In this piece, we will take a look at the 10 micro cap stocks that will skyrocket.
One of the more well known quotes of Warren Buffett is “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” The learning from this quote is simple. Buffett believes that the only investments one should make should be those that should accrete value over the long term. However, the biggest tech stock holding in Buffett’s latest 13F SEC filings is up by a whopping 181,533% since its shares started trading in 1984. However, the Oracle of Omaha only took a stake in this firm in 2016, when he became convinced that it had an unbeatable moat that would lead the industry in the future. Since his purchase, this stock has gained 692%, so safe to say, that while Buffett has undoubtedly reaped more returns by earning stable dividends through this stock, he nevertheless missed out on its fastest growth years.
Even though Buffett might have missed out on these returns because of his love of the margin of safety, compounded returns, and value investment in general, six digit percentage returns are all that a growth investor wants. This urge for growth versus the desire for stability through value stocks is at the heart of one of the oldest debates in the industry, namely, which is better, growth or value? For those seeking clarity and a definitive answer, it appears that there’s no single answer to this question.
Growth and value stock performance depend on the broader economic environment. Data shows that for the seven years between 1984 and 1991, value stocks led growth stocks by as much as 10 percentage points in an era marked by deregulation and tax cuts. This trend reversed between 1991 and 2001, when growth stocks led by 12 percentage points at the peak of the dotcom era. However, as the bubble popped, value stocks came back with a vengeance and led growth by as much as 17 percentage points between 2001 and 2008. Since then and until 2023, growth stocks are back and have led value stocks by as much as 15 percentage points.
Yet, even though research shows that value stocks are typically the best way to invest over the long term (no wonder Warren Buffett swears by them), no value stock has delivered absolute returns matching those of today’s biggest growth stocks. Warren Buffett’s top technology stock has posted 1,815x returns since it started trading, but it isn’t the only one to have done so. No one would have classified this stock as a growth stock, and the list of the 20 largest technology companies in the world is full of such examples. Within these, those that trade on U.S. exchanges, only one is in the red since its shares started trading due to its exposure to China. All others are in the green, and their price appreciations range from 5.04x for the world’s largest search engine provider to 4,251x for the operating system and cloud computing company that’s leading the artificial intelligence race.
Looking at these absolute returns that have the potential to transform a dollar into thousands of dollars over decades, you might be wondering which industries could provide similar returns in the future. One way to wager a guess at these industries is to see what newsletter writers are pitching. We’ve taken a look at dozens of such newsletters as part of our research of these pieces and found several sectors that have consistent features. Among these, the three most popular are quantum computing, nuclear energy, and energy infrastructure. Others that aren’t consistent but interesting niches are robotics and graphene. Of course, since we don’t want to waste your time, we’ve skipped artificial intelligence but safe to say, it is by far the most popular topic in newsletters, which often promise to pitch stocks capable of delivering anywhere between 10x to 100x in returns through price appreciation.
Delving deeper, let’s start by seeing how quantum computing and nuclear energy stocks are faring these days. We took a look at some quantum computing stocks are part of our coverage of 12 Best Quantum Computing Stocks To Invest In. Except for two, all of the pure play quantum computing stocks are in the red over the past 12 months. The two stocks that are in the green rank 12th and 5th and they are up by 90% and 45%, respectively. Similarly, we’ve also compiled a list of the 12 Best Nuclear Energy Stocks To Buy Today. In this list, out of the stocks that are either pure play nuclear firms or have significant exposure to it, the top two have delivered 45% and 83% in one year returns. As opposed to the quantum computing stocks though, all these are in the green. Among these, the two with the highest returns are ranked 12th and 5th.
