11 Best Small-Cap Growth Stocks to Invest In
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In this piece, we will take a look at the 11 best small-cap growth stocks to invest in. If you want to skip our primer about the benefits and drawbacks of investing in small cap stocks, then you can take a look at the 5 Best Small-Cap Growth Stocks to Invest In.
The small cap sector of the stock market gets significantly lower coverage than compared to mega caps such as Apple and Microsoft. This is understandable since the latter category of stocks are of big companies that are global brand names. However, the sizeable nature of mega caps renders them weak when we consider the potential for returns. While there are some exceptions, higher share prices mean that not only is a stock less likely to make high double or triple digit percentage returns, but also since the stock is too expensive, there will be limited liquidity despite the fact that several shares are also sold in units.
On the flip side, small cap stocks, which are those with a market capitalization less than $2 billion, come with their own set of risks. These are smaller firms, with balance sheets unlikely to cross a billion dollars in total assets. Naturally, their size is due to the fact that when compared to firms such as the semiconductor firm AMD or the consumer defensive retail giant Walmart Inc. (NYSE:WMT), small cap stocks often have markets that are geographically limited.
A great example of this bifurcation in market size that also contributes to sizeable differences in market value is the financial services industry. With this industry, we have large caps such as the world's largest private bank in terms of assets, the New York City banking behemoth JPMorgan Chase & Co. (NYSE:JPM) as well as small cap banks such as the Miami Lakes, Florida based regional bank BankUnited, Inc. (NYSE:BKU). The sizeable difference in these two banks, which both belong to the same industry but only the latter is a small cap stock is clear when we look at their total assets as of December 2023. JPMK503B
For JPMorgan, the world's biggest bank had unbelievable total assets of a stunning $3.6 trillion - larger than the assets of several countries. On the other hand, BankUnited's balance sheet totaled at $37 billion - or less than the total value of Elon Musk's Tesla, Inc. (NASDAQ:TSLA) stake.
Since investing in stocks is all about returns, the next step when analyzing small cap stocks is to see how their performance differs from large or mega cap behemoths. After all, the fact that JPMorgan's market capitalization sits at $504 billion while UnitedBank is worth $1.99 billion ought to influence returns in some way. Well, continuing with our take on the financial services small cap stocks, in terms of 12 month percentage share price gains, the top three financial services stocks as of recent share price performance are American Coastal Insurance Corporation (NASDAQ:ACIC), Prairie Operating Co. (NASDAQ:PROP), and CleanSpark, Inc. (NASDAQ:CLSK). Their shares have appreciated by 961%, 336%, and 374% over the past twelve months, in a nice set of results that eclipse the gains of the magnificent seven A.I. semiconductor stock darling NVIDIA Corporation (NASDAQ:NVDA).
Yet, when we look at the share price appreciation of large cap stocks in the financial services industry, the top three performers are Coinbase Global, Inc. (NASDAQ:COIN), Nