In this article, we will take a look at the 14 small-cap stocks with high potential. You can skip this part and go to 5 Small-Cap Stocks with High Potential.
Small-cap investors took a beating in 2022 as data shows that small-cap stocks are near their all-time lows. According to data from Royce Investment Partners, as of the end of December 2022, small-cap valuations remained near their lowest levels in 20 years compared to large-cap valuations. This, however, presents an attractive opportunity for small-cap investors who have the stomach to take risks and wait for the market to turn the corner. Data shows that small-cap stocks tend to do better than large-cap stocks over the long term. According to a 2019 report from investment firm UBS, the MSCI ACWI Small Cap index outperformed the MSCI ACWI by 2.4% per annum over 20 years. The report said that small-cap stocks offer investors with a “broader universe with higher active share” and increase the chances of better active returns. The UBS report also said that small-cap stocks trade at a lower price/book (P/B) ratio than large cap stocks, which creates an attractive entry point for investors.
The UBS report also said that the “size effect” in the stocks markets of the US and Europe have prevented small-caps from getting a lot of investor attention over the past few decades. Major investment firms and portfolio analysis services do not invest a lot of resources on small-cap stock research. This creates an opportunity for investors who want to find small companies with large potential.
The UBS report also said small companies provide a better opportunity for investors because they often operate in niche markets with simplified, lean business models.
Photo by Chris Liverani on Unsplash
Our Methodology
Our methodology for this article was simple and straightforward. We scanned Insider Monkey’s database of 920 elite hedge funds and picked the top (ones with highest number of hedge funds having stakes in them as of the end of the third quarter) 14 stocks with market caps less than $1 billion as of January 16. We have briefly discussed analyst ratings and growth catalysts of these stocks where applicable to give you an idea of the factors that define the potential of these stocks.
Small-Cap Stocks with High Potential
14. Cogent Biosciences, Inc. (NASDAQ:COGT)
Number of hedge funds: 29
Cogent Biosciences, Inc. (NASDAQ:COGT) is one of the best small-cap stocks with high potential. The Massachusetts-based company makes precision therapies to treat patients with unmet medical needs. In December, investment firm Needham started covering Cogent Biosciences, Inc. (NASDAQ:COGT) with a Buy rating, saying Cogent Biosciences, Inc. (NASDAQ:COGT)’s mastocytosis candidate bezuclastinib can outperform a rival therapy from Blueprint Medicines (BPMC).
The investment firm’s analyst estimate $1.2 billion in sales for bezuclastinib in 2030.
For the third quarter, Cogent Biosciences, Inc. (NASDAQ:COGT) posted GAAP EPS of -$0.50, beating estimates by $0.01. As of the end of the third quarter, Cogent Biosciences, Inc. (NASDAQ:COGT) had cash, cash equivalents and marketable securities of $289.1 million. Cogent Biosciences, Inc. (NASDAQ:COGT) said this was enough to fund its operations until 2025.
13. Enhabit, Inc. (NYSE:EHAB)
Number of hedge funds: 29
Healthcare services company Enhabit, Inc. (NYSE:EHAB) provides home health and hospice care. Enhabit, Inc. (NYSE:EHAB) saw a huge spike in hedge fund sentiment in the third quarter of 2022, as per Insider Monkey’s proprietary database of 920 elite hedge funds. 29 funds ended the quarter with Enhabit, Inc. (NYSE:EHAB) in their portfolios, compared to 3 funds in the previous quarter.
In the third quarter, legendary value investor Seth Klarman initiated fresh stakes in Enhabit, Inc. (NYSE:EHAB).
In October, Enhabit, Inc. (NYSE:EHAB) acquired Caring Hearts Hospice, a hospice agency based in Texas.
12. SomaLogic, Inc. (NASDAQ:SLGC)
Number of hedge funds: 29
Colorado-based SomaLogic, Inc. (NASDAQ:SLGC) makes protein biomarker discovery and clinical diagnostics solutions. Earlier this month, SomaLogic, Inc. (NASDAQ:SLGC) stock soared after the company said it expects 2022 preliminary revenue to be at the high end of its forecast of $93 million to $98 million. SomaLogic, Inc. (NASDAQ:SLGC) also announced that it has signed an agreement with Group 42 Healthcare. Group 42 will use SomaLogic as its sole proteomics provider.
A total of 29 hedge funds tracked by Insider Monkey had stakes in SomaLogic, Inc. (NASDAQ:SLGC) as of the end of the third quarter. The total value of these stakes was $145 million.
11. Health Catalyst, Inc. (NASDAQ:HCAT)
Number of hedge funds: 29
Health Catalyst, Inc. (NASDAQ:HCAT) data and analytics company Health Catalyst, Inc. (NASDAQ:HCAT) ranks 11th in our list of small-cap stocks with high potential. In November Health Catalyst, Inc. (NASDAQ:HCAT) jumped as much as 23% after Health Catalyst, Inc. (NASDAQ:HCAT) beat Q3 estimates and posted upbeat FY22 outlook. Revenue in the third quarter jumped over 10% to a total $68.35 million. Technology revenue increased by 15% in the period to come in at $44 million.
