15 Small Company Stocks You Should Own Now for the Next Decade

Published on August 15, 2022 at 9:13 am by Aima Zaheer in Hedge Funds, News

In this article, we discuss 15 small company stocks you should own now for the next decade. If you want to read about some more stocks, go directly to 5 Small Company Stocks You Should Own Now for the Next Decade.

Small company stocks were heavily impacted by the recent market downturn. The Russell 2000 index, which is considered the benchmark for small companies, experienced a 32% decline from its November high to its low in June 2022. In comparison, the S&P 500 recorded a decline of 24%. Small businesses have historically been affected more by a slowdown in the economy and increasing interest rates than their larger competitors. Large-cap companies like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG) are considered safe investments during downturns as they boast strong business fundamentals.

However, the economy has had a positive buzz since the July CPI data was released. Observers believe that the Federal Reserve is gaining control over inflation and would not have to resort to aggressive interest rate hikes in the future. Under these circumstances, historical data suggests that small companies would outpace the broader market rally. The fed-funds futures market is predicting only a 26% likelihood of a three-quarter point raise in September, dropping from roughly 60% a week ago. These lowered forecasts have led analysts to be bullish on small company stocks. As compared to the S&P 500’s 12.6% increase since the mid-June low, the Russell 2000 index has increased by 14.3% as of July 30. Small company stocks seem to be following a well-known trend, performing poorly prior to economic downturns and prospering after they end. According to RBC Capital Markets,’ chief U.S. equity strategist Lori Calvasina, this pattern was followed in 1990, 2001, 2008, and 2020.

Image by Sergei Tokmakov Terms.Law from Pixabay

Our Methodology

As investors turn bullish on small company stocks, we have produced a list of 15 small company stocks you should own now for the next decade. All these companies have a market capitalization of less than $5 billion as of August 12. We will discuss these stocks’ long-term growth catalysts and the possible downside risks. The stocks have been ranked according to the number of hedge funds having a stake in them as of Q1 2022.

Best Small Company Stocks You Should Own Now for the Next Decade

15. Axsome Therapeutics, Inc. (NASDAQ:AXSM)

Number of Hedge Fund Holders: 16

Axsome Therapeutics, Inc. (NASDAQ:AXSM) is a New York-based biotech company developing therapies related to the central nervous system (CNS) that have limited treatment options.

In a research note issued to investors on August 10, Charles Duncan at Cantor Fitzgerald gave Axsome Therapeutics, Inc. (NASDAQ:AXSM) stock a target price of $54 with an Overweight rating. The analyst highlighted that Axsome Therapeutics, Inc. (NASDAQ:AXSM) finished Q2 2022 with a cash balance of $73.4 million.

In the future, the company is expected to achieve numerous milestones that could create value for shareholders in the long term. Duncan highlighted AXS-05, developed by Axsome Therapeutics, Inc. (NASDAQ:AXSM), as the number one program in the field of major depressive disorder, which is a growing multi-billion market in the US.

14. Addus HomeCare Corporation (NASDAQ:ADUS)

Number of Hedge Fund Holders: 16

Addus HomeCare Corporation (NASDAQ:ADUS) is a Frisco, Texas-based provider of home care and support services with more than 33,000 employees. The company serves around 40,000 patients weekly through its over 200 locations.

Experts have a bullish outlook on Addus HomeCare Corporation (NASDAQ:ADUS) stock in the long run as the number of Americans aged 65 and over is expected to surpass the 80 million level by 2040 as opposed to 54.1 million in 2019. On August 3, Michael Wiederhorn at Oppenheimer gave Addus HomeCare Corporation (NASDAQ:ADUS) stock an Outperform rating and a target price of $130. The analyst sees factors like the increase in hospice rate, sequestration, and the wage movement, as positively impacting the financial results of Addus HomeCare Corporation (NASDAQ:ADUS) for the quarters to come.

As of Q1 2022, 16 funds held a stake in Addus HomeCare Corporation (NASDAQ:ADUS).

13. Veritiv Corporation (NYSE:VRTV)

Number of Hedge Fund Holders: 19

Veritiv Corporation (NYSE:VRTV) is an Atlanta, Georgia-based provider of hygiene products, packaging, and publishing services.

