In this article, we will look at the 8 Best Small-Cap Growth Stocks to Buy According to Analysts.
How Did The Small Cap Stocks Perform During the Third Quarter of 2024?
During the third quarter of 2024, small-cap stocks represented by the Russell 2000 Index made a strong comeback after a somewhat disappointing second quarter. The Russell 2000 Index improved by 9.3%, surpassing the 6.1% growth of the large-cap Russell 1000 index and the 4.2% growth of the mega-cap Russell Top 50 index.
This rebound indicates that smaller companies are performing well relative to their larger counterparts. Additionally, other indexes within the Russell Index also showed positive results, for instance, the Russell Microcap Index went up by 8.3%, and the Russell Midcap Index increased by 9.2%. The graph for the third quarter represented a caret shape suggesting consistent upward movement across various market segments.
Read Also: 7 Best Nano Cap Stocks To Invest In and 10 High Growth Non-Tech Stocks That Are Profitable in 2024.
Francis Gannon, Co-Chief Investment Officer, and Managing Director of Royce Investment Partners shared his insights on small-cap stocks in an article published on October 1. He pointed out that the quarter was filled with great news for the market with the 50 basis point cut along with an indication of at least one more cut before year-end being the biggest news from an investment point of view. He further mentioned that inflation and unemployment data were also favorable with GDP inching upwards. However, regardless of the potential in the market, small-cap stocks are faced with a long road ahead as large-cap stocks held a market-leading position for almost the first nine months of the year.
Gannon thinks various factors could potentially support small-cap stocks to gain and sustain market leading position. While discussing the performance of various sectors within the small-cap (Russell 2000 Index), he mentioned that during the third quarter, undervalued value stocks performed well, with the Russell 2000 Value Index rising by 10.2%. This strong performance in value stocks was largely driven by the Financials sector, particularly banks, which make up a significant portion of the index. Gannon mentioned that many sectors other than Financials contributed to the growth, with Energy being the only one that did not perform well.
Moreover, while talking about how growth and value stocks have performed during the first 9 months of the year, Gannon pointed out value stocks still lag behind growth stocks, with the Russell 2000 Value Index up 9.2% compared to 13.2% for growth stocks. However, the gap between the two narrowed by the end of September, and Gannon believes that a growing economy will continue to support value stocks in the upcoming months.
The Bull Case For Small Cap Stocks
Francis Gannon also presented his bullish sentiment for small-cap stocks by analyzing historic trends. He believes that with the United States economy still growing and interest rates becoming more normal could be beneficial for small-cap companies. Gannon bases his bullish thesis on three historical pieces of evidence. He mentioned that it is not common for the Russell 2000 to have a monthly return of over 10%. This has only happened 22 times since the index started in 1978. However, when returns have been above 10%, small-cap stocks tend to perform very well in the following months. Secondly, historically speaking when the Fed lowered interest rates small-cap stocks tended to outperform large-cap stocks in the months following the rate cut. Gannon pointed out that this trend has been observed since at least 1957.
Thirdly, small-cap stocks have underperformed for a while, however, after periods of low returns, particularly when annual returns go lower than 3% small-cap stocks usually bounce back with better-than-average returns.
In addition to Francis Gannon’s analysis regarding small-cap stocks, we have also covered Brent Schutte’s analysis in 8 High Growth Penny Stocks That Are Profitable in 2024. Brent Schutte is the Chief Investment Officer of Northwestern Mutual Wealth Management Company. Here is a piece from the article:
“Brent Schutte, Chief Investment Officer of Northwestern Mutual Wealth Management Company joined CNBC to discuss how small caps offer more value. Schutte mentioned the 1999 and 2000 markets which were very similar to the current market. During that time the market became very narrow, he thinks that the current market is barely holding up. To explain his point he mentioned the manufacturing market and the lower and middle income consumers have been harmed by the interest rate hike over the past years. Schutte does not see the Fed being able to alleviate the suffering market and what consumers have been through and believes that how the economy will perform in the future remains an unanswered question.
For investors who are more interested in returns over a 3 to 5-year period, small-cap stocks regardless of a soft landing or not, offer value as these stocks are priced for recessions. On days when interest rates rise, large-cap stocks, particularly those in the S&P 500, tend to perform better while small-cap stocks often decline. However, Schutte argued that there is a debate about how much of the current economic situation is already reflected in stock prices. He thinks optimism is a contrarian indicator, meaning when many believe stocks will rise, it could signal a downturn. He suggests that as investors the strategy of investment should be towards undervalued stocks where optimism is low, suggesting that this approach may yield better returns as conditions change and currently small caps are undervalued indicating better returns.”
With that, let’s take a look at 8 best small-cap growth stocks to buy according to analysts.
