In this article, we will discuss the top 10 small-cap stocks with highest upside potential. If you want to explore similar stocks, you can also look at Top 5 Small-Cap Stocks With Highest Upside Potential.
Small-cap stocks have historically outperformed large-cap and mid-cap stocks during periods of economic uncertainty and skyrocketing inflation. According to a report published by CME Group, a leading American global markets company, the Russell 2000 beat the S&P 500 by more than 80% between 1979 and 1983, a period of record-high inflation, consecutive recessions, and a dreary stock market situation. The Russell 2000 is a world-renowned weighted index of 2000 small-cap companies listed across American stock exchanges.
However, when the global economy set for recovery and the world saw 7 years of economic expansion from 1983 up to 1990, large-cap stocks had a strong comeback. The S&P 500 outperformed the Russell 2000 by 91%. The battle between small-caps and large-caps went on with small caps beating large caps by over 50% during 1990 and 1994, and then large-caps exceeding small-caps by 93% during 1994 and 1999.
Moving on to the early 2010s, the S&P 500 has consistently beaten the Russell 2000 since 2014. This is primarily attributed to the solid performance of lucrative technology stocks that make up the S&P 500. The S&P 500 outperformed the Russell 2000 by roughly 56% from 2014 to 2020.
However, now in 2022 with record-high inflation and interest rate hikes, small-caps are looking to make a comeback, which will indeed be stronger than the setbacks. Investors and Wall Street professionals are closely watching small-caps and are evaluating companies that are exhibiting the potential to explode into large-cap stocks.
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Almost every large-cap company started off small. Among the most valuable companies in the world now, we have Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL).
Our Methodology
To compile this list of the top 10 small-cap stocks with highest upside potential, we looked at renowned stock market indices such as the Russell 2000 and the S&P 600 which track small-cap stocks listed across American stock exchanges. We narrowed down our selection to the top 10 companies that had a consensus “Buy” rating from Wall Street experts, had strong project pipelines, and had upcoming growth catalysts driving high upsides.
We also gave weight to the hedge fund sentiment around each stock as we believe it to be a useful indicator of a stock’s future performance. The investor sentiment was derived from Insider Monkey’s database of roughly 900 elite hedge funds.
Top 10 Small-Cap Stocks With Highest Upside Potential
10. Navitas Semiconductor Corp (NASDAQ:NVTS)
Number of Hedge Fund Holders: 12
Navitas Semiconductor Corp (NASDAQ:NVTS) is a leading manufacturer of gallium nitride (GaN) semiconductors. The company went public in October 2021 and has since been closely watched by Wall Street experts. The stock is attracting multiple “Buy” ratings from financial analysts and is one of the top small-cap stocks with high upside potential. This May, Deutsche Bank analyst Ross Seymore trimmed his price target on Navitas Semiconductor Corp (NASDAQ:NVTS) to $9 from $13 but maintained a Buy rating on the shares following the company’s strong Q1 performance. Seymore slashed his price target to reflect near-term COVID lockdown headwinds impacting the global semiconductor industry, but remains optimistic and sees these headwinds transform into stronger tailwinds.
This May, Navitas Semiconductor Corp (NASDAQ:NVTS) announced the successful completion of a 50 million unit order to Vivo, an emerging Chinese technology company, and reported having zero GaN-related field failures.
On May 12, Navitas Semiconductor Corp (NASDAQ:NVTS) reported earnings for the fiscal first quarter of 2022. The company reported revenues of $6.7 million, up 26.4% year over year, and issued guidance, viewing Q2 2022 revenues to range between $8.0 million and $9.0 million, and full-year 2022 net revenues to record a two-fold increase compared to 2021.
According to Insider Monkey’s database, 12 hedge funds were long Navitas Semiconductor Corp (NASDAQ:NVTS) with stakes worth $63.8 million at the end of the fourth quarter of 2021.
Baron Funds, an asset management firm, explained why Navitas Semiconductor Corp (NASDAQ:NVTS) “will continue to see growth” in its fourth-quarter 2021 investor letter. Here is what the firm said:
“Navitas Semiconductor Corporation is the industry leader in gallium nitride (“GaN”) power semiconductors. The company’s shares rose during the quarter after its SPAC transaction closed. Navitas is seeing strong momentum in its mobile charger and consumer business driven by its monolithically integrated GaN power ICs (full power systems on a single chip), which provide greater reliability and performance compared to competitors that supply discrete power devices (that require multiple power components to create a system). The company also released its initial sample products for higher power end markets in data center, renewable energy, and automotive, which remain on track to generate revenues in the coming years. We believe that Navitas will continue to see strong growth by leveraging its unique technology to maintain leading share of the GaN power semiconductor market, which is expected to grow rapidly in the coming years driven by GaN’s improved efficiency compared to silicon, generating energy and cost savings for customers.”
