In this article, we will discuss the 10 Oversold Small Cap Stocks to Buy Right Now.
Market experts believe that the rally in the small-cap stocks might be just getting started.
Data suggested that the benchmark small-cap stock index, Russell 2000, saw an increase of more than 9% between early July and September end. This means that the small-cap index surpassed the S&P 500 index’s return of more than ~4%. The strong performance of the small-cap index primarily stemmed from the rotation into small-cap stocks in July as the investors believed that there would be rate cuts moving forward. These expectations finally materialized when the US Fed announced a mega 50-basis-point drop, with the projections of further cuts. As per Wall Street experts, the small-cap stocks saw a significant increase on the news.
Now that we are in the last quarter of the year, many investors wonder whether or not this rally is sustainable. However, market strategists believe that this rally has the potential to sustain, and 2025 will see strong outperformance.
Small-Caps in 2025: The Road Ahead
Why is a rate-cutting cycle beneficial for small-cap stocks? Smaller companies tend to be dependent more on floating-rate debt as compared to large-cap companies for their funding needs. Therefore, as and when the rates go down, the cost of debt will also be reduced, enabling small-cap companies to borrow more. Therefore, small businesses tend to benefit financially as their interest costs will decline. This should boost the earnings of small-cap companies.
Jill Carey Hall, who is the head of US small and mid-cap strategy at Bank of America, explained that the small-caps tend to outpace the returns delivered by the large-caps by approximately 1 percentage point. This happens over the 6 months post a 50-bps cut.
BlackRock believes that, if the market continues its upward trajectory, the small-cap space can demonstrate dynamism. Small-cap stocks are more sensitive to broader economic cycles, and history suggests that small caps benefit most during the expansionary cycles. The valuations for these firms and an environment of improved EPS growth should result in delivering competitive returns, as per the firm. These favorable characteristics, together with the US economic gains, and the infrastructure investment should help accelerate earnings for the smaller firms.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Should Investors Expect from Small Cap Stocks?
As per Francis Gannon, Co-Chief Investment Officer and Managing Director of Royce Investment Partners, small-caps have an advantage over large-caps concerning estimated earnings growth for 2025. Moreover, he believes that small-caps had better returns than large-caps following the previous 10 presidential elections. This was the case irrespective of the fact that which party won the White House. Such an outcome was seen despite every election having its own set of challenges, difficulties, and opportunities. Therefore, he believes that it’s not about the person or policies as much as the investors pay attention to the uncertainty that prevails in the months before any elections.
As per Gannon, inflation has been moderating, the economy continues to grow, unemployment remains low, and there has been normalization in the rates. Also, the benefits of reshoring and the CHIPS Act are now visible. Additionally, he believes that there has been a positive reversion to the mean argument for the small-cap leadership as well as strong performance.
A large computer terminal full of complex calculations tracking the company’s cash flow and investment management decisions.
Our Methodology
To list 10 Oversold Small Cap Stocks to Buy Right Now, we used a Finviz screener to extract the stocks having the market cap of less than $2 billion. After getting the list of 20-25 stocks, we narrowed it down to the following 10 stocks by selecting the ones trading at a forward P/E of less than 15.0x and which have fallen significantly on a YTD basis. Finally, the stocks were ranked in the ascending order of their hedge fund sentiment, as of Q2 2024.
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 Oversold Small Cap Stocks to Buy Right Now
10. Hillenbrand, Inc. (NYSE:HI)
Market Cap (As of October 23): $1.96 billion
Forward P/E (As of October 23): 9.10x
% Decline on a YTD Basis: ~40%
Number of Hedge Fund Holders: 7
Hillenbrand, Inc. (NYSE:HI) operates as an industrial company in the US and internationally.
