In this article, we will look at the Top 10 Small Cap Stocks to Buy with the Highest Upside Potential.
What Would 2025 Look Like for Small Cap Stocks?
On December 30, MJP Wealth Advisors chief investment officer Brian Vendig appeared on Yahoo! Finance’s Catalysts to discuss the potential outlook of small cap stocks in 2025. He said that as long as the economy stays stable and policy decisions are not taken to the extreme, small cap stocks could see the perfect environment to outperform in 2025. However, a little cooperation from the Fed is essential to maintaining this perfect environment.
He also believed that the market is likely to come back to earnings. Vendig explained that the market is expected to be choppy in the first few months of 2025. This trend is likely to materialize throughout the first half of 2025, with the choppiness attributed to policy uncertainties. But Vendig believed that if earnings remain intact, he will likely stay constructive on stocks. He even thinks that bonds might be a good opportunity as well. He said:
“I’m definitely not one to recommend to add to megacap tech at this point, but I think taking a look at some of those value-oriented sectors that help to play into innovation and growth for the economy still makes sense.”
He also highlighted that potential opportunities may emerge in the industrial sectors, such as infrastructure, electric grid enhancements, and power generation, along with some in pharmaceuticals and biotech.
Will the Fed and Incoming Trump Administration Bolster Small Cap Stocks?
Several other analysts have similar predictions as Vendig’s. On December 24, Global Advisors’ managing partner, Tom Lee, appeared on CNBC and highlighted the potential of small and mid-cap stocks in 2025, saying that this year will likely be a positive one for these companies. He reasoned that the incoming Trump administration and interest rate cuts are likely to make companies more expansionary, boosting their confidence regarding mergers. He even said that small caps may outperform by more than 100% in the coming years.
With these positive trends for small caps in view, let’s look at the top 10 small cap stocks to buy with the highest upside potential.
Top 10 Small Cap Stocks to Buy with the Highest Upside Potential
Our Methodology
We used the Finviz stock screener to compile a list of 30 small cap stocks. We then selected the top 10 stocks with the highest analyst upside potential as of January 9, 2025. We have also included the market capitalization of the stocks as of the same date. The list is sorted in ascending order of analysts’ average upside potential. These stocks are also popular among elite hedge funds as of fiscal Q3 2024.
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).
Top 10 Small Cap Stocks to Buy with the Highest Upside Potential
10. LGI Homes, Inc. (NASDAQ:LGIH)
Analyst Upside: 35.56%
Market Cap: $2 billion
Number of Hedge Fund Holders: 22
LGI Homes, Inc. (NASDAQ:LGIH) designs, constructs, markets, and sells new houses. Its focus is on residential land development and it operates throughout the United States. The company’s operations are profitable due to the sustained demand for new houses across the country. Although the economy is facing affordability challenges, the company delivered 1,757 homes in fiscal Q3 2024.
Its revenue for fiscal Q3 2024 was $652 million, an increase of 5.6% compared to last year. It also marked the highest revenue the company has reported since fiscal Q2 2022, driven by its focus on operational excellence. LGI Homes, Inc. (NASDAQ:LGIH) has acquired and developed attractive land positions across the US over the past several years as a strategy to drive long-term growth. Its average sales price in fiscal Q3 2024 was a record $371,004, which experienced an increase of 5.2% over the same period last year, and 1.9% sequentially. This growth was attributed to the company maintaining price increases and a larger percentage of closings in markets with higher average price points, particularly in its West and Northwest segments.
The fundamentals of the US housing market are strong, bolstered by continued household formations, limited supply of resale homes, and years of underproduction. Since the US economy continues to grow and become productive, the labor market is resilient, with historically low unemployment. These factors are expected to be reflected in LGI Homes, Inc.’s (NASDAQ:LGIH) long-term outlook. It takes the tenth spot on our list of the top 10 small cap stocks to buy with the highest upside potential.
9. Cadeler A/S (NYSE:CDLR)
Analyst Upside: 37.11%
Market Cap: $1.96 billion
Number of Hedge Fund Holders: 10
Based in Copenhagen, Denmark, Cadeler A/S (NYSE:CDLR) provides installation services, maintenance works, and operations in the offshore wind industry. It also offers decommissioning and construction tasks. The company owns Pacific Orca, Pacific Osprey, and Windfarm Installation Vessels.
