10 Best Small Cap Stocks To Buy for 2022

In this article, we discuss the 10 best small-cap stocks to buy for 2022.

Almost every monolith on the stock market began trading as a small-cap stock. A company’s market cap, or market capitalization, is known as the number of the company’s outstanding shares multiplied by the share price. A small-cap stock is generally one with a market cap of between $300 million and $2 billion.

Historically, small-cap stocks have performed better than large-cap stocks, particularly during financial crises. In nine out of the last ten recessions, small-cap stocks continued to outperform the large-caps, as reported by Anchor Capital Advisors LLC. Take 2020 for example, the pandemic year in which Russell 2000, a benchmark for small-cap stocks, posted returns of 20%, in comparison to the 16.3% gains posted by the S&P500 during the year. 2021 was also a similar story, with the Russell 2000 growing its market cap to $3.5 trillion, a whopping 84.2% increase. This is in contrast to the 49.5% growth in market cap posted by the large-cap benchmark, Russell 1000.

Now with the markets regaining pre-pandemic momentum, investors can ascertain excellent growth opportunities by taking a closer look at small-cap stocks. Although these small companies come with the potential to become blockbuster investments, they also carry certain risks that we must take into account. In this article, we’ll talk about some of the promising small-cap stocks.

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Our Methodology

The following stocks have been selected on the basis of strong fundamentals, positive analyst ratings, growth potential, hedge fund sentiment, and market perception. Hedge fund sentiment around each stock has been derived from Insider Monkey’s database of 867 elite hedge funds.

Best Small Cap Stocks To Buy for 2022

10. Titan Machinery Inc. (NASDAQ:TITN)

Number of Hedge Fund Holders: 16

Titan Machinery Inc. (NASDAQ:TITN) sells agriculture and construction equipment, and related machinery through its stores in the United States. As of February 8, shares of Titan Machinery Inc. (NASDAQ:TITN) gained 21.91% in the last 12 months.

On November 24, Craig-Hallum analyst Steve Dyer kept a ‘Buy’ rating on Titan Machinery Inc. (NASDAQ:TITN) shares, raising the price target to $40 from $35. Dyer assessed that the factors behind impressive Q3 results and higher FY22 guidance will continue to improve financial results for the company, which looks set to record growth in profitability, free cash flow, and operating margins in the upcoming cycle.

16 out of 867 elite hedge funds reported ownership of stakes in Titan Machinery Inc. (NASDAQ:TITN) at the end of September, holding stakes worth $45.27 million. Peter Schliemann’s Rutabaga Capital Management was the leading shareholder in Titan Machinery Inc. (NASDAQ:TITN) at the end of the third quarter, with 177,000 shares worth $5.95 million.

Titan Machinery Inc. (NASDAQ:TITN) is a top small-cap stock to buy in 2022, while companies like Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and Alphabet Inc. (NASDAQ:GOOG) are some of the best options if you’re looking to invest in large-cap stocks.

9. Origin Materials, Inc. (NASDAQ:ORGN)

Number of Hedge Fund Holders: 29

Origin Materials, Inc. (NASDAQ:ORGN) is a company specializing in carbon-negative materials and has developed a mechanism to turn carbon from biomass into useful materials such as plant-based PET plastics. Origin Materials, Inc. (NASDAQ:ORGN) has partnerships with big names such as Nestlé, PepsiCo, Inc. (PEP), and Ford Motor Company (F).

On January 6, BofA analyst Steve Byrne upgraded Origin Materials, Inc. (NASDAQ:ORGN) to ‘Buy’ from ‘Neutral’, stating that he recommends buying fertilizer stocks, and expects the company to post commercial production and revenues by 2023. After the COP26 summit held last year in Glasgow, climate change is a high-priority concern of governments and companies around the world. Origin Materials, Inc. (NASDAQ:ORGN) is set to benefit in the long run from this trend, as climate change concerns and ESG start to play a big role in where future investments are made.

Origin Materials, Inc. (NASDAQ:ORGN) has recently increased the worth of its agreements to $4.2 billion, signifying growing interest in carbon-negative plastics. With new manufacturing plants due to open in 2022 and 2023, Origin Materials, Inc. (NASDAQ:ORGN) looks set to continue its growth trajectory and keep up with the immense demand for its products.

On February 7, Origin Materials, Inc. (NASDAQ:ORGN) agreed to enter into a strategic partnership with the Green Chemistry Division of the Minafin Group, to establish joint operations that will industrialize high-value specialty materials, under the carbon-negative materials blueprint founded by Origin Materials, Inc. (NASDAQ:ORGN). This partnership will allow the production of bio-based products that are cost-competitive, with applications in a range of industries including pharmaceutical, agricultural and automotive.