One of the riskiest ways that some investors try to capture the triple digit absolute price returns that we’ve talked about above is by trying their luck with micro cap stocks. These are stocks with a market cap lower than $1 billion, and their low share prices offer a change of higher relative returns at the risk of pump and dump scams, low liquidity, and low media and analyst coverage. Additionally, while the image of micro cap stocks being risky is commonly present, data driven answers deliver a slightly different picture. For the twelve months ending in December 2022, micro cap stock investment management managers with the highest (25th percentile) returns posted 14.54%, 11.52%, and 13.46% in 20, 15, and five year returns, respectively.
On the other hand, small cap managers’ top returns were 12.01%, 9.98%, and 12.01%, respectively for a solid set of leads for the former manager group. Crucially, on the risk front, the three year risk adjusted returns for small and micro cap stocks as measured by the Sharpe Ratio are almost completely identical. As if this wasn’t enough to convince us to give micro caps a deeper look, you can also consider the returns of a private equity index and a microcap index. Between January 1995 and June 2020, the former gained 716% and the latter led it by 24 percentage points as it gained 740%.
With these details in mind, let’s take a look at some top micro cap stocks that will skyrocket.
A financial advisor wearing a suit, pointing to a graph demonstrating success and growth in the financial sector.
Our Methodology
To make our list of micro cap stocks that might skyrocket, we decided to gather micro cap stocks covered by investment newsletters from Stock Gumshoe from newsletters dating as far back as January. These were ranked by the number of hedge funds that had bought the shares in Q1 2024 and the top ten stocks were chosen. Stock Gumshoe’s thesis and the date of each newsletter are also mentioned. Preference was given to NYSE or NASDAQ listed stocks, and when they weren’t available, the pink sheet stocks were ranked by their market cap, and the largest were chosen.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. 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. BrainChip Holdings Ltd (OTC:BRCHF)
Number of Hedge Fund Investors in Q1 2024: N/A
Date of Newsletter: February 8th
While previously it was Apple, the boom in AI stocks has got everyone itching to find the next ‘NVIDIA’. According to Tim Bohen of StocksToTrade, even Bill Gates believes that this stock’s technology is as important “as revolutionary as the personal computer, the Internet, and the mobile phone.” However, as Gumshoe notes, Gates’ comments are about AI in general and not this stock particularly. It is a chip stock that deals with self driving, and not to mention, this stock’s revenue has soared by 500% and the stock price by 988%.
Seems like we’ve got it all here. According to Stock Gumshoe, this stock is BrainChip Holdings Ltd (OTC:BRCHF). BrainChip is an Australian company that is developing neural processors for AI and related applications. While the hype might be strong for this one, Gumshoe notes that the firm has yet to demonstrate stable and consistent revenue growth. It’s primarily an R&D company, and the $20 million in cash is due to share sales which end up diluting equity.
9. Propel Holdings Inc. (OTC:PRLPF)
Number of Hedge Fund Investors in Q1 2024: N/A
Date of Newsletter: February 12th
This stock makes an appearance in Gumshoe’s recap of the top AI micro cap stocks. It was part of a November 2023 newsletter covering Motley Fool’s AI stocks, which described it as a ‘Microcap Moonshot’. The newsletter shared few details for its pitch, revealing only that since its public listing in 2021, it has doubled its revenue and driven profitability courtesy of a “powerful A.I. algorithm under the hood.”
Gumshoe believes that this stock is Propel Holdings Inc. (OTC:PRLPF). Headquartered in Canada, Propel runs a lending platform geared towards providing credit products to American customers. Gumshoe notes that Propel Holdings Inc. (OTC:PRLPF)’s loan charge offs of 12% and loan loss provisions of 50% of revenue are quite high. It adds that the stock’s valuation of 4x 2024 forecast earnings at a $300 million market cap (current market cap is $653 million) is cheap, which indicates investor concerns about the creditworthiness of its low income customers.
8. Lightbridge Corporation (NASDAQ:LTBR)
Number of Hedge Fund Investors in Q1 2024: 1
Date of Newsletter: June 18th
Part of Keith Kohl’s Energy Investor newsletter, this stock is the “AI Master Key” that is “critical for advancing this nuclear revolution, essential for powering AI effectively.” Apparently, it also holds a “monopoly” for the fuel technology required to power new age small nuclear reactors. It makes fuel rods and it has partnered up with some of the biggest nuclear energy providers in the US as well.