A business person consulting with their financial advisor showing their portfolio of stocks.
Our Methodology
To compile the list of 8 best small-cap growth stocks to buy according to analysts we used the Finviz stock screener and CNN. Using the screener we shortlisted growth stocks with a market capitalization between $500 million and $2 billion. Once we had the list of small cap growth stocks we then checked the analyst upside potential for each stock sourced from CNN and ranked them in ascending order of the upside potential. Please note that the data was recorded on October 19, 2024. Moreover, we have also mentioned the number of hedge funds holding each stock sourced from Insider Monkey’s Q2 2024 database.
Why do we care about what hedge funds do? 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).
8 Best Small-Cap Growth Stocks to Buy According to Analysts
8. Rogers Corporation (NYSE:ROG)
Market Capitalization: $1.97 Billion
Number of Hedge Fund Holders: 21
Analyst Upside Potential: 38.28%
Rogers Corporation (NYSE:ROG) is the eighth-best small-cap growth stock to buy according to analysts. It was not only held by 21 hedge funds in Q2 2024 as per Insider Monkey’s database but analysts are also expecting its price to go up by around 38% during the year.
It creates specialized materials and components for various high-tech industries, including EV/HEV, ADAS, Wireless infrastructure, and other technology-related industries. The company mainly focuses on Advanced Electronics Solutions (AES), which makes materials for electronic devices used in Electric and Hybrid Vehicles (EV/HEV), aerospace, and renewable energy technology.
The company’s second quarter of fiscal 2024 was solid financially. Its net sales reached $214 million, slightly increasing from the previous quarter. Moreover, margins improved to 34.1% from 32% during Q1 of fiscal 2024, driven by better cost management and a flexible product mix.
Rogers Corporation (NYSE:ROG) experienced strong growth in its Portable Electronics and Wireless infrastructure products. However, it faced challenges due to high inventory levels of ceramic products, mainly in the EV/HEV and industrial markets. Management promptly reduced its manufacturing cost due to decreasing orders in these industries, making it possible for the company to maintain its gross margins.
The company is also consolidating its high-frequency circuit material manufacturing operations, expected to be completed by mid-2025. This move aims to enhance factory utilization and reduce expenses, projecting savings between $7 million to $9 million.
Moving forward, Rogers Corporation’s (NYSE:ROG) management anticipates growth in the EV battery sector in China. It plans to support local production in China by opening a new facility, which is expected to begin production next year.
7. Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX)
Market Capitalization: $1.91 Billion
Number of Hedge Fund Holders: 24
Analyst Upside Potential: 47.06%
Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) is a clinical-stage biotechnology company focusing on transforming drug discovery through advanced technology.
They aim to decode biological processes to create more effective drugs faster than the traditional methods. One of their key tools is the Recursion Operation System, which combines various technologies to analyze vast amounts of biological and chemical data.
The company is poised for growth due to its significant pipeline and strategic partnerships. During the second quarter of fiscal 2024 earnings release management revealed that it has nearly 10 clinical readouts planned for the next 18 months, which marks a significant step in proving its innovative approach to drug discovery.
Moreover, Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) has formed strategic partnerships with key players including Roche, Genentech, and Bayer, which enhanced their capabilities in exploring new drug targets, particularly in areas like oncology and neuroscience. The company with its partnership with Exscientia aims to build a tech-driven platform that will enable patient-centric target discovery, and structure-based drug design and will implement 2D and 3D AI tools to innovate drug designs.
Financially speaking, the company has a robust cash position with $474.3 million in cash and cash equivalents as of June 30, 2024. It also generated $14.2 million in revenue for the second quarter which was up from $11 million during the first quarter.
It is one of the best small-cap growth stocks to buy according to analysts with a market capitalization of $1.91 billion. Analysts’ median price target is pointing towards a 47% upside from the current levels.
6. Silicon Motion Technology Corporation (NASDAQ:SIMO)
Market Capitalization: $1.88 Billion
Number of Hedge Fund Holders: 43
Analyst Upside Potential: 60.46%
Silicon Motion Technology Corporation (NASDAQ:SIMO) is a technology company specializing in solid-state storage devices, particularly NAND flash controllers. NAND flash controllers are essential components that manage how data is stored and retrieved on devices like Solid State Drives (SSDs).
Their technology is also used in Embedded Multimedia Cards, within smartphones, USB flash drives, and memory cards, thereby making them a critical player in the storage devices industry. Silicon Motion Technology Corporation (NASDAQ:SIMO) primarily caters to original equipment manufacturers and its technology is poised for significant growth due to its applicability in data centers.
