10 Best Small Cap Stocks to Buy in 2021

Published on April 19, 2021 at 12:42 pm by Usman Kabir in Lists, News

In this article we will take a look at the 10 best small cap stocks to buy in 2021. You can skip our comprehensive analysis of these stocks and go directly to the 5 Best Small Cap Stocks to Buy in 2021.

As businesses start to reopen after months of inactivity due to the COVID-19 pandemic, small businesses are finally starting to take a sigh of relief. Small shops, hairdressers, bars, and retail outlets have seen a flurry of activity in the past few days. According to the US Bureau of Labor Statistics, consumer prices in the country rose by 0.6% in March compared to the previous month, the highest single-month increase since August 2012. The Consumer Price Index, a set of price indices calculated by the US Department of Labor, was up 2.6% over the past twelve months.

The vaccine rollout and stimulus packages announced by the government have released the pent-up demand for goods, boosting the earnings of small firms. The higher prices of these goods are driven by supply chain issues and capacity constraints as the economy has still not fully recovered from the lows of the previous year. Moreover, consumer trends point towards still higher growth. Professional services firm PwC, in the latest Consumer Sentiment Index, reports that consumer confidence is at its highest level since the index started being calculated in 2008.

Best Small Cap Stocks to Buy in 2021

These consumer outlooks underline a broader shift towards small cap stocks in the market. Data compiled by business news publication Bloomberg reveals that the best performers in Western Europe among funds with $200 million or more in assets have been focusing on small-cap companies. These numbers are not limited to Europe but seem to be a worldwide phenomenon. The S&P Small Cap Index, an index measuring the performance of hundreds of small-sized companies in the US, has outperformed the wider market by 7.3% since March 25.

With the COVID-19 restrictions easing in many countries, investors seem willing to put money in stocks that are relatively cheap compared to their earning potential. The increased focus on small-caps can be understood not only in the context of their growth potential going forward, but also their past performance. The Russell 2000 Index, a small-cap stock index, generated a 20% return in 2020, compared to the 16% and 13% return offered by large and mid-cap indexes respectively. This momentum in favor of small caps is expected to continue well into 2022.

There is still reason to be skeptical of these numbers and look into possible disruptors to these trends. One reason to be cautious would be the uncertainty surrounding coronavirus vaccinations. For small companies, the reopening of the economy after a wide vaccine campaign is important because many small caps are cyclical and sensitive to business conditions. Another reason to be mindful is the chance of social media speculation, like the Reddit meme stocks earlier this year illustrated, to drive market trends and clobber entire funds.

The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

best small cap stocks to buy in 2021

With this context in mind, here is our list of 10 best small cap stocks to buy in 2021.

10. Investors Title Company (NASDAQ: ITIC)

Investors Title Company (NASDAQ: ITIC) is a North Carolina based insurance firm. The company offers residential and commercial title insurance for residential, institutional, commercial, and industrial properties. It also offers investment, consulting, and management services to business owners. It operates in the insurance industry primarily through approved brokers and agents. Investors Title was founded in 1972 and is placed tenth on our list of 10 best small cap stocks to buy in 2021.

It has a market cap of more than $321 million and posted an annual revenue of more than $286 million in December 2020, up from more than $100 million from the previous year. The 52-week price range of the company stocks is $194-$102. The share price of Investors Title has increased by more than 13% over the past three months. At the end of the fourth quarter of 2020, 7 hedge funds in the database of Insider Monkey held stakes worth $39 million in the firm, up from 6 funds in the preceding quarter having stakes worth $32 million.

9. Heska Corporation (NASDAQ: HSKA)

Heska Corporation (NASDAQ: HSKA) is a Colorado-based firm that makes and sells veterinary diagnostic products for canine and feline healthcare. The company operates in the United States, Canada, Mexico, Australia, France, Germany, Italy, Malaysia, Spain, and Switzerland. Some of the products marketed by the company include Element DC, a chemical analyzer of veterinary blood chemistry, and Tri-heart, tablets for canine heartworm infections. The company was founded in 1988 and is ranked ninth on our list of 10 best small cap stocks to buy in 2021.

Heska Corporation has a market cap of more than $1.87 billion and posted more than $197 million in annual revenue in December 2020, up from $122 million in the previous year. In January, the firm announced that it was acquiring Lacuna Diagnostics, a point-of-care diagnostics digital cytology technology and telemedicine services firm, for an undisclosed fee. Out of the hedge funds being tracked by Insider Monkey, Austin-based Nine Ten Partners holds the most shares in the firm – 815,318 – worth more than $118 million.

8. Winmark Corporation (NASDAQ: WINA)

Winmark Corporation (NASDAQ: WINA) is a Minnesota-based firm that focuses on the buying and selling of used goods. It has five retail businesses operating in the used goods industry across the United States and Canada. The firm deals in the clothing, sports, music records, and tech-related equipment at its stores. At the end of last year, Winmark operated more than 1,200 stores. It has an online presence as well. The company was founded in 1988 and is placed eighth on our list of 10 best small cap stocks to buy in 2021.

Winmark has a market cap of more than $726 million and posted an annual revenue of more than $66 million in December 2020, down slightly from $73 million the previous year. On April 14, Winmark raised its quarterly dividend by 80% to $0.45 per share. The 52-week price range of company stock lies between $198-$120. At the end of the fourth quarter of 2020, 11 hedge funds in the database of Insider Monkey held stakes worth $86 million in the firm, up from 10 funds in the preceding quarter having stakes worth $81 million.

7. National Western Life Group, Inc. (NASDAQ: NWLI)

National Western Life Group, Inc. (NASDAQ: NWLI) is a Texas-based stock life insurance company. The firm provides life insurance products for financial protection of clients and also offers annuity agreements for retirement needs. National Western has stakes in the real estate business as well. It markets insurance primarily through independent national organizations. The firm operates in 49 US states and has more than 275 employees. It was founded in 1956 and is placed seventh on our list of 10 best small cap stocks to buy in 2021.

National Western has a market cap of over $875 million and posted more than $690 million in annual revenue in December 2020, down from $819 million in the previous year. The 52-week price range of company stock is $258-$162. On April 6, the firm announced that it had made available a cloud-based solution to insurance needs in partnership with software firm Equisoft. Out of the hedge funds being tracked by Insider Monkey, New York-based Arbiter Partners Capital Management holds the most shares in the firm – 15,195 – worth more than $3.1 million.

6. Mesa Laboratories, Inc. (NASDAQ: MLAB)

Mesa Laboratories, Inc. (NASDAQ: MLAB) is a Colorado-based industrial equipment manufacturer. The firm operates in the United States, Canada, Europe, and Japan. The products that the company offers include infection control devices, data loggers used in critical manufacturing, gas flow calibration and air sampling equipment, as well as other automated solutions for industrial processes. The company was founded in 1982 and is placed sixth on our list of 10 best small cap stocks to buy in 2021.

Mesa has a market cap of more than $1.3 billion and posted an annual revenue of more than $117 million in March 2020, up from $103 million the previous year. The 52-week price range of Mesa stock lies between $307 and $207. On April 5, the company announced a $0.16 dividend per share, in line with previous estimates. Out of the hedge funds being tracked by Insider Monkey, New York-based Royce & Associates holds the most shares in the firm – 307,523 – worth more than $88 million. Citadel Investment Group was second with shares worth $85 million.

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