9. Talos Energy, Inc. (NYSE:TALO)
Number of Hedge Fund Holders: 14
Talos Energy, Inc. (NYSE:TALO) is an emerging oil and gas exploration company with operations in the United States Gulf of Mexico and offshore Mexico. The company is partnering up with leading oil and gas giants and on May 3, 2022, Talos Energy, Inc. (NYSE:TALO) signed an MOU with Chevron Corporation (NYSE:CVX) for an expanded joint venture to develop the Bayou Bend CCS offshore carbon capture and sequestration hub currently held by Talos Energy, Inc. (NYSE:TALO). Talos Energy, Inc. (NYSE:TALO) is making strides in the energy sector and is on a path to benefit from soaring crude oil prices, making it a top small-cap stock with high upside potential.
On April 13, Stephens analyst Cameron Lochridge initiated coverage of Talos Energy, Inc. (NYSE:TALO) with an Overweight rating and a $28 price target. Lochridge contended that Talos Energy, Inc. (NYSE:TALO) is uniquely positioned to benefit from its operations in the U.S. Gulf of Mexico and offshore Mexico. The analyst further added that the company’s oil and gas operations paired with its carbon capture joint ventures offer an attractive upside, and named the stock a “Best Idea”.
On May 4, Talos Energy, Inc. (NYSE:TALO) posted market-beating earnings for the fiscal first quarter of 2022. The company reported earnings per share of $0.77 and outperformed EPS estimates by $0.32. The company’s revenues came in at $413.57 million, up 54.37% year over year, and beat estimates by $74.92 million. Moreover, as of May 18, Talos Energy, Inc. (NYSE:TALO) has surged 51.63% over the past twelve months.
At the end of the fourth quarter of 2021, 14 hedge funds were long Talos Energy, Inc. (NYSE:TALO) with stakes worth $39.99 million in the company. As of March 31, Millennium Management is the leading stakeholder in Talos Energy, Inc. (NYSE:TALO) with stakes worth $52.85 million, up 349% from the fund’s Q4 2021 stakes.
8. Clearfield, Inc. (NASDAQ:CLFD)
Number of Hedge Fund Holders: 14
Clearfield, Inc. (NASDAQ:CLFD) manufactures, markets, and sells standard and custom passive connectivity products to the fiber-to-the-premises, enterprises, and original equipment manufacturers markets in the United States and internationally. The company is dedicated to expanding its footprint in the fiber optics sector and is making progress. On May 16, Clearfield, Inc. (NASDAQ:CLFD) announced its plans to acquire Finnish company Nestor Cables Ltd, a leading developer, and manufacturer of fiber optic cable solutions. The transaction is expected to close in the latter half of 2022 and is valued at $23 million. Clearfield, Inc. (NASDAQ:CLFD) believes this acquisition will drive further business growth and help the company gain market share, making the stock a top small-cap stock with high upside potential.
On April 28, 2022, Clearfield, Inc. (NASDAQ:CLFD) reported earnings for the fiscal second quarter of 2022. The company registered an EPS of $0.66 and outperformed market consensus by $0.16. Clearfield, Inc. (NASDAQ:CLFD) saw quarterly revenues grow by a hefty 80.17% year over year and generated sales of $53.50 million for the quarter, exceeding market consensus by $9.40 million. Moreover, as of May 18, the stock has surged 46.44% over the past twelve months.
Shortly after Clearfield, Inc. (NASDAQ:CLFD) posted a strong quarter, Northland analyst Tim Savageaux raised his price target on Clearfield, Inc. (NASDAQ:CLFD) to $78 from $73 and reiterated an Outperform rating on the shares. The analyst sees a multi-year cycle of significant growth for the company based on its performance, raised guidance, and strong reports from competitors and peers Corning Incorporated (NYSE:GLW) and Calix Inc. (NYSE:CALX).
By the end of the fourth quarter of 2021, 14 hedge funds were long Clearfield, Inc. (NASDAQ:CLFD) with stakes worth $140.25 million. This is compared to 14 positions in the preceding quarter with stakes of $80.81 million. The hedge fund sentiment for the stock is positive.
As of the end of this March, Atika Capital is the dominating shareholder in Corning Incorporated (NYSE:GLW). The fund’s stakes were valued at $25.82 million which covers 2.17% of its 13F portfolio.
7. Canadian Solar Inc. (NASDAQ:CSIQ)
Number of Hedge Fund Holders: 18
Canadian Solar Inc. (NASDAQ:CSIQ) is a leading global designer and manufacturer of solar ingots, wafers, cells, modules, and other solar power and battery storage products. The stock is ranked among the top 10 small-cap stocks with the highest upside potential because it is making strides in the energy space and gaining popularity among financial experts and veteran investors.
Analysts are bullish on Canadian Solar Inc. (NASDAQ:CSIQ) and see the stock gaining more market share. This March, Citi analyst and head of investor relations J.B. Lowe raised his price target on Canadian Solar Inc. (NASDAQ:CSIQ) to $45 from $40 and reiterated a Buy rating on the shares.
This April, Canadian Solar Inc. (NASDAQ:CSIQ) announced a strategic partnership with Matrix Renewables, an emerging energy player in the U.S., in which both companies will be developing the Gaskell West 2 and 3 Project in California. The Gaskell West 2 and 3 Project has 5 long-term power purchase agreements with cities and utilities in California and contains over 105 MWac and 80 MWh in energy storage. Construction for the project is expected to take off in late 2022.
Canadian Solar Inc. (NASDAQ:CSIQ) just added another long-term project to its FY22 pipeline. On May 9 Canadian Solar Inc. (NASDAQ:CSIQ) announced that it has secured a 100 MWh EPC contract in the UK to provide integrated energy storage systems and engineering, procurement, and construction services at four battery storage projects that are owned and operated by Pulse Clean Energy, a prominent energy services company in the UK.
Canadian Solar Inc. (NASDAQ:CSIQ) is also gaining popularity among institutional investors. At the end of Q4 2021, 18 hedge funds were long Canadian Solar Inc. (NASDAQ:CSIQ) with stakes worth $39.52 million. This is compared to 12 hedge funds in the prior quarter with stakes of $35.73 million.
Millennium Management is the most bullish hedge fund on Canadian Solar Inc. (NASDAQ:CSIQ). The fund upped its Q4 2021 stakes by an astounding 392%, bringing its Q1 2022 stakes to $7.75 million in the company.
With the worldwide adoption of solar solutions to meet energy demands, Canadian Solar Inc. (NASDAQ:CSIQ) is bound to explode in the near term as the company is leading in the space and is attracting investors. Other top stock picks among elite hedge funds and financial analysts include Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL).
6. Materion Corporation (NYSE:MTRN)
Number of Hedge Fund Holders: 18
Materion Corporation (NYSE:MTRN) is a global manufacturer of high-performance engineered materials that are used in the semiconductor, industrial, aerospace and defense, automotive, and energy sectors. Materion Corporation (NYSE:MTRN) is becoming a prominent name among wall street analysts and investors. By the end of Q4 2021, 18 hedge funds held stakes in the company, up from 14 hedge funds in the third quarter of 2021. Moreover, this March CJS Securities analyst Daniel Moore initiated coverage of Materion Corporation (NYSE:MTRN) with an Outperform rating and a $120 price target.
On April 28, 2022, Materion Corporation (NYSE:MTRN) posted gains for the fiscal first quarter of 2022. The company reported earnings per share of $1.08 and beat EPS expectations by $0.03. The company’s revenues grew by 26.71% year over year and came in at $449.05 million, exceeding market expectations by $34.01 million. The company also reportedly raised its FY 2022 EPS guidance to a range between $5.50 and $5.90, which is compared to a consensus EPS of $5.00. The company’s raised financial guidance reflects continued strong consumer demand, organic sales growth, and the expected full-year impact of the company’s newly acquired subsidiary, HCS-Electronic Materials, some of the factors that make it a small-cap stock exhibiting high upside potential.
In addition to producing robust financial statements and raised financial guidance, Materion Corporation (NYSE:MTRN) is a young dividend-paying company and has been consistently raising its dividends for over 9 years. On May 4, Materion Corporation (NYSE:MTRN) declared its second-quarter 2022 dividend of $0.125 per share of common stock, up 5% from its prior dividend of $0.120. The dividend is payable on June 16, 2022, to investors of record on May 27, 2022. As of May 18, the stock has a forward yield of 0.61% and has gained 5.21% over the past twelve months.
As of March 31, 2022, ACK Asset Management is the leading shareholder in Materion Corporation (NYSE:MTRN) with stakes of $35.98 million in the company. The investment represents 7.8% of the fund’s 13F portfolio.
Materion Corporation (NYSE:MTRN) is exhibiting the potential to explode into a large-cap stock. Some of the top large-cap companies hedge funds are bullish on are Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL).
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Disclose. None. Top 10 Small-Cap Stocks With Highest Upside Potential is originally published on Insider Monkey.