Hillenbrand, Inc. (NYSE:HI) has been actively pursuing cost actions, which include restructuring and cost controls, in a bid to mitigate the challenging environment. The company continues to focus on long-term growth opportunities and margin expansion. In a strategic shift, Hillenbrand, Inc. (NYSE:HI) amended its credit agreements, which include modifications to its leverage ratio and extension of some financial covenants. Such amendments offer the company increased financial flexibility, potentially aiding growth initiatives or helping in managing economic uncertainties.
Hillenbrand, Inc. (NYSE:HI)’s FPM integration progressed well and exceeded the expectations for margin performance. The company remains focused on managing discretionary costs and it has been utilizing temporary external resources to ramp up additional cost-saving initiatives as it navigates the difficult demand environment over the near-to-medium term. Hillenbrand, Inc. (NYSE:HI) expects that its portfolio of leading process technologies and highly engineered solutions is well placed for success after the conditions improve.
In Q3 2024, Hillenbrand, Inc. (NYSE:HI) saw revenues of $787 million, reflecting a rise of 10% as compared to the prior year primarily due to the FPM acquisition. The company’s restructuring program is on track to deliver $20 million in annual run-rate savings in FY 2025. It continues to accelerate additional cost actions and synergies throughout the enterprise. Hillenbrand, Inc. (NYSE:HI) highlighted that debt reduction remains its top priority for capital deployment.
Analysts at KeyCorp initiated coverage on the shares of Hillenbrand, Inc. (NYSE:HI) on 10th July. They gave an “Overweight” rating and a $50.00 target price.
9. Ingevity Corporation (NYSE:NGVT)
Market Cap (As of October 23): $1.14 billion
Forward P/E (As of October 23): 9.97x
% Decline on a YTD Basis: ~32%
Number of Hedge Fund Holders: 17
Ingevity Corporation (NYSE:NGVT) is engaged in manufacturing and selling activated carbon products, derivative specialty chemicals, and engineered polymers in North America, and other countries.
Ingevity Corporation (NYSE:NGVT) has been implementing a repositioning strategy for its Performance Chemicals segment and anticipates leverage to decline by the end of the year. The company has plans to reduce costs by relocating oil refining operations to North Charleston and closing the Crossett site. Ingevity Corporation (NYSE:NGVT) is expecting that The Performance Chemicals segment should return to profitability in 2025. The company expects to realize net savings related to the closure of its Crossett facility of ~$20 million – $25 million per year starting in 2025.
Wall Street analysts believe that its revenue environment for the materials business should remain strong. Ingevity Corporation (NYSE:NGVT) continues to focus on generating cash and reducing debt. Notably, the restructuring efforts and optimization of its operational footprint are expected to contribute to the recovery of the Performance Chemicals segment starting next year.
The Performance Materials division of Ingevity Corporation (NYSE:NGVT) is expected to see improvement over the coming years. This forecast comes off the back of the expectation of increased demand for hybrid vehicles, which should fuel the need for activated carbon products. This demand is anticipated to increase through 2026. Analysts believe that Ingevity Corporation (NYSE:NGVT)’s targeted actions are expected to lay the groundwork for growth over the upcoming years. The company aims that corporate and business-related cost reduction actions should yield ~$10 million in annual savings starting in 2025.
Analysts at CJS Securities upgraded shares of Ingevity Corporation (NYSE:NGVT) from a “Market perform” rating to an “Outperform” rating, setting a $58.00 target price on 7th August.
8) Leggett & Platt, Incorporated (NYSE:LEG)
Market Cap (As of October 23): $1.65 billion
Forward P/E (As of October 23): 9.59x
% Decline on a YTD Basis: ~53%
Number of Hedge Fund Holders: 21
Leggett & Platt, Incorporated (NYSE:LEG) is engaged in designing, manufacturing, and selling engineered components and products in the US, Europe, China, Canada, Mexico, and internationally.
Leggett & Platt, Incorporated (NYSE:LEG) has been making progress with its restructuring plan and is focused on improving profitability and efficiency. It remains committed to transparency, profitability improvement, and long-term growth. Leggett & Platt, Incorporated (NYSE:LEG) plans to maintain pricing discipline and operating efficiency in a bid to fuel margin recovery. The company continues to work on innovative projects and diversifying its customer base to improve volume.
While Leggett & Platt, Incorporated (NYSE:LEG) remains focused on innovation and efficiency, Wall Street analysts believe that improvement in working capital and the company’s debt reduction strategy should help it in the upcoming quarters. It continues to review its portfolio for optimization, with potential divestitures anticipated in H1 of the next year. Leggett & Platt, Incorporated (NYSE:LEG)’s restructuring plan remains ahead of schedule and certain activities have been completed early.
Leggett & Platt, Incorporated (NYSE:LEG) paid down $73 million of debt, emphasizing its focus on debt reduction. It is conducting a strategic review of its diverse portfolio. This review, in addition to its restructuring plan and operational improvement initiatives, should result in strong growth opportunities.
Analysts at Truist Financial upped their price objective on shares of Leggett & Platt, Incorporated (NYSE:LEG) from $11.00 to $13.00, giving a “Hold” rating on 5th August.
7) Helen of Troy Limited (NASDAQ:HELE)
Market Cap (As of October 23): $1.48 billion
Forward P/E (As of October 23): 8.53x
% Decline on a YTD Basis: ~47%
Number of Hedge Fund Holders: 21
Helen of Troy Limited (NASDAQ:HELE) provides various consumer products in the US, Canada, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.
Wall Street analysts believe that Helen of Troy Limited (NASDAQ:HELE)’s strategic initiatives, like Project Pegasus, should continue to contribute to its strong performance over the near term. The company is focused on long-term growth and efficiency improvements and continues to emphasize innovation and marketing investments. Helen of Troy Limited (NASDAQ:HELE)’s Project Pegasus initiative remains on track, which has been enhancing its brand marketing and execution.
Helen of Troy Limited (NASDAQ:HELE) highlighted that its distribution network has been successful and it plans to reduce tariff exposure by diversifying production outside of China. Over the long term, the company remains focused on revitalizing its business via increased brand and innovation investments. Helen of Troy Limited (NASDAQ:HELE) remains committed to using FCF for capital deployment, such as debt reduction and share repurchases.
Analysts believe that enhanced data analytics are being used by Helen of Troy Limited (NASDAQ: HELE) to optimize marketing strategies and improve ROl. It remains focused on value-driven offerings. The company expects gross margin to normalize in H2 of the fiscal year, with levels aligning or slightly outpacing prior year levels.
Analysts at Canaccord Genuity Group reiterated a “Buy” rating on the shares of Helen of Troy Limited (NASDAQ:HELE), giving a $84.00 price target on 7th October. Palm Valley Capital Management, an investment management firm, released a third quarter 2024 investor letter. Here is what the fund said:
“Helen of Troy Limited (NASDAQ:HELE) was the only new purchase made during Q3. It is a diversified consumer products roll-up. The company’s top brands include OXO, Hydro Flask, Osprey, PUR, Hot Tools, and Dry Bar. Helen also has leading market positions through the licensed brands Braun, Vicks, Honeywell, and Revlon. The company’s operating performance peaked during the pandemic, but sales have contracted in the last two years as consumer demand for Helen’s products has normalized post-stimulus. The firm’s stock is heavily shorted, with short sellers arguing that Helen is an overleveraged and broken roll-up with second tier brands and meager cash flow. We believe this is wrong. Most of the company’s brands command leading shares in their markets.”
6) Adient plc (NYSE:ADNT)
Market Cap (As of October 23): $1.85 billion
Forward P/E (As of October 23): 8.64x
% Decline on a YTD Basis: ~40%
Number of Hedge Fund Holders: 22
Adient plc (NYSE:ADNT) is engaged in the designing, developing, manufacturing, and marketing of seating systems and components for passenger cars, commercial vehicles, and light trucks.