The company reported a total revenue of EUR 81 million in fiscal Q3 2024, compared to EUR 23 million in the comparative period last year. These strong results were backed by the high utilization of the company’s flexible, modern, and growing fleet and strong client demand. Demand is particularly strong in Asia and Europe, as the UK is reinforcing offshore wind as a solid means of decarbonization.
On November 5, 2024, Cadeler A/S (NYSE:CDLR) signed the second of two firm contracts for the transportation and installation of offshore wind turbine generators and other operations being developed by ScottishPower Renewables. These contracts are estimated to cost EUR 360-382 million, and the offshore works are set to commence in 2027, giving the company more visibility. It ranks ninth on our list of the top 10 small cap stocks to buy with the highest upside potential.
8. Materion Corp. (NYSE:MTRN)
Analyst Upside: 41.75%
Market Cap: $1.99 billion
Number of Hedge Fund Holders: 14
Materion Corp. (NYSE:MTRN) produces engineered materials for various thermal, electrical, electronic, and structural applications. Its operations provide engineered solutions comprising beryllium and non-beryllium through its Performance Materials segment. Through its Electronics Materials segment, it produces precious and non-precious metals, chemicals, microelectronics packaging, and other specialty metal products. The company also operates in optical filters, precision thin-film coatings, and assemblies through its Precision Optics segment.
Although the market has been soft for the company over the last several quarters, it is optimizing its footprint, improving the cost structure of the company, and aligning its portfolio with global megatrends to improve its operations. Materion Corp. (NYSE:MTRN) has taken several steps to optimize its footprint over the last year. With a focus on driving efficiency and scale, it closed a facility in China, consolidating production into other facilities in North America and Asia. It is in the process of right-sizing two additional facilities in Asia, which is expected to be completed early in fiscal 2025, and is closing a facility in New Mexico. These actions are focused on improving the performance of the company’s electronic materials business. As a result of these initiatives, the business is now delivering around 20% EBITDA margins, reflecting approximately 400 basis points improvement on lower volume.
Fiscal Q3 2024 was the second consecutive quarter that the company saw year-over-year growth in overall semi-sales in the semiconductor sector. Since the increased demand for logic and memory applications is boosting this volume increase, Materion Corp. (NYSE:MTRN) is capitalizing on opportunities in the sector with its broad semiconductor solutions and product portfolio. The company recently entered into an agreement to serve as the technology partner for a major supplier of semiconductor processing equipment. It takes the eighth spot on our list of the top small cap stocks to buy with the highest upside potential.
7. Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY)
Analyst Upside: 47.81%
Market Cap: $1.95 billion
Number of Hedge Fund Holders: 25
Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) is a commercial-stage pharmaceutical company that develops and commercializes therapies to treat neurological disorders. Its product, WAKIX, is a molecule that increases histamine signaling in the brain by binding to H3 receptors. The company has one of the strongest pipelines for people with rare neurological diseases.
Its pipeline now includes three orphan rare Central Nervous System (CNS) franchises that treat CNS conditions. Investors are bullish on the stock as each of its franchises has a peak sales potential of $1 billion to $2 billion. The company’s pipeline also includes 8 assets across 13 development programs, of which 3 are in pivotal Phase 3 trials, and a fourth is in the initiation process.
Therefore, Harmony Biosciences Holdings, Inc.’s (NASDAQ:HRMY) current pipeline has the potential to deliver more than $3 billion in net revenue in the future, if successful. The company is continually active in business development and is expanding its pipeline further. With around $505 million in cash, cash equivalents, and investments as of September 30, 2024, the company is in a strong financial position to take on additional business development opportunities.
6. Bridge Investment Group Holdings, Inc. (NYSE:BRDG)
Analyst Upside: 49.66%
Market Cap: $880.28 million
Number of Hedge Fund Holders: 14
Bridge Investment Group Holdings, Inc., (NYSE:BRDG) is a real estate investment firm. It combines its platform with investment professionals in select US real estate verticals, including affordable housing, multifamily, seniors housing, development, office, and logistics properties.
Real estate prices are showing signs of stabilization in the US, with major indices turning positive in 2024. Bridge Investment Group Holdings, Inc.’s (NYSE:BRDG) portfolios were also positive for fiscal Q3 2024. However, the impact of increased transaction volumes and an improving debt market has just started to materialize in the market. Therefore, the company expects meaningful volumes and valuation improvements in the coming quarters.