The company, on August 5, 2024 announced SM2508, a cutting-edge PCIe Gen5 NVMe 2.0 client SSD controller designed for AI PCs and gaming consoles. This is a breakthrough for the company as management believes it is one of the most power-efficient controllers in its class. It uses TSMC’s advanced 6nm EUV processes enabling the controller to consume 50% less power compared to its competitors that use the 12nm process.
The SSD controllers are a major source of revenue for the company. During the second quarter of fiscal 2024, the SSD controller sales grew 25% to 30% year-over-year. Overall the net sales of $210.7 million were up 50% during the same time. Analysts are eying for its third quarter results as management anticipates another 25% jump in revenue on a year-over-year basis.
Ave Maria Growth Fund stated the following regarding Silicon Motion Technology Corporation (NASDAQ:SIMO) in its first quarter 2024 investor letter:
“Silicon Motion Technology Corporation (NASDAQ:SIMO) is a fabless semiconductor company that specializes in low-end flash memory controllers. Memory manufacturers often design their own controllers in-house, but the rising cost of developing a chip is making it increasingly beneficial to outsource the more commoditized low-end controller development to a third party like Silicon Motion. This outsourcing trend is set to move from consumer applications into the server end market, and Silicon Motion’s new enterprise controller is well positioned to capitalize on the growth.”
5. Viridian Therapeutics, Inc. (NASDAQ:VRDN)
Market Capitalization: $1.85 Billion
Number of Hedge Fund Holders: 29
Analyst Upside Potential: 61.10%
Viridian Therapeutics, Inc. (NASDAQ:VRDN) is a biopharmaceutical company that focuses on creating new medicines for people with serious and rare diseases, particularly Thyroid Eye Disease (TED). TED is a condition that can cause symptoms like bulging eyes and vision problems. The company is conducting two major clinical trials (called THRIVE and THRIVE-2) to test a treatment named VRDN-001. They have also been working on another treatment called VRDN-003, which can be administered as a subcutaneous injection.
Viridian Therapeutics, Inc. (NASDAQ:VRDN) on September 10, announced positive results for its Phase 3 THRIVE clinical trial for Veligrotug. The results showed that after a week 70% of patients treated with Veligrotug showed improvement in bulging eyes compared to only 5% in the placebo group, thereby indicating strong efficiency. The company plans to submit a Biologics License Application (BLA) for Veligrotug in the second half of 2025.
Financially, the company reported cash, cash equivalents, and short-term investments were $571.4 million as of June 30. Management believes that this liquidity is enough to keep the company functioning till at least the second half of 2026. It is one of the best small-cap growth stocks to buy according to analysts.
4. Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM)
Market Capitalization: $1.88 Billion
Number of Hedge Fund Holders: 29
Analyst Upside Potential: 64.64%
Next on our list of best small-cap growth stocks to buy according to analysts is Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM). It is another biopharmaceutical company that focuses on developing treatments for rare diseases that affect the liver.
They have three main medications including LIVMARLI, Cholbam, and Chenodal. Management is focused on developing new treatments including Volixibat, aimed at adult patients with liver diseases related to bile flow issues.
The second quarter of fiscal 2024 was a successful year for Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM). The company grew its net product sales by 139% year-over-year to reach $77.8 million. The sales growth was on the back of strong performance by all three major products. LIVMARLI sales for the quarter grew by 45%, whereas CHOLBAM and CHENODAL net sales amounted to $30.5 million.
The pipeline development also remains robust as Volixibat showed positive interim results for the VISTAS PSC and VANTAGE PBC studies. Moreover, LIVMARLI was approved in Europe for PFIC patients. The cash position of the company also improved significantly from $286.3 million in the comparable quarter of 2023 to $295.4 million in the second quarter of fiscal 2024. Looking ahead, management is on track to achieve its full-year guidance of $310 to $320 million in net sales.
ClearBridge Small Cap Growth Strategy stated the following regarding Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) in its fourth quarter 2023 investor letter:
“In the fourth quarter we initiated four new investments: Inari Medical, Blackbaud, Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) and Installed Building Products. Mirum Pharmaceuticals is a commercial stage pharmaceutical company primarily treating rare liver conditions, often in pediatric patients. With multiple approved marketed products across different indications, the company is already operating near cash[1]flow breakeven. Mirum is pursuing label indication expansions across two of its marketed products that could be materially additive to the growth trajectory, along with two promising Phase 2 candidates designed to treat several adult rare liver diseases.”
3. Beam Therapeutics Inc. (NASDAQ:BEAM)
Market Capitalization: $2.01 Billion
Number of Hedge Fund Holders: 21
Analyst Upside Potential: 102.28%
Beam Therapeutics Inc. (NASDAQ:BEAM) is a biotechnology company focused on developing precision genetic medicines using a technique called base editing. This method allows scientists to make very specific changes to the DNA of living organisms without cutting the DNA strands, which helps reduce potential side effects compared to older gene-editing methods. The company is working on several investigational therapies including, BEAM-101 which provides personalized treatment for sickle cell disease, BEAM-201, which is aimed at treating specific types of blood cancer, and BEAM-302, which targets the liver.