This ‘master key’ micro cap stock is the Virginia based fuel rod firm Lightbridge Corporation (NASDAQ:LTBR). Gumshoe notes that Lightbridge has failed to generate any revenue over the past six years, and its products have not caught on in the industry. Lightbridge Corporation (NASDAQ:LTBR) is slated to test its fuel rods in a real reactor next year, and its commercialization is quite far away in time.
7. Exscientia plc (NASDAQ:EXAI)
Number of Hedge Fund Investors in Q1 2024: 9
Date of Newsletter: June 17th
Ray Blanco’s Catalyst Trader newsletter starts with hard hitting ‘facts’ about this stock. It mentions Harvard, Yale, Stanford, and Johns Hopkins as having discovered a “Hidden Cure To Cancer” and touts that a “tiny $6 stock is behind this massive AI cancer discovery.” The science behind this major discovery is a CDK7 inhibitor that stops tumor growth in mice, and as if this weren’t enough, the company was founded by a “world-famous scientist.”
These clues lead Gumshoe to conclude that the stock is Exscientia plc (NASDAQ:EXAI) – a UK based biotechnology company with agreements with big ticket names such as Bristol Myers and Merck. Its scientist was fired for inappropriate workplace relationships though, and its miracle drug GTAEXS617 is in clinical trials right now. The firm aims to expand its trials later this year, and while Gumshoe isn’t impressed by its prospects, it is excited about the industry partnerships that could generate milestone payments down the road.
6. SkyWater Technology, Inc. (NASDAQ:SKYT)
Number of Hedge Fund Investors in Q1 2024: 10
Date of Newsletter: January 31st
If you’ve been following the semiconductor industry then you’ll know about the CHIPS and Science Act that has earmarked billions in spending to spearhead chip production in America. This stock comes from Eric Fry’s The Speculator newsletter, and while it was accompanied by a February deadline, we’ll cover it nevertheless. Fry believes that firms like this stock are the reason behind the CHIPS funding, as companies have to solve a key AI chip problem before it’s too late.
Sounds too important to ignore if you ask us, and Gumshoe believes that this stock is one of the few American pure play chip designers, SkyWater Technology, Inc. (NASDAQ:SKYT). It offers chip design and manufacturing services to customers, and it benefits from a close partnership with the US military. SkyWater Technology, Inc. (NASDAQ:SKYT) is also planning to build a $1.8 billion chip facility in Indiana, and Gumshoe notes that while it could benefit from CHIPS funding and associated tailwinds on the stock price, the firm is still burning cash.
5. BigBear.ai Holdings, Inc. (NYSE:BBAI)
Number of Hedge Fund Investors in Q1 2024: 12
Date of Newsletter: May 7th
The Pentagon, space, and AI – these are the three key terms that Dylan Jovine’s Behind the Markets newsletter uses to pitch this stock. According to the newsletter, the US Army, Navy, and Air Force, along with NASA, the NSA and the Cyber Command have all bought AI software from this company. Key to the stock’s pitch is a potential new contract that “could be 22 times bigger” than an earlier contract all because the White House is worried about the threat that Russia poses to America’s space infrastructure.
These lead Gumshoe to conclude that the stock is BigBear.ai Holdings, Inc. (NYSE:BBAI) – a Maryland based company that provides data analytics, AI, data management and other solutions. Gumshoe outlines that most of the firm’s deals are collaborations that do not lead to revenue recognition. On the financial side, it points out that BigBear.ai Holdings, Inc. (NYSE:BBAI) earned $155 million in revenue in 2022 and 2023; $190 million in cash; and a stable burn rate.
4. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS)
Number of Hedge Fund Investors in Q1 2024: 12
Date of Newsletter: February 12th
This stock was part of Gumshoe’s February recap of AI newsletter stocks. It was featured in a Motley Fool newsletter covered in December 2023. It marketed the stock’s “roots dating back to 1976” and despite this is “an early adopter of new technology.” It launched its “first set of AI features all the way back in 2017” but despite management’s claims that it will increase AI focus, the newsletter lamented that “no one seems to be paying attention.”
This stock is 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), a New York based eCommerce gifts provider. Gumshoe outlines that while the firm has nearly consistently grown its revenue and free cash flow since its IPO in 1999, 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) hasn’t shown any significant margin improvement. In November, it was trading at a P/S of 0.3x, which could provide room for future growth, but Gumshoe believes that there are no guarantees for this to happen.
3. Evolv Technologies Holdings, Inc. (NASDAQ:EVLV)
Number of Hedge Fund Investors in Q1 2024: 21
Date of Newsletter: February 12th
Another stock part of the February recap, this stock was covered in October 2023. It touted a “new AI technology is on the cusp of replacing every TSA screener in every airport in America,” and added that it could even allow travelers to bring water to their flights and protect Americans from gun violence. The newsletter beefed up these claims by sharing that Bill Gates had also invested in the company.
Gumshoe believes that this stock is Evolv Technologies Holdings, Inc. (NASDAQ:EVLV). It is a weapons detection company headquartered in Waltham, Massachusetts. It praises the firm’s business model which allows it to generate stable recurring revenue through customer contracts, and quotes some analysts believing that revenue could grow by 50% a year for the next couple of years. However, Gumshoe cautions that Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) needs to spend aggressively if it’s to grow and expand its market share.
2. Absci Corporation (NASDAQ:ABSI)
Number of Hedge Fund Investors in Q1 2024: 27
Date of Newsletter: June 20th
This stock, according to its pitch, is an “unknown” company that is growing revenue and trading cheaply. It is also targeting one of the biggest industries in America, healthcare, and it “could cut time to create a drug from years to days.” It has partnered up with NVIDIA and Merck, and its $5 share price at the time made it a “no-brainer.” To boot, this company is also “the world’s next big royalty business.”
So what is this ‘sure thing?’ Gumshoe says it’s the Washington based drug creation technology firm Absci Corporation (NASDAQ:ABSI). It notes that the fact that the newsletter’s publisher has invested $100,000 in this stock is comforting, and adds that Absci Corporation (NASDAQ:ABSI)’s belief that its cash can last until 2027 is quite a strong point. Key to the hypothesis is a $610 million deal with Merck, and Gumshoe cautions that over the past year or so, the timeline for these payments has been further pushed into the future.
1. Pacific Biosciences of California, Inc. (NASDAQ:PACB)
Number of Hedge Fund Investors in Q1 2024: 27
Date of Newsletter: April 11th VERIF
This stock is an “era-defining technology” that could disrupt the “entire AI market.” Quite a tall claim and its ad backs it up by adding that the technology could reach 2 billion users in just three years. An “earlier stage investment where truly life-changing profits can still be made,” and not only can its hardware “process a person’s entire DNA genome” but also process DNA at 400 TIMES the speed of the previous technology.”
This stock appears to be something special especially since 2024 has been the year for gene editing technologies. This stock is Pacific Biosciences of California, Inc. (NASDAQ:PACB). It is a California based gene sequencing systems provider. Gumshoe points out that its shares have lost more than half their value since January and attributes the drop to a tough market dominated by giants. It is appreciative of Pacific Biosciences of California, Inc. (NASDAQ:PACB)’s 100%+ revenue growth in 2023, even though it was powered by sales of new equipment whose high costs impacted gross and operating margins. Analysts expect 20% revenue growth in 2024, and one fund that’s bought it is Cathie Wood’s Ark Investment. As of July 2024, it held a $45 million stake in the firm according to Insider Monkey’s data.
PACB leads the micro cap newsletter stock picks of hedge funds. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PACB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None.