8. BlueLinx Holdings Inc. (NYSE:BXC)

Number of Hedge Fund Holders: 14

BlueLinx Holdings Inc. (NYSE:BXC) features next on our list of the best small-cap stocks to buy in 2022. The firm offers building products for commercial and residential projects in the United States. 14 hedge funds were long BlueLinx Holdings Inc. (NYSE:BXC) at the close of the third quarter.

Residential construction in the United States saw a boom in 2021, and this trend looks set to persist in 2022 as work from home trends giving rise to the demand of making new homes and remodeling old ones.

On December 17, DA Davidson analyst Kurt Yinger initiated coverage of BlueLinx Holdings Inc. (NYSE:BXC) with a ‘Buy’ rating and $102 price target. Yinger noted that the company is poised to benefit from cyclical increases in new residential construction activity in the United States, and its improved balance sheet and modest valuation forecast a positive medium-to-long term trajectory for the company.

As of February 8, BlueLinx Holdings Inc. (NYSE:BXC) shares have gained 72.04% in the last 12 months, and 2.10% in the last 3 months.

Voss Capital mentioned BlueLinx Holdings Inc. (NYSE:BXC) in its Q3 2021 investor letter. Here’s what the fund said:

“We believe those calling for a peak in housing activity have grown too cautious too soon. Most of the bearish arguments we encounter appear more sentiment based, e.g., prices have come too far too fast. Setting aside this understandably inherent acrophobia-induced caution and focusing more squarely on empirical evidence, the supply/demand picture remains on solid footing thanks to continued record low housing inventory accompanying fresh 30-year lows in single family and multifamily vacancies.6 Furthermore, roughly 2 million more people will turn 35 years old anually over the next five years, as compared to the previous five years. Since 35 is the peak first time home buying age, we believe there will be sustained demand for years to come. Our long portfolio remains heavily geared to entry-level housing related companies, as well as those tied to home remodeling.

One of our preferred ways to express this bullish thematic view is through BlueLinx Holdings Inc. (BXC). We knew investors had been bracing for a profit collapse on the back of a fast 73% decline in lumber prices that occurred from May to September, but we had a differentiated view based on the company’s earnings mix that is skewed to Specialty products with less volatile pricing as opposed to purely commoditized framing lumber. The stock continues to be overly discounted based on apathy, ambiguity, and fear over the housing cycle. By our math, even in the unlikely event that BXC’s Structural Products segment produces $0.00 in gross profits over the next year (compared to $187.7M LTM) and their Specialty segment revenue declines 5-10% from here, the company still has sustainable earnings power in excess of $12 per share. At 10x earnings, a modest discount to the company’s long-term P/E ratio despite the balance sheet being deleveraged, the stock still has 63% upside. A more reasonable earnings power estimate is in the $16.50-$19.00 range, which puts the stock under 4x fully taxed net income. Unfortunately, the Board did not pull the trigger on any of their authorized share buyback last quarter before the stock rose 50% after earnings. If they sharpen their pencils anytime soon and buy stock back at this depressed valuation, the normalized EPS number should only move higher.”

7. The Lovesac Company (NASDAQ:LOVE)

Number of Hedge Fund Holders: 17

The Lovesac Company (NASDAQ:LOVE) is a company that makes furniture using modular couches called ‘sectionals’, and foam beanbag chairs called ‘sacs’. It is headquartered in Connecticut. In the third quarter, 17 out of 867 elite hedge funds tracked by Insider Monkey held shares in The Lovesac Company (NASDAQ:LOVE). The combined value of these stakes stood at $78.7 million.

On December 9, BTIG analyst Camilo Lyon kept a ‘Buy’ rating on The Lovesac Company (NASDAQ:LOVE) shares, stating that its “stellar” third-quarter earnings highlighted its “ripe” long-term growth potential. The analyst also upped the price target on The Lovesac Company (NASDAQ:LOVE) to $113 from $102.  According to Furniture Today, The Lovesac Company (NASDAQ:LOVE) is the fastest-growing furniture company in the United States.

6. Hibbett, Inc. (NASDAQ:HIBB)

Number of Hedge Fund Holders: 16

Hibbett, Inc. (NASDAQ:HIBB) deals in the sporting goods businesses, offering athletic and fashion apparel, athletic footwear, team sports equipment and other related accessories.

Baird analyst Justin Kleber, on December 6, upgraded Hibbett, Inc. (NASDAQ:HIBB) to ‘Outperform’ from ‘Neutral’, maintaining a price target of $100. The analyst holds that with “structurally improved competitive dynamics”, business model enhancements underway, and a significant shares buyback authorization, the company’s risk to reward ratio “looks too compelling to ignore”. Hibbett, Inc. (NASDAQ:HIBB) posted steady performance even during the pandemic days and is now seen to be doing excellent in e-commerce sales as well. At current levels, Hibbett, Inc. (NASDAQ:HIBB) stock is trading below its intrinsic value, providing investors a good opportunity to buy into a solid, growing business.