The company has made significant advancements in its clinical programs during the recent quarter, utilizing its base editing technology to develop potential leading genetic medicines. During the second quarter results of fiscal 2024, Beam Therapeutics Inc. (NASDAQ:BEAM) highlighted that it has received clearance for its first U.S. investigational new drug application for BEAM-301. Moreover, its BEAM-101 saw 20 new patient enrollments for the clinical trial, data for this trial is expected to be presented at the American Society of Hematology in December 2024.
Management reported advancements in its manufacturing processes, ensuring high-quality production of its genetically modified therapies, particularly for BEAM-101. As of June 30, 2024, the company had $1.0 billion in cash and equivalents and management said this gives it enough cash runway for operations till 2027.
2. Arvinas, Inc. (NASDAQ:ARVN)
Market Capitalization: $1.86 Billion
Number of Hedge Fund Holders: 33
Analyst Upside Potential: 126.35%
Arvinas, Inc. (NASDAQ:ARVN) is another clinical-stage biotechnology company that ranks 2nd on our list of 8 best small-cap growth stocks to buy according to analysts. The stock was held by 33 hedge funds in Q2 2024, with total positions worth $542.04 million, as per Insider Monkey’s database. Moreover, analysts’ 12-month median price target is pointing towards a 126.35% upside from the current levels indicating significant growth.
Arvinas, Inc. (NASDAQ:ARVN) is developing treatments for patients with life-threatening diseases including cancer and neurodegenerative disorders. It uses a specialized platform called, which is designed to utilize the body’s natural system for breaking down proteins. A few treatments currently under treatment include Vepdegestrant, aimed at curing certain types of breast cancer, ARV-766 for prostate cancer, and ARV-102 aimed at treating neurodegenerative disorders.
During the second quarter of fiscal 2024, the company revealed that Vepdegestrant has completed enrollment in the lead-in portion of the VERITAC-3 Phase 3 Trial. Moreover, global enrollment is ongoing in several trials including the VERITAC-2 Phase 3 for which top-line results are expected in Q4 of fiscal 2024.
The company also received $150 million from a licensing agreement with Novartis for ARV-766 and the sale of its preclinical AR-V7 program. Management believes this deal could yield up to an additional $1.01 billion based on future milestones and royalties.
CEO John Houston believes that the upcoming readout of the VERITAC-2 trial is a pivotal moment for the company as it can potentially support its first new drug application filing if results are positive. Management aims to transition towards its commercial stage in the years to come. Cash, cash equivalents, restricted cash, and marketable securities were $1.23 billion as of June 30, which should be enough to cover the operational requirements till 2027, management noted.
1. Celldex Therapeutics, Inc. (NASDAQ:CLDX)
Market Capitalization: $1.91 Billion
Number of Hedge Fund Holders: 34
Analyst Upside Potential: 142.96%
Celldex Therapeutics, Inc. (NASDAQ:CLDX) is a biopharmaceutical company that specializes in developing new treatments for diseases related to mast cells, which are a type of immune cell involved in allergic reactions and other inflammatory responses. Some of its notable products include Barzolvolimab, which is being tested for Chronic Urticarias, Prurigo nodularis, and Eosinophilic Esophagitis.
It ranks as the best small-cap growth stock to buy according to analysts. The stock was held by 34 hedge funds in Q2 2024, as per Insider Monkey’s database. Analysts’ 12-month median price target indicates more than 142% upside from the current levels.
Celldex Therapeutics, Inc. (NASDAQ:CLDX) on September 25, presented significant findings from a 52-week Phase 2 study of Barzolvolimab, focusing on its effectiveness for patients with Chronic Spontaneous Urticaria (CSU). The results show that 71% of patients receiving Barzolvolimab at a dose of 150 mg every 4 weeks achieved a complete response by Week 52, meaning they experienced no hives or itchiness. The results indicated that Barzolvolimab sets a new standard for treating CSU, showing robust efficacy regardless of prior treatment experiences.
Moreover, during the second quarter of fiscal 2024, the company reported $2.5 million in revenue increasing from $0.3 million in the comparable quarter of 2023. The increase in revenue was attributed to an increase in services performed under its research and development agreement with Rockefeller University. The company had $802.3 million in cash and cash equivalents which the management thinks is enough to fund operations till 2027.
While we acknowledge the potential of Celldex Therapeutics, Inc. (NASDAQ:CLDX) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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