Bridge Investment Group Holdings, Inc. (NYSE:BRDG) was also selectively active in deploying capital in fiscal Q3 2024. It acquired $349 million of multifamily and workforce assets at attractive cap rates and $40 million of logistics assets. It deployed $966 million of capital in its debt strategies vertical, which included meaningful recycling of investments. The company expects its deployment opportunities to increase over the next several quarters, leading to positive analyst sentiments regarding the stock. It ranks sixth on our list.
5. UTZ Brands, Inc. (NYSE:UTZ)
Analyst Upside: 55.56%
Market Cap: $1.13 billion
Number of Hedge Fund Holders: 12
UTZ Brands, Inc. (NYSE:UTZ) markets, manufactures, and distributes branded snacks. Its portfolio includes a range of salty snacking products, such as pretzels, potato chips, veggie, cheese, and pork skins. The company’s brands include Utz, Golden Flake, Zapp’s, Good Health, Hawaiian, and Boulder Canyon.
The company’s organic net sales grew by 1.9% in fiscal Q3 2024. This growth was led by branded volume growth supported by marketing investments and increased distribution. The company also drove the 7th consecutive quarter of year-over-year adjusted EBITDA margin expansion, attributed to strong productivity.
In addition, UTZ Brands, Inc. (NYSE:UTZ) gained market share in the Salty Snack category for the fifth consecutive quarter while maintaining a disciplined pricing strategy. With consumers seeking more value, the company is adjusting its portfolio to expand geographically and increase household penetration without compromising value and quality. It is also transforming its supply chain to fund growth and margin improvement through accelerated network optimization, strong progress in its productivity programs, and increasing investments in its scale plants. UTZ Brands, Inc. (NYSE:UTZ) ranks fifth on our list of the top 10 small cap stocks to buy with the highest upside potential.
4. Soleno Therapeutics, Inc. (NASDAQ:SLNO)
Analyst Upside: 60.33%
Market Cap: $1.96 billion
Number of Hedge Fund Holders: 34
Soleno Therapeutics, Inc. (NASDAQ:SLNO) is a clinical-stage biopharmaceutical company that develops and commercializes novel therapeutics to treat rare diseases. The company focuses on the treatment of neurobehavioral and metabolic disorders. Its lead candidate, Diazoxide Choline Controlled-Release (DCCR), is an oral tablet that treats Prader-Willi Syndrome (PWS).
The company attained a significant milestone in fiscal Q3 2024 with the FDA’s acceptance of its NDA seeking approval of DCCR (Diazoxide Choline) for treating PWS. Soleno Therapeutics, Inc. (NASDAQ:SLNO) is looking toward the potential approval of DCCR, and its commercial team is preparing for the planned US market launch post-approval.
The company has a strong balance sheet to support a successful launch execution and drug delivery after approval. Soleno Therapeutics, Inc.’s (NASDAQ:SLNO) current research and development efforts primarily focus on advancing its lead product candidate, DCCR, through late-stage clinical development. Analysts expect the company to break even in the coming future, reporting profits and growing exponentially. It ranks fourth on our list of the top 10 small cap stocks to buy with the highest upside potential.
3. Agios Pharmaceuticals, Inc. (NASDAQ:AGIO)
Analyst Upside: 62.57%
Market Cap: $1.97 billion
Number of Hedge Fund Holders: 24
Agios Pharmaceuticals, Inc. (NASDAQ:AGIO) is a biopharmaceutical company that focuses on cellular metabolism and classical hematology. Based in Cambridge, Massachusetts, the company engages in investigational therapies in preclinical development.
The company recently received $1.1 billion in milestone payments after the FDA’s approval of vorasidenib, which originated at Agios Pharmaceuticals (NASDAQ:AGIO) and is an anti-cancer drug. These payments include a $905 million payment from Royalty Pharma in association with the vorasidenib royalty purchase agreement that Agios Pharmaceuticals (NASDAQ:AGIO) announced in May 2024. It also includes a $200 million payment from Servier in connection with Agios Pharmaceutical’s (NASDAQ:AGIO) divestiture of its oncology business in 2021.
