5 Small Cap Stocks With Wide Moats

In this article, we will be taking a look at the 10 small cap stocks with wide moats. To skip our detailed analysis of stocks with wide moats, you can go directly to see the 10 Small Cap Stocks With Wide Moats.

5. Upstart Holdings, Inc. (NASDAQ:UPST)

Number of Hedge Fund Holders: 20

Market Capitalization as of December 27: $1.02 billion

Upstart Holdings, Inc. (NASDAQ:UPST) is a consumer finance company based in San Mateo, California. The company operates a cloud-based artificial intelligence lending platform in the US.

A Hold rating was reiterated on Upstart Holdings, Inc. (NASDAQ:UPST) shares on November 9 by analyst John Hecht at Jefferies.

Upstart Holdings, Inc. (NASDAQ:UPST) is a company in the finance sector with a strong moat since it offers an alternative for people looking to access credit. The company is different from others in the finance sector since it offers personal loans to consumers with no or limited credit history, opening up a largely ignored market for it to profit from. The company guided for revenues of $800 million by the end of 2022. Marco Atzeni at Investing Milestone expects Upstart Holdings, Inc. (NASDAQ:UPST) to see revenue growth of 25% from 2024 to 2027.

There were 20 hedge funds long Upstart Holdings, Inc. (NASDAQ:UPST) in the third quarter, with a total stake value of $81.4 million.

Vulcan Value Partners, an investment management firm, mentioned Upstart Holdings, Inc. (NASDAQ:UPST) in its second-quarter 2022 investor letter. Here’s what the firm said:

“Upstart Holdings Inc. was a material detractor for the quarter. It was a mistake, and we sold our position. Upstart is an artificial intelligence (AI) and cloud-based lending platform. The company uses AI models that are designed to underwrite superior loans with lower interest rates, lower default rates, higher approval rates, and increased underwriting automation. When we purchased Upstart, we believed the company had an excellent product and the addressable market was large.

Upstart’s results during 2021 were impressive. In the first quarter of 2022, the company reported solid results but lowered guidance and, more importantly, used its balance sheet to warehouse loans temporarily. The company’s decision to use its balance sheet to finance its growth surprised us and other market participants, and its stock price decreased dramatically. While we admire the management team, we are less confident in the company’s long-term prospects.

It will be more difficult than we anticipated for Upstart to extend its competitive advantages with smaller banks into adjacent markets such as auto loans and mortgages. As a result, our value for Upstart is unstable and the company no longer qualifies for investment. We are following our discipline and reallocating capital into companies with more stable values.”

4. Medifast, Inc. (NYSE:MED)

Number of Hedge Fund Holders: 18

Market Capitalization as of December 27: $1.28 billion

Medifast, Inc. (NYSE:MED) is a consumer staples company based in Baltimore, Maryland. It manufactures and distributes weight loss and weight management products.

Linda Weiser at DA Davidson holds a Neutral rating on Medifast, Inc. (NYSE:MED) shares as of November 4.

Medifast, Inc. (NYSE:MED) uses a unique angle to get a competitive edge in the weight management sector. The company has a “buddy system” model of weight loss management, offering its services through designated coaches who develop personal connections with its clients. Between 2017 and 2022, the company has seen massive revenue growth from $300 million in 2017 to the $1.59 billion figure in 2022.

Medifast, Inc. (NYSE:MED) was found among the 13F holdings of 18 hedge funds in the third quarter. Their total stake value was $120 million.

Miller Howard Investments, an investment management firm, mentioned Medifast, Inc. (NYSE:MED) in its third-quarter 2021 investor letter. Here’s what the firm said:

“AFTER A METEORIC RISE OVER THE PAST YEAR, small-cap stocks reversed course with the Russell 2000 Index down -4.4% for the quarter. Much of the downdraft was focused on stocks that had done well in the pandemic environment but lost favor with investors who see a recovery on the horizon. Our largest detractors have all benefitted from pandemic-driven demand. Medifast (MED), a provider of weight loss programs and our second biggest detractor, traded off this quarter over worries that their success has been bolstered by people working from home.”

3. Stem Inc. (NYSE:STEM)

Number of Hedge Fund Holders: 27

Market Capitalization as of December 27: $1.37 billion

Stem Inc. (NYSE:STEM) is an electrical components and equipment company based in San Francisco, California. It operates as a digitally connected and intelligent energy storage network provider in the US and internationally.