Adient plc (NYSE:ADNT) maintains longstanding relationships with some of the renowned global auto original equipment manufacturers (OEMs), which should provide support to its growth trajectory. Market experts opine that the company’s technologies span virtually every area of automotive seating solutions. The company’s diverse customer base and international presence supported it in developing a healthy market position.
Adient plc (NYSE:ADNT) continues to focus on launch execution, which can act as a key building block to win new business. Considering the customer and geographic mix, Wall Street believes its market position should strengthen further. In the near term, top-line growth should stem from a strong relationship with Japanese and Asian OEMs. Adient plc (NYSE:ADNT) expects to exploit this competitive edge as several OEMs prioritize hybrid and longer-term battery electric vehicle (BEV) roll-outs. Such customers are expected to engage the company in highly integrated programs, enhancing operational efficiency.
Adient China is expected to act as a growth engine for Adient plc (NYSE:ADNT), with expected double-digit increases over the coming years. These increases are expected off the back of new and longstanding customer relationships, such as legacy manufacturers and Chinese domestic OEMs. Adient plc (NYSE:ADNT) has been maintaining a healthy and flexible balance sheet, which supports its balanced capital allocation policy.
The company has been deploying industry-leading tools and expanding the use of AI in a bid to unlock further opportunities for savings. As per Wall Street analysts, the shares of Adient plc (NYSE:ADNT) have an average price target of $25.29.
5) Bloomin’ Brands, Inc. (NASDAQ:BLMN)
Market Cap (As of October 23): $1.33 billion
Forward P/E (As of October 23): 7.15x
% Decline on a YTD Basis: ~41%
Number of Hedge Fund Holders: 23
Bloomin’ Brands, Inc. (NASDAQ:BLMN) owns and operates casual, upscale casual, and fine dining restaurants in the US and internationally.
Bloomin’ Brands, Inc. (NASDAQ:BLMN) has been actively pursuing several strategic initiatives that can potentially unlock shareholder value. For example, the review of strategic alternatives for its operations in Brazil can lead to a potential sale or restructuring of the Brazilian business. Through potentially divesting or restructuring, Bloomin’ Brands, Inc. (NASDAQ:BLMN) can streamline its operations, reduce exposure to international market risks, and reallocate this capital to more profitable avenues. To enhance shareholder returns, the company has completed an Accelerated Share Repurchase (ASR) program. It also settled obligations related to its 2025 Notes, resulting in an improvement in capital structure and financial flexibility.
Bloomin’ Brands, Inc. (NASDAQ:BLMN)’s flagship brand, Outback Steakhouse, continues to show early signs of progress with comparable sales and traffic surpassing expectations and improving guest metrics.
Moreover, Carrabba’s Italian Grill reflected superior performance and has been serving as the bright spot in its brand lineup. Moving forward, the company’s strong brand portfolio, with well-established casual dining concepts, should continue to act as a potential tailwind.
Bloomin’ Brands, Inc. (NASDAQ:BLMN) has been focusing on restaurant growth, menu improvements, and customer experience in a bid to drive traffic and sales. The company highlighted that marketing spending should remain stable. However, there is openness to increase it, if required. For FY 2024, the company is expecting capital expenditures in the range of $260 million – $270 million and adjusted diluted earnings per share of $2.10 – $2.30.
As per Wall Street, the shares of the company have an average price target of $20.13.
4) Kosmos Energy Ltd. (NYSE:KOS)
Market Cap (As of October 23): $1.92 billion
Forward P/E (As of October 23): 3.98x
% Decline on a YTD Basis: ~41%
Number of Hedge Fund Holders: 25
Kosmos Energy Ltd. (NYSE:KOS) is engaged in the exploration, development, and production of oil and gas along the Atlantic Margins in the US.