In Q2 2022, Veritiv Corporation’s (NYSE:VRTV) revenue increased by 9.8% YoY to $1.82 billion and outperformed the consensus estimate of $1.53 billion. Meanwhile, GAAP EPS tripled to $6.12 and surpassed the analysts’ forecast of $4.50. Veritiv Corporation (NYSE:VRTV) also raised its EPS forecast for 2022 to a range of $19.50 to $21 as opposed to prior guidance of $18 to $21. The midpoint of $20.25 is $1.85 higher than the analysts’ expectations.

On July 22, John Babcock at Bank of America gave Veritiv Corporation’s (NYSE:VRTV) stock a Buy rating with a target price of $131. The analyst believes that the free cash flows (FCF) and bottom line of the company are resistant to an economic downturn. Veritiv Corporation’s (NYSE:VRTV) strong fundamentals make it a solid stock to own in the next decade.

12. Green Plains Inc. (NASDAQ:GPRE)

Number of Hedge Fund Holders: 20

Green Plains Inc. (NASDAQ:GPRE) is an Omaha, Nebraska-based ethanol fuel producer.

The company has a strong long-term outlook as the Inflation Reduction Act (IRA), or the Climate Change Bill, has significantly increased the existing carbon capture subsidies to boost ethanol production from corn. Furthermore, gasoline in the US has 10% ethanol mixed into it, which will lower the dependence on conventional energy sources like crude oil in the future. India is considering supplying gasoline with a 20% ethanol contribution to reduce its reliance on crude oil and lower its import bill.

Following the Q2 2022 results on August 2, Green Plains Inc. (NASDAQ:GPRE) revealed that the company’s average production utilization rate was 96.9% during the quarter. Furthermore, the top line crossed the $1 billion level, outperforming the consensus estimates of $926.74 million.

Lee Capital Management held a stake worth over $883 million in Green Plains Inc. (NASDAQ:GPRE) during Q2 2022.

11. Arvinas, Inc. (NASDAQ:ARVN)

Number of Hedge Fund Holders: 21

Arvinas, Inc. (NASDAQ:ARVN) is a New Haven, Connecticut-based clinical stage-biotech company.

On August 4, Arvinas, Inc. (NASDAQ:ARVN) shared a positive update following its discussion with the US Food and Drug Administration (FDA) regarding the approval pathway of bavdegalutamide for the treatment of prostate cancer. To obtain complete approval, Arvinas, Inc. (NASDAQ:ARVN) plans to move on with a randomized Phase 3 trial.

In a note issued to investors on August 5, Li Watsek at Cantor Fitzgerald assigned Arvinas, Inc. (NASDAQ:ARVN) stock a target price of $115 with an Overweight rating. The analyst is bullish on ARV-471, targeted toward the treatment of breast cancer, based on key opinion leader (KOL) calls arranged by the company.

Arvinas, Inc. (NASDAQ:ARVN) was held by 21 hedge funds at the end of Q1 2022.

10. KAR Auction Services, Inc. (NYSE:KAR)

Number of Hedge Fund Holders: 22

KAR Auction Services, Inc. (NYSE:KAR) is a Carmel, Indiana-based provider of online dealer-to-dealer used vehicle auction marketplace and an automotive financing business.

KAR Auction Services, Inc. (NYSE:KAR) offloaded its physical auction business in May 2022. The company sees the potential to address 10 million dealer-to-dealer transactions through its online marketplace. These transactions would cover 20 million used retail vehicles, 40 million wholesale vehicles, and over 100,000 market participants present on both sides of the trade. KAR Auction Services, Inc. (NYSE:KAR) anticipates revenue to compound annually by an average of 30% till 2025 from the auction segment. Regarding the financing segment, the company has guided an average revenue growth of 11% till 2025 as interest rates are expected to peak by 2023.

White Brook Capital shared its insights on KAR Auction Services, Inc. (NYSE:KAR) in its Q1 2022 investor letter. Here’s what the firm said:

“During the quarter, White Brook Capital Partners exited the recently entered position in KAR Auction Services, Inc (KAR). During the quarter, the Company sold its US physical wholesale auto auction business to Carvana creating an attractive exit opportunity. Previously KAR had enviable market share of the physical auction market and was quickly growing its online auction business where it was the second largest player in a fragmented market. Their advantage online is uncommanding in my view and they needed their dominant physical presence to create differentiation and grow awareness and use of the online business. I was pleased with the stock price presented after the news of the physical auction’s sale and simultaneously less certain about the standalone online offering’s competitive dynamism and ability to execute. The price offered for our shares represented a very good return on our investment, even more so given the short time the capital was invested, and we exited.”

