In this article, we’re going to talk about the 8 best micro cap stocks to buy according to analysts.
While the S&P 500 is flirting with record highs after a 21% gain in 2024, the small-cap Russell 2000 index is only up 12% for the year and 9% off its all-time highs recorded in 2021.
The underperformance of the small-cap Russell 2000 stems from being heavily weighted towards biotech companies, most of which are unprofitable. Likewise, the index has a huge holding on small-cap bank stocks struggling against the industry’s heavyweights. Given the underperformance, it is a surprise that investors are still inclined to pursue opportunities around small-cap stocks.
Similarly, given that 40% of small-cap stocks in the Russell 2000 Index are unprofitable, investors have their work cut out in selecting stocks to diversify their investment portfolio. Including a profitability tilt might make sense if stocks are, in fact, a call on a future cash flow stream. The goal is to stay clear of less stable companies focus on businesses generating and being well-poised to create long-term value.
READ ALSO: 8 Unstoppable Stocks That Could Make You Richer and 9 Best Dow Stocks to Buy According to Analysts.
In an interview with CNBC, Rob Harvey, the brain behind Dimensional U.S. Small Cap ETF, insists on the need to focus on profitable small-cap companies.
“There’s no reason to hold companies that really are scraping the bottom of the barrel in terms of profitability,” the firm’s co-head of product specialists told CNBC’s ETF Edge on October 14. “You remove those from your small cap universe, [and] you can do a lot for boosting returns.”
Sharing similar sentiments is ALPS Advisors Chief ETF strategist, who believes investors should focus on quality companies that are profitable and, therefore, able to pay and grow their dividends. Importantly, the focus should be on less volatile small-cap companies.
The sentiments come when small-cap companies start showing signs of life, having underperformed large-cap stocks for the better part of the year. While the Russell 2000 ETF gained 2.4% in the first two weeks of October, the S&P 500 only rose by about 1.9%.
One of the catalysts behind the small-cap stocks significant gains is investors reacting to September’s Federal Reserve half-point rate cut. Interest rate cuts are always beneficial to small-cap companies with more leverage on their balance sheet.
“Historical data suggest that smaller-cap stocks have tended to be the main beneficiaries once the Fed begins to lower rates Therefore, we continue to advise investors to increase exposure to this area since we believe it is only a matter of time before the fortunes of this group take a turn for the better.,” BMO Capital Markets’ Brian Belski wrote.
Another reason to pay attention to the best micro-cap stocks to buy has to do with the fact that they might be attractively valued when compared to large-cap stocks. With that, let’s take a look at the best micro cap stocks to invest in right now.
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Our Methodology
To compile the list of the best micro-cap stocks to buy according to analysts, we scanned the Finviz screener and looked for stocks with a market cap of between $100 million and $300 million (our definition of micro cap stocks). Finally, we ranked the stocks based on their upside potential as of October 29. We have also added the hedge fund sentiment around each stock.
At Insider Monkey, we are obsessed with 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).
Best Micro-Cap Stocks to Buy, According to Analysts
8. CPI Card Group Inc. (NASDAQ:PMTS)
Market Cap as Of October 29: $265.55 Million
Stock Upside Potential: 57.12%
Number of Hedge Fund Holders: 5
CPI Card Group Inc. (NASDAQ:PMTS) is a financial services company that designs, produces, and supplies fulfillment of financial payment cards. It offers financial payment cards and integrated card services to card-issuing financial institutions. Up by about 27% year to date, it is emerging as one of the best micro-cap stocks to buy as consumer spending receives a boost from lower interest rates.
The stock has been trading higher amid the strong performance of the company’s prepaid segment. Consequently, it has enjoyed solid sales growth owing to strong demand for card personalization solutions amid improvements in debit and credit card sales trends. The company delivered solid second-quarter results with a 3% sales increase, totalling $118.8 million, as gross profit rose 4% to $42.4 million.
Amid the strong performance in the year’s first half, CPI Card Group Inc. (NASDAQ:PMTS) raised its financial outlook for 2024 from slight to mid-single-digit growth. The hike comes amid expectations of long-term growth trends for the US card market that should lead to consumer card growth and widespread adoption of eco-focused cards. The company remains the leading provider of eco-focused payment card solutions, with more than 100 million eco-focused cards already sold.
Additionally, CPI Card Group Inc. (NASDAQ:PMTS) continues to return value to shareholders, having conducted a $20 million buyback in the second quarter.
7. Eventbrite Inc. (NYSE:EB)
Market Cap as Of October 29: $299.84 Million
Stock Upside Potential: 75%
Number of Hedge Fund Holders: 25
Eventbrite Inc. (NYSE:EB) is a technology company that operates a two-sided marketplace that provides self-service ticketing and marketing tools for event creators. Its platform allows event creators to plan, promote, and produce live events, reducing friction and costs and thus driving ticket sales.
Even though public events were halted due to the COVID-19 pandemic, Eventbrite Inc. (NYSE:EB) has tried to recover as the economy and demand for live experiences have increased. The platform has handled over 300 million tickets for over 5 million events in the past year alone. The event ticketing market is still very competitive, though. The company consequently raised prices through new creator fees to boost profitability, which raised net revenue per ticket but also contributed to a decline in the number of creators and paid ticket sales. If the business can successfully balance the two, it may discover
Consequently, it delivered mixed second-quarter results, with revenue increasing 7% year over year to $84.6 million. However, the company’s gross ticket sales dropped by $50 million to $890 million. Additionally, Eventbrite Inc. (NYSE:EB) was forced to lower its revenue outlook for Q3 due to a decline in paid ticket revenue as the company struggled to attract and retain creators. Amid the slowing revenue growth and in a bid to ensure financial discipline, Eventbrite has embarked on a cost reduction spree by laying off 11% of staff.
Notwithstanding a decline in the number of paid tickets sold, these developments show a company making a strategic shift to take advantage of the expanding live events market. Eventbrite Inc. (NYSE:EB)’s strong cash position and wise technological investments demonstrate dedication to long-term profitability and market leadership.