Kosmos Energy Ltd. (NYSE:KOS) is focused on generating significant FCF, which it plans to use to reduce debt and invest in future growth in a disciplined capital framework. The company highlighted that its Winterfell project in the Gulf of Mexico is now online and continues to contribute to current production levels. Kosmos Energy Ltd. (NYSE:KOS) has been targeting a modest growth rate while remaining focused on the best projects in its capital framework.
Wall Street analysts opine that Kosmos Energy Ltd. (NYSE:KOS)’s deep portfolio of high-quality opportunities should drive future growth. In the Q2 2024 earnings call, the company highlighted that progress with the GTA project remains on track, with gas production expected to begin soon. Moreover, The Tortue project has been progressing with a clear plan for the first LNG production.
Kosmos Energy Ltd. (NYSE:KOS) highlighted that market conditions for farm downs in the Gulf of Mexico and gas projects, such as Yakaar-Teranga, remain favorable, with healthy interest from potential buyers.
Given the strong macro environment for gas and a positive outlook on its project portfolio, the company is well-placed to continue its trajectory toward increased production and cash flow generation. Benchmark restated a “Buy” rating on the company’s shares, giving a $8.00 price target on 16th October.
Patient Capital Management, a value investing firm, released its third-quarter 2024 investor letter. Here is what the fund said:
“Both Kosmos Energy Ltd. (NYSE:KOS) and Seadrill Limited (SDRL) were top detractors in the quarter as energy prices moved lower. We believe both these names are particularly attractive for idiosyncratic reasons beyond a simple bet on energy prices.
Kosmos Energy (KOS) is an exploration and production services company with assets in Africa. The company is nearing the point where their free cash flow generation will inflect meaningfully higher as new production comes online and CAPEX spend returns to a more normalized maintenance level. We see this as a classic case of time arbitrage where the market is myopically focused on the current year’s high level of investment while ignoring the strong free cash flow generation on the other side. At the current commodity curve, the company will generate its market cap in FCF from 2025-2028. With the combination of gas heavy reserves and inflecting cash flow generation, we think Kosmos is significantly undervalued and a potential acquisition target.”
3) LegalZoom.com, Inc. (NASDAQ:LZ)
Market Cap (As of October 22): $1.21 billion
Forward P/E (As of October 22): 12.28x
% Decline on a YTD Basis: ~37%
Number of Hedge Fund Holders: 26
LegalZoom.com, Inc. (NASDAQ:LZ) operates an online platform, supporting the legal, compliance, and business management needs of small businesses and consumers in the US.
LegalZoom.com, Inc. (NASDAQ:LZ) has been undertaking a strategic review of its go-to-market and product strategies. It continues to focus on subscription-oriented offerings. This move can potentially improve revenue visibility and customer retention. The company rolled out a new mobile experience, which demonstrated promising early results. Moreover, LegalZoom.com, Inc. (NASDAQ:LZ) has been exploring new advertising strategies that are focused on affordability instead of free services, hinting at a potential shift away from the freemium model.
The company plans to increase its brand investments, which include a partnership with the NBA. Such marketing initiatives should fuel its topline trends in H2 2024 as LegalZoom.com, Inc. (NASDAQ:LZ) targets to reinforce its brand presence and onboard new customers. Its emphasis on improving post-formation sales motion might result in higher retention rates and increased revenue per customer. By using initial touchpoints with entrepreneurs, LegalZoom.com, Inc. (NASDAQ:LZ) can be an integral part of a business’s growth journey, providing legal and compliance services as and when these companies expand.
Moving forward, the company’s brand recognition and established market presence are expected to act as potential tailwinds. As more businesses and individuals focus on digital solutions for legal needs, LegalZoom.com, Inc. (NASDAQ:LZ)’s platform and expertise should drive sustained growth over the long term.