9. Sonic Automotive, Inc. (NYSE:SAH)

Number of Hedge Fund Holders: 23

Sonic Automotive, Inc. (NYSE:SAH) is a Charlotte, North Carolina-based automotive retailer. The company is the fifth biggest automotive retailer in the US through its 100-plus dealerships spread across 13 states.

On August 1, Michael Ward at Benchmark gave Sonic Automotive, Inc. (NYSE:SAH) stock a Buy rating with a target price of $71. The analyst anticipates the dealers to carry 30% less inventory as the business model is evolving from discount-based transactions to relationship-based transactions with customers. The used car segment in the US is double the size of the new car segment, according to McKinsey. Due to inflation and rising interest rates, customers can be expected to buy used cars, benefitting companies like Sonic Automotive, Inc. (NYSE:SAH). Unlike Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG), which are expensive, SAH is an affordable option for beginner investors.

Royce & Associates increased its stake in Sonic Automotive, Inc. (NYSE:SAH) by 35% during the first quarter of the year.

8. Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT)

Number of Hedge Fund Holders: 24

Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is a New York-based biotech company developing gene therapies for rare diseases. The CEO is a physician educated from Harvard and Columbia.

Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is pursuing four programs with solid proof of concept. As these programs would progress, the company would offer significant upside to investors. The market has a favorable outlook on the RP-L 102 and RP-L201 gene therapy programs targeted toward the treatment of Fanconi anemia (FA) and Leukocyte Adhesion Deficiency-I (LAD-1). Dae Gon Ha at Stifel gave Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) stock a target price of $56 and a Buy rating on July 26.

Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) was held by 24 hedge funds at the end of Q1 2022, with a cumulative stake worth over $186.2 million.

7. Coursera, Inc. (NYSE:COUR)

Number of Hedge Fund Holders: 25

Coursera, Inc. (NYSE:COUR) is a Mountain View, California-based online education provider.

Although Coursera, Inc. (NYSE:COUR) reported weak Q2 2022 results and slashed its guidance for 2022, the company has a strong long-term outlook due to its Enterprise segment. Businesses are shifting away from physical training due to the evolution of the hybrid work environment, which favors online education providers like Coursera, Inc. (NYSE:COUR). This was evident during the pandemic.

ClearBridge Investments shared its outlook on Coursera, Inc. (NYSE:COUR) in its Q3 2021 investor letter. Here’s what the investment management firm said about the company:

“We also added two positions in the IPO aftermarket, (one is) online education portal Coursera. Coursera, which makes academic courses from some of the world’s leading universities available through its platform and offers online degree programs, saw its shares trade lower following its March IPO but has seen significant uptake for its services since the onset of COVID.”

Renaissance Technologies raised its stake in Coursera, Inc. (NYSE:COUR) by 193% during the second quarter of 2022.

6. Varonis Systems, Inc. (NASDAQ:VRNS)

Number of Hedge Fund Holders: 26

Varonis Systems, Inc. (NASDAQ:VRNS) is a New York-based cybersecurity company that caters to over 7,000 customers through its 12 global offices. The company has over 1,800 employees.

On August 2, Chad Bennett at Craig-Hallum assigned Varonis Systems, Inc. (NASDAQ:VRNS) stock a target price of $35 along with a Buy rating. The analyst sees no headwinds in the progress of Varonis Systems, Inc. (NASDAQ:VRNS) despite the macroeconomic uncertainty and other software and cybersecurity companies reporting weakness in Q2 2022 results. Varonis Systems, Inc. (NASDAQ:VRNS) reported in-line revenue and guidance despite the foreign currency headwinds. Furthermore, Varonis Systems, Inc. (NASDAQ:VRNS) also increased its operating margin guidance for 2022.

Varonis Systems, Inc. (NASDAQ:VRNS) was held by 26 hedge funds at the end of Q1 2022.

While notable companies like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Alphabet Inc. (NASDAQ:GOOG) have always been popular amongst investors, small company stocks like Varonis Systems, Inc. (NASDAQ:VRNS) are also gaining attention as they offer an opportunity to earn strong returns in the long-run.

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