As of the end of the third quarter, 29 hedge funds reported having stakes in Health Catalyst, Inc. (NASDAQ:HCAT).
10. Landcadia Holdings IV, Inc. (NASDAQ:LCA)
Number of hedge funds: 30
Landcadia Holdings IV, Inc. (NASDAQ:LCA) is one of the most famous SPACs among the elite hedge funds tracked by Insider Monkey. Landcadia Holdings IV, Inc. (NASDAQ:LCA) intends to effect a merger, capital stock exchange, asset acquisition or similar deals in hospitality, gaming, dining and entertainment industries.
A total of 30 hedge funds tracked by Insider Monkey had stakes in Landcadia Holdings IV, Inc. (NASDAQ:LCA) as of the end of the third quarter, according to Insider Monkey’s database of 920 elite funds.
9. Vimeo, Inc. (NASDAQ:VMEO)
Number of hedge funds: 30
Video platform Vimeo, Inc. (NASDAQ:VMEO) has lost about 70% in value over the past one year. However, the small-cap stock continues to remain popular among elite hedge funds and market analysts.
Earlier this month, Vimeo, Inc. (NASDAQ:VMEO) joined the ever-growing list of tech companies that announced layoffs. Vimeo, Inc. (NASDAQ:VMEO) said it was planning to cut about 11% of its global workforce to “become sustainably profitable”. Vimeo, Inc. (NASDAQ:VMEO)’s management said that nearly every department will see job cuts.
A total of 30 hedge funds tracked by Insider Monkey had stakes in Vimeo, Inc. (NASDAQ:VMEO) as of the end of the third quarter, compared to 26 funds in the previous quarter. The total value of these stakes was $138 million.
8. Merus N.V. (NASDAQ:MRUS)
Number of hedge funds: 31
Elite hedge funds love this Netherlands-based clinical-stage immuno-oncology company. Merus N.V. (NASDAQ:MRUS) is known for Zenocutuzumab (MCLA-128), which is in a phase 2 clinical trials for the treatment of patients with metastatic breast cancer. However, in November, Merus N.V. (NASDAQ:MRUS) fell about 30% after FDA said Merus N.V. (NASDAQ:MRUS) needs additional patient enrollment to generate data to support a potential marketing application for bispecific antibody Zenocutuzumab.
As of the end of the third quarter, 31 hedge funds tracked by Insider Monkey reported having stakes in Merus N.V. (NASDAQ:MRUS). The total value of these stakes was $346 million. The biggest stakeholder of Merus N.V. (NASDAQ:MRUS) was Mark Lampert’s Biotechnology Value Fund / BVF Inc, which had a $69 million stake in Merus N.V. (NASDAQ:MRUS) at the end of September.
7. Altimmune, Inc. (NASDAQ:ALT)
Number of hedge funds: 31
Another biotech company on our list, Altimmune, Inc. (NASDAQ:ALT) is focusing on the prevention and treatment of infectious diseases. It ranks 7th in our list of the small-cap stocks with high potential. Altimmune, Inc. (NASDAQ:ALT) has already gained about 120% over the past one year. As of the end of the third quarter, 31 hedge funds tracked by Insider Monkey reported having stakes in Altimmune, Inc. (NASDAQ:ALT), compared to 27 funds in the previous quarter. The total value of these stakes was $291 million.
In December, Altimmune, Inc. (NASDAQ:ALT) jumped after its drug to treat Non-Alcoholic Fatty Liver Disease (NAFLD) met primary endpoint. The phase 1b trial showed greater than 75% relative reduction in liver fat content at 1.8 mg and 2.4 mg doses at 24 weeks.
Last year, Goldman Sachs also talked about Altimmune, Inc. (NASDAQ:ALT) on a bullish note, saying that Altimmune, Inc. (NASDAQ:ALT) provides an attractive opportunity in the weight loss and obesity space.
6. Independence Holdings Corp. (NASDAQ:ACQR)
Number of hedge funds: 31
Another SPAC in our list, New York-based Independence Holdings Corp. (NASDAQ:ACQR) intends to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or related business combination with one or more businesses or entities.
31 of the 920 hedge funds tracked by Insider Monkey entered the last quarter of 2022 with Independence Holdings Corp. (NASDAQ:ACQR) in their portfolios.
Ken Griffin’s Citadel Investment Group, Paul Glazer’s Glazer Capital and Israel Englander’s Millennium Management had the biggest stakes in Independence Holdings Corp. (NASDAQ:ACQR) as of the end of the September quarter.
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Disclosure: None. 14 Small-Cap Stocks with High Potential is originally published on Insider Monkey.
