We recently compiled a list of the Top 10 Small-Cap Stocks with Highest Upside Potential. In this article, we are going to take a look at where Arvinas, Inc. (NASDAQ:ARVN) stands against the other small-cap stocks.
Small-cap stocks are companies with a market capitalization of somewhere between $250 million and $2 billion. They are usually the new and the world’s up-and-coming companies.
Most giant companies start as small-cap, but by continuously developing and growing their earnings, their share price increases making them large or mega-cap companies, and along the way smart investors that took the risk with proper research and analysis reap the profits.
As mentioned in one of our previous articles i.e. 8 best small-cap stocks according to analysts, a report from Julius Baer, a private banking company based in Zurich, explains how small-cap stocks have proved to outperform over very long periods. The report states that a single dollar invested in the US large caps in 1926 grew in value to $5,767 by the end of 2018. But, a dollar invested in small caps would have been worth almost seven times more at $38,842.
As with anything else, investing in small-cap stocks comes with its benefits and drawbacks. Small-cap companies have a high potential for growth and their shares aren’t necessarily too expensive, investors can make a lot of profit with the rapid growth in share prices of these up-and-coming companies. Moreover, according to a recent analysis posted by MorningStar, Small caps look cheaper now relative to the broad market than at any time in the last 20 years. But these high returns often come with high risk, small-cap stocks are vulnerable to economic fluctuations because they don’t possess the financial power and stability as the large-cap companies.
A smart investor maintains a portfolio of several small-cap stocks with rapid growth potential and some large-cap stocks for their stability against market fluctuations. Small-cap stocks are gaining popularity among Wall Street analysts in 2024 especially in the healthcare sector because of their new therapeutic innovation and high-returns potential.
J.P. Morgan Asset Management’s Long-Term Capital Market Assumptions (LTCMAs) expect the US large-cap stocks to generate a +7.0% annualized return over the next 10 to 15 years compared to the +7.6% annualized returns expected for the mid-cap and small-cap. The private bank believes that building a portfolio of attractively valued, high-quality small-cap stocks can generate potent long-term returns while mitigating some risks.
According to Thomas Lee, the head of research and the co-founder of Fundstrat Global Advisors, there is a 50% upside for small-cap stocks in 2024. Lee stated, “You may be surprised, but small-caps have a faster revenue growth. Lee also highlighted the small-caps’ earnings growth potential, projecting a 19% growth in EPS, outpacing the S&P 500’s 12% projected YoY EPS growth for 2024.
Moreover, the Fundstrat’s CEO pointed out that the institutional investors have been dumping the small caps lately, making them ripe for a turnaround trade. Lee indicated that the current conditions of small-cap stocks are shaping up to be a mirror image of the situation in 1999 when the sector went on a streak of outperformance that lasted more than a decade. “In 1999, this was also the same launch point for 12 years of outperformance. From 1999 to 2011, small caps outperformed by 650bp annually and a cumulative 113%.”
Warren Buffet while discussing small-cap stocks said:
“If I was running $1 million today, or $10 million for that matter, I’d be fully invested. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50 percent a year on $1 million. The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.”
As of June 2024, almost 1600 small-cap stocks are being traded in the US stock exchanges, so to help our readers diversify their portfolios, we have filtered out the top 10 small-cap stocks with upside potential.
Methodology
To collect data for this article, we used a stock screener and filtered the stocks with the current market cap between $250 million and $2 billion. To shortlist these 10 stocks, we took the small-cap stocks with an upside potential of over 50% backed by at least 11 or more Wall Street analysts’ price targets as of June 15th, 2024, and ranked them accordingly. Here are the top 10 small-cap stocks to buy according to analysts.
A biopharma executive in a meeting room discussing the clinical-stage of a new therapy.
Arvinas, Inc. (NASDAQ:ARVN)
Upside potential as of June 15th, 2024: 141.06%
Market Cap: $1.81 billion
Arvinas, Inc. (NASDAQ:ARVN) is a biopharmaceutical company that claims to develop innovative treatments for life-threatening diseases through targeted protein degradation. Its pipeline products include novel therapeutics in the fields of oncology, Immuno-oncology, and neuroscience.
Even though the Connecticut-based company saw a big decline of 40.26% in annual revenue growth at the end of 2023, thanks to the advancement in the clinical trials of the company’s novel therapeutic drugs such as oral PROTAC to treat neurodegenerative diseases, Wall Street analysts have maintained a “Strong Buy” on this stock. The 16 analysts with 12-month price forecasts for Arvina, Inc (NASDAQ:ARVN) have an average target of $62.94, with a low estimate of $20 and a high estimate of $95. The average price target predicts an increase of 141.06% from the current stock price of $26.11.
At the end of Q1 of 2024, Arvinas, Inc (NASDAQ:ARVN) was held by 36 hedge funds in the Insider Monkey database, with EcoR1 Capital holding the lion’s share of 6,726,491 shares valued at $277.67 million.
Overall ARVN ranks 8th on our list of the best small-cap stocks to buy. You can visit Top 10 Small-Cap Stocks with Highest Upside Potential to see the other small-cap stocks that are on hedge funds’ radar. While we acknowledge the potential of ARVN as an investment, 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 an AI stock that is more promising than ARVN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