Apart from these milestone payments, the company has cash, cash equivalents, and marketable securities of around $1.7 billion as of Q3 2024. The company expects to use this total balance, along with the anticipated interest income and product revenue, to prepare for the potential launch of its PYRUKYND therapy for thalassemia and sickle cell disease. PYRUKYND holds the potential to become the first therapy approved for all thalassemia subtypes. The company also has plans to use its financial independence to advance its existing programs and opportunistically expand its pipeline. It takes the third spot on our list.
Meridian Growth Fund stated the following regarding Agios Pharmaceuticals, Inc. (NASDAQ:AGIO) in its Q2 2024 investor letter:
“Agios Pharmaceuticals, Inc. (NASDAQ:AGIO) is a leader in cellular metabolism and pyruvate kinase activation pioneering therapies for rare diseases. The stock appreciated in the quarter after it announced positive Phase 3 testing results of mitapivat, a therapy for adults with non-transfusion dependent thalassemia, an anemia blood disorder. With these results, we expect an FDA filing for the drug in the back half of this year for approval. The company also sold its 15% royalty on a cancer drug, which provided a boost to its cash position that could be used to further develop and market mitapivat. We trimmed our position in the company based on our valuation discipline as the share price appreciated.”
2. Wave Life Sciences Ltd. (NASDAQ:WVE)
Analyst Upside: 71.67%
Market Cap: $1.96 billion
Number of Hedge Fund Holders: 34
Wave Life Sciences Ltd. (NASDAQ:WVE) is a clinical-stage biotechnology company that develops and commercializes ribonucleic acid (RNA) medicines through PRISM, a discovery and drug development platform. PRISM combines a deep understanding of human genetics with chemistry innovation and multiple modalities for scientific discoveries and breakthroughs that treat prevalent and rare disorders. It is developing treatments for obesity and other metabolic disorders, Duchenne muscular dystrophy, Huntington’s disease (HD), and alpha-1 antitrypsin deficiency.
Wave Life Sciences Ltd. (NASDAQ:WVE) also has collaboration agreements with GlaxoSmithKline, Takeda Pharmaceutical Company Limited, and Asuragen, Inc. for various research and development operations. It delivered three positive clinical data sets in 2024 and received supportive initial FDA feedback on Huntington’s Disease. The company is also rapidly advancing its obesity program towards the clinic and is strengthening its balance sheet to support its growing pipeline. As a result, it posted solid financial results in the third quarter of 2024, with revenue worth $7.7 million. It expects its future performance to be in line with its growth goals.
The company’s recent clinical programs are strongly supported by human genetics, have well-defined patient populations, and offer novel treatment approaches to collectively address around 10 million patients. Investors are bullish on the stock because of incoming positive data from trials, which also led the stock to gain around 135% over the past 12 months. Wave Life Sciences Ltd. (NASDAQ:WVE) expects to select candidates for its recent clinical programs in 2025. It ranks second on our list.
1. ImmunityBio, Inc. (NASDAQ:IBRX)
Analyst Upside: 200.19%
Market Cap: $1.94 billion
Number of Hedge Fund Holders: 8
ImmunityBio, Inc. (NASDAQ:IBRX) is a clinical-stage immunotherapy company that develops next-generation therapies to treat cancer and infectious diseases. Its immunotherapy platform activates the adaptive and innate immune systems to create long-term immunological memory. The company attained a net product revenue of around $6.0 million during the three months ending September 30, 2024, surpassing analyst estimates and net product revenue of $1.0 million in the prior quarter.
The FDA’s approval of ImmunityBio’s ANKTIVA, a treatment for non-muscular invasive bladder cancer (NMIBC), has put it on a positive trajectory. Commercially available in the US since May 2024, ANKTIVA is now widely accessible to patients through government and commercial insurance programs. The company has secured coverage for over 200 million medical lives through reimbursement policies. The US launch of the treatment is continually gaining momentum, with the Centers for Medicare and Medicaid Services issuing its permanent J-code, a billing code used in the medical field, effective January 1, 2025.
ImmunityBio, Inc. (NASDAQ:IBRX) plans to expand its product globally and submitted a Marketing Authorization Application (MAA) for ANKTIVA in 30 countries in the EU in fiscal Q4 2024. It also submitted ANKTIVA for potential approval to the Medicines and Healthcare Products Regulatory Agency (MHRA) in the UK. Investors are thus bullish on the stock due to its potentially profitable global expansion endeavors.
Overall, IBRX ranks first among the 10 best small cap stocks to buy according to analysts. While we acknowledge the potential of small cap stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IBRX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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