turn 35 years old anually over the next five years, as compared to the previous five years. Since 35 is the peak first time home buying age, we believe there will be sustained demand for years to come. Our long portfolio remains heavily geared to entry-level housing related companies, as well as those tied to home remodeling.

One of our preferred ways to express this bullish thematic view is through BlueLinx Holdings Inc. (BXC). We knew investors had been bracing for a profit collapse on the back of a fast 73% decline in lumber prices that occurred from May to September, but we had a differentiated view based on the company’s earnings mix that is skewed to Specialty products with less volatile pricing as opposed to purely commoditized framing lumber. The stock continues to be overly discounted based on apathy, ambiguity, and fear over the housing cycle. By our math, even in the unlikely event that BXC’s Structural Products segment produces $0.00 in gross profits over the next year (compared to $187.7M LTM) and their Specialty segment revenue declines 5-10% from here, the company still has sustainable earnings power in excess of $12 per share. At 10x earnings, a modest discount to the company’s long-term P/E ratio despite the balance sheet being deleveraged, the stock still has 63% upside. A more reasonable earnings power estimate is in the $16.50-$19.00 range, which puts the stock under 4x fully taxed net income. Unfortunately, the Board did not pull the trigger on any of their authorized share buyback last quarter before the stock rose 50% after earnings. If they sharpen their pencils anytime soon and buy stock back at this depressed valuation, the normalized EPS number should only move higher.”

7. The Lovesac Company (NASDAQ:LOVE)

Number of Hedge Fund Holders: 17

The Lovesac Company (NASDAQ:LOVE) is a company that makes furniture using modular couches called ‘sectionals’, and foam beanbag chairs called ‘sacs’. It is headquartered in Connecticut. In the third quarter, 17 out of 867 elite hedge funds tracked by Insider Monkey held shares in The Lovesac Company (NASDAQ:LOVE). The combined value of these stakes stood at $78.7 million.

On December 9, BTIG analyst Camilo Lyon kept a ‘Buy’ rating on The Lovesac Company (NASDAQ:LOVE) shares, stating that its “stellar” third-quarter earnings highlighted its “ripe” long-term growth potential. The analyst also upped the price target on The Lovesac Company (NASDAQ:LOVE) to $113 from $102.  According to Furniture Today, The Lovesac Company (NASDAQ:LOVE) is the fastest-growing furniture company in the United States.

6. Hibbett, Inc. (NASDAQ:HIBB)

Number of Hedge Fund Holders: 16

Hibbett, Inc. (NASDAQ:HIBB) deals in the sporting goods businesses, offering athletic and fashion apparel, athletic footwear, team sports equipment and other related accessories.

Baird analyst Justin Kleber, on December 6, upgraded Hibbett, Inc. (NASDAQ:HIBB) to ‘Outperform’ from ‘Neutral’, maintaining a price target of $100. The analyst holds that with “structurally improved competitive dynamics”, business model enhancements underway, and a significant shares buyback authorization, the company’s risk to reward ratio “looks too compelling to ignore”. Hibbett, Inc. (NASDAQ:HIBB) posted steady performance even during the pandemic days and is now seen to be doing excellent in e-commerce sales as well. At current levels, Hibbett, Inc. (NASDAQ:HIBB) stock is trading below its intrinsic value, providing investors a good opportunity to buy into a solid, growing business.

16 hedge funds out of 867 tracked by Insider Monkey held positions in Hibbett, Inc. (NASDAQ:HIBB) at the end of the third quarter. The combined value of these stakes stood at $126.72 million.

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