16 hedge funds out of 867 tracked by Insider Monkey held positions in Hibbett, Inc. (NASDAQ:HIBB) at the end of the third quarter. The combined value of these stakes stood at $126.72 million.

5. Global Ship Lease, Inc. (NYSE:GSL)

Number of Hedge Fund Holders: 14

Global Ship Lease, Inc. (NYSE:GSL) is a London-based shipping company that leases containerships to companies at fixed rates. Since the supply chain crunch experienced by the globe during the pandemic, shipping stocks recorded surges in share price. As of February 8, Global Ship Lease, Inc. (NYSE:GSL) grew 106.01% in the last 12 months, and 12.88% in the last 3-month period. The company also offers a solid 3.69% dividend yield to shareholders as of February 8, 2022.

On November 11, B. Riley analyst Liam Burke raised the firm’s price target on Global Ship Lease, Inc. (NYSE:GSL) to $33 from $28 and maintained a ‘Buy’ rating on the shares, stating that the company’s cash flow from operating activities reported an increase for the first three quarters of 2021.

14 hedge funds were bullish on Global Ship Lease, Inc. (NYSE:GSL) stock at the close of the third quarter, holding positions worth roughly $100 million. This is in comparison to 18 hedge funds with bullish bets on the company stock a quarter earlier.

Investment firm Massif Capital talked about Global Ship Lease, Inc. (NYSE:GSL) in its Q4 2021 investor letter. Here’s what the fund said:

“We initiated a 6% position in GSL, bringing total maritime transit exposure up to ~9% of the portfolio when combined with our 3% SBLK position. GSL is a containership owner, leasing ships to container companies (such as a Maersk) at fixed rates. As owners, they own and manage the vessels (responsible for crews, maintenance, insurance) but do not have fuel costs. GSL focuses on mid-size to smaller containerships, which serve the faster-growing inter-regional trade routes that represent ~70% of global containerized trade volume.

As they own its containers, their business is both pro-cyclical (chartered tonnages used as growth platform by liner shipping companies) and counter-cyclical (with the sale and lease-back structures used by liner companies as a balance sheet management tool). GSL has a track record that includes both organic acquisitions and a strategic combination in Q4 2018 that doubled the size of the fleet.

We like GSL because they do not have as much operational leverage as a company like ZIM (which leases on both sides of the trade), and they sign 2–5-year contracts. Liners have been eager to secure that capacity for extended durations spanning multiple years, significantly longer than has been the case historically and well-aligned with GSL’s strategic preference to lock in value over time and provide forward visibility on cash flows…” (Click here to see the full text)

4. IDT Corporation (NYSE:IDT)

Number of Hedge Fund Holders: 10

IDT Corporation (NYSE:IDT) is a US-based telecom company that offers money transfer, mobile top-up, and unified communication services. As of February 8, shares of IDT Corporation (NYSE:IDT) have gained 114.91% in the last 12 months. 10 hedge funds reported ownership of IDT Corporation (NYSE:IDT) shares at the close of the third quarter, with combined stakes worth $101.48 million. In comparison, 13 hedge funds held stakes worth $91.86 million in the company at the close of Q2 2021.

In February, IDT Corporation (NYSE:IDT) announced that its money transfer service BOSS Money has expanded in Africa, which will enable US customers to send money to Sierra Leone and Togo. Customers in the United States can now send money to 22 African countries through IDT Corporation (NYSE:IDT), with pick-up or cash deposit available at over 215,000 locations.

In January, IDT Corporation (NYSE:IDT) made further headway by acquiring a majority stake in Sochitel, a global digital distribution platform that offers mobile top-ups, electronic vouchers and other fintech services. This will allow IDT Corporation (NYSE:IDT) to build on Sochitel’s dominant footprint in Africa, and increase its digital payment services in the continent.

IDT Corporation (NYSE:IDT) also signed a strategic partnership with AVANT in December, which is the US’s premier distributor of next-gen technologies. Through this deal, Avant will offer IDT’s net2phone communication and collaboration solutions to the US and international customers through their global network of trusted advisors.

IDT Corporation (NYSE:IDT) boasts three growth subsidiaries through each of its segments offering money transfer, point of sale (POS), and unified communications services. After the recent spinoff of the company’s net2phone segment, IDT Corporation (NYSE:IDT) management is now considering the establishment of Mobile Top-Up as a separate segment, which holds the potential to be worth almost twice the company’s current stock price in a 2-year period.

Alta Fox Capital discussed IDT Corporation (NYSE:IDT) in its Q3 2021 investor letter, stating:

“In July, we published our research on IDT Corporation (IDT). IDT is the investment we have spent the most cumulative research time on this year. Researching this business has been a fascinating deep dive into various operating businesses and a management team and Board that we believe are some of the greatest capital allocators of all time. In September, we announced a private deal to purchase 2.5% of NRS, a subsidiary of IDT, for $10 million. For reasons highlighted in our original IDT report, we believe NRS has the potential to be worth a couple of billion dollars in a few years, multiples of the entire IDT enterprise value today.”

3. Global Blood Therapeutics, Inc. (NASDAQ:GBT)

Number of Hedge Fund Holders: 23

Global Blood Therapeutics, Inc. (NASDAQ:GBT), a clinical-stage biopharmaceutical company, is a top small-cap stock to buy in 2022. The firm develops treatments to treat sickle-cell disease and other blood-based disorders. FDA recently approved Global Blood Therapeutics, Inc.’s (NASDAQ:GBT) Oxbryta tablet, an oral therapy to treat Sickle Cell Disease for children aged 4 to 11. In December, Stifel analyst Benjamin Burnett reiterated a Buy rating on Global Blood Therapeutics, Inc. (NASDAQ:GBT) shares, setting a $68 price target. The analyst sees Oxbryta’s approval in the US for pediatric use, as well as a probable European Union approval for adult use, delivering strong peak sales as sickle cell disease patients number roughly the same in the EU and the USA.

Perceptive Advisors is the leading shareholder of Global Blood Therapeutics, Inc. (NASDAQ:GBT) stock, with 4.4 million shares worth $112.3 million, as of the end of September. The hedge fund has increased its stake in Global Blood Therapeutics, Inc. (NASDAQ:GBT) by 7% over the previous quarter.

The gradual easing of headwinds caused by the Covid pandemic will afford further growth opportunities for the company, with its research and development pipeline also positioned to deliver value for investors. Investors were seen loading up on Global Blood Therapeutics, Inc. (NASDAQ:GBT) stock at the close of the third quarter, with 23 hedge funds bullish on the stock, as compared to 16 in the preceding quarter.

2. Portillo’s Inc. (NASDAQ:PTLO)

Number of Hedge Fund Holders: 15 (as of Q4)

Portillo’s Inc. (NASDAQ:PTLO) is a reputable name in the Chicago street food industry and operates quick services restaurants across the United States. The firm went public through an IPO in October 2021, trading on the NASDAQ stock exchange at $27.05 as of February 8, which is a 35% increase from its initial share price of $20.

In December, Portillo’s Inc. (NASDAQ:PTLO) was upgraded to ‘Outperform’ from ‘Neutral’ by Baird analyst David Tarantino, maintaining a $50 price target. He feels that the company’s obvious long-term growth opportunity, along with expectations for a healthy near-term operating momentum justify a substantial premium on the company shares.

Portillo’s Inc. (NASDAQ:PTLO) boasts industry-leading average unit volumes, and its current footprint of 69 stores in the United States allows a great opportunity for expansion across the country.

1. The Beauty Health Company (NASDAQ:SKIN)

Number of Hedge Fund Holders: 39

The Beauty Health Company (NASDAQ:SKIN) is a California-based provider of skincare products around the globe, with its propriety products being the HydraFacial and PERK hydra-dermabrasion systems.

On January 7, William Blair analyst Margaret Kaczor initiated coverage of The Beauty Health Company (NASDAQ:SKIN) with an ‘Outperform’ rating and no price target. The analyst sees the company outperforming the broader market, whilst focusing on the “under-penetrated” beauty health market, with its main asset, HydraFacial, only 12% penetrated in the US market. Kaczor expects the company to generate 20%+ growth in the next three to five years, as one of the few pure plays at the intersection of the consumer health and the fast-growing retail beauty segment. Over the next five years, the global demand for skincare products is expected to grow significantly, and The Beauty Health Company (NASDAQ:SKIN) is well-positioned to enjoy this boom.

Out of all the hedge funds tracked by Insider Monkey, 39 were long The Beauty Health Company (NASDAQ:SKIN) at the close of the third quarter, holding stakes of $865.4 million. This shows a positive trend from last quarter, where 33 hedge funds held stakes worth $665.23 million in the company.

Baron Funds, an investment management firm, talked about many stocks in its Q3 2021 investor letter, and The Beauty Health Company (NASDAQ:SKIN) was one of them. Here’s what the fund said:

“The Beauty Health Company is an innovative skin care and aesthetics company providing consumers the benefits of a professional medical treatment with the experience of a consumer brand. Shares outperformed in the third quarter following better-than-expected earnings results and the announcement of two new retail partnerships with Nordstrom and Ulta, where the company expects to sell an aesthetics device that customers can use in their home. We continue to be attracted to the company’s assetlight, recurring revenue business model and see the company doubling its revenues organically over the next few years. We also believe that Beauty Health will boost shareholder value over time through accretive acquisitions.”

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