Jefferies Financial Group upgraded the shares of LegalZoom.com, Inc. (NASDAQ:LZ) from a “Hold” rating to a “Buy” rating, setting a $8.00 price target on 31st July. Meridian Funds, managed by ArrowMark Partners, released a second quarter 2024 investor letter. Here is what the fund said:
“LegalZoom.com, Inc. (NASDAQ:LZ) is a leading online platform providing small businesses with legal, compliance, and tax services that allow them to start and operate within the required regulations. The stock underperformed during Q2 on weak guidance from management that indicated its small businesses, the company’s core customers, were under pressure. We believe that the company will continue to gain share due to its strong brand and network effects which will allow them to sell a broad range of services to small businesses. We also see room for significant operating leverage as the expanded range of products and services begins to generate revenue after several years of investment. We added to our position during the period on share price weakness.”
2) Xerox Holdings Corporation (NASDAQ:XRX)
Market Cap (As of October 23): $1.26 billion
Forward P/E (As of October 23): 5.76x
% Decline on a YTD Basis: ~43%
Number of Hedge Fund Holders: 28
Xerox Holdings Corporation (NASDAQ:XRX) operates as a workplace technology company that integrates hardware, services, and software for enterprises in the Americas, Europe, the Middle East, Africa, India, and internationally.
Wall Street remains optimistic about the reinvention strategy of Xerox Holdings Corporation (NASDAQ:XRX). This strategy targets to improve adjusted operating income over the upcoming years. The company believes that equipment orders and new product launches are expected to drive stronger revenue growth in H2 2024. Notably, Xerox Holdings Corporation (NASDAQ:XRX) continues to focus on expanding its offerings in the A4 and A3 categories. Also, it plans to venture into new segments in the production market.
Given its focus on digital transformation, cost savings initiatives, and market expansion, the company is well-placed to continue its growth trajectory. The analysts believe that Xerox Holdings Corporation (NASDAQ:XRX) has been repositioning some aspects of its Reinvention Plan, which should benefit its strategic execution over the long term. Eventually, this can result in a revenue increase in calendar years 2025 and 2026.
Xerox Holdings Corporation (NASDAQ:XRX)’s current year acts as a period of strategic realignment as it remains focused on setting the stage for strong revenue growth and operational efficiencies. It has been pivoting towards a business unit-led operating model. The company is expected to enhance its digital and IT services sales to its existing customer base.
As per Wall Street, the shares of Xerox Holdings Corporation (NASDAQ:XRX) have an average price target of $14.00.
1) LiveRamp Holdings, Inc. (NYSE:RAMP)
Market Cap (As of October 23): $1.58 billion
Forward P/E (As of October 23): 12.99x
% Decline on a YTD Basis: ~35%
Number of Hedge Fund Holders: 32
LiveRamp Holdings, Inc. (NYSE:RAMP) is a technology company, which operates a data collaboration platform in the US, Europe, the Asia-Pacific, and internationally.
LiveRamp Holdings, Inc. (NYSE:RAMP) is optimistic about its strategic position and its solutions, including the Authenticated Traffic Solution (ATS) and RampID. The company remains focused on promoting data collaboration and it continues to work with digital publishers to standardize terms of service and query templates. LiveRamp Holdings, Inc. (NYSE:RAMP) has been maintaining a strong relationship with Google Ads, collaborating on the Google PAIR initiative.
Also, LiveRamp Holdings, Inc. (NYSE:RAMP) is expecting net positive revenue opportunities from its partnership with Oracle. Wall Street analysts believe that market forces and economics should drive the adoption of alternative solutions to cookies. LiveRamp Holdings, Inc. (NYSE:RAMP) has been expanding beyond the retail and CPG space to commerce networks and other verticals. Moreover, it is standardizing queries in collaboration with partners in a bid to promote data collaboration.
The company’s strategic partnerships and product innovation place it well for the remainder of the year, despite the headwinds of economic uncertainty. Given its clear vision for the future, LiveRamp Holdings, Inc. (NYSE:RAMP) remains focused on simplifying data collaboration and enhancing its product offerings.
As per Wall Street analysts, the shares of the company have an average price target of $40.67.
While we acknowledge the potential of RAMP as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than RAMP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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