UBS analyst Jon Windham initiated coverage of Stem Inc. (NYSE:STEM) shares on October 25 with a Buy rating.

In the electric storage industry, Stem Inc. (NYSE:STEM) is a company with a strong strategy to continue winning market share and assert its dominance. The company invested over $8 million in software development in the first half of 2022, allowing it to continue being a leader in the electric storage technology area. This December, Stem Inc. (NYSE:STEM) confirmed its 2025 financial targets, including a gross margin of 25% to 30% and an adjusted EBITDA margin between 15% and 20%.

Our hedge fund data shows 27 funds long Stem Inc. (NYSE:STEM) in the third quarter, with a total stake value of $199 million.

2. XPEL Inc. (NASDAQ:XPEL)

Number of Hedge Fund Holders: 13

Market Capitalization as of December 27: $1.62 billion

XPEL Inc. (NASDAQ:XPEL) is an auto parts and equipment company based in San Antonio, Texas. It manufactures and distributes after-market automotive products.

The company is leading the market with its well-built brand, ensuring that it cannot be replicated. XPEL Inc. (NASDAQ:XPEL) commands a large total addressable market in North America because of the sheer number of automobiles in the area. Jay Capital expects XPEL Inc. (NASDAQ:XPEL) to see revenue growth between the company’s 2022 guidance of 25% to 28% by the end of this year.

In total, 13 hedge funds were long XPEL Inc. (NASDAQ:XPEL) in the third quarter. Their total stake value was $123 million.

Wasatch Global Investors, an asset management company, mentioned XPEL Inc. (NASDAQ:XPEL) in its third-quarter 2022 investor letter. Here’s what the firm said:

“XPEL, Inc. (NASDAQ:XPEL) also contributed. The company manufactures and distributes automotive paint and surface-protection films, window films, and ceramic coatings. XPEL benefits as buyers of luxury vehicles adopt products previously sold primarily to automotive enthusiasts. The stock had been down in the first half of 2022 as investors wrestled with concerns over supply-chain pressures and difficulties facing consumers. However, we continued to have confidence in XPEL’s management team and business model. We thought the company would withstand temporary challenges and was still on track to produce the growth we had expected over the long term. During the third quarter, we were gratified as the stock rebounded based on strong earnings that defied the negative trend for many consumer-oriented businesses.”

1. Compass Minerals International, Inc. (NYSE:CMP)

Number of Hedge Fund Holders: 20

Market Capitalization as of December 27: $1.71 billion

Compass Minerals International, Inc. (NYSE:CMP) is a diversified metals and mining company. It produces and sells essential minerals in the US, Canada, the UK, and internationally.

Within the mining segment, Compass Minerals International, Inc. (NYSE:CMP) focuses on a niche area: salt and plant nutrition. This means the company has identified a specialized area within the mining segment where it has been able to become a lead player. In the third quarter, the company’s salt segment included a 10% increase in its total revenues, with EBITDA margins at 20% to 28%.

Compass Minerals International, Inc. (NYSE:CMP) had 20 hedge funds long its stock in the third quarter. Their total stake value was $139 million.

Investment management company Cove Street Capital mentioned Compass Minerals International, Inc. (NYSE:CMP) in its third-quarter 2022 investor letter. Here’s what the firm said:

“Our largest contributor in the quarter was Compass Minerals International, Inc. (NYSE:CMP) which continues to be either our best or worst performer any numbers of quarters in a row, for reasons that have little to do with long-term value drivers. The key variable here is the successful repricing on annual municipal contracts for road de-icing salt, the results of which will show up in the first half of 2023 snow season. That movement accounts for most of our now $65-ish value on the dilution from the sale of 17% of company shares to a Koch energy unit, which is funding and assisting in the development of the company’s Lithium asset on the Great Salt Lake. Having done an immense amount of work in the space, we have concluded that Compass’s asset is the “tallest height-challenged North America Lithium project,” albeit that bar is very low. Again, we also own the potential of something positive happening here, given the incredibly large gap between “we want electric cars” and “where the heck are we going to get the Lithium for the batteries. That’s particularly the case if China and South American supply proves a challenge in cost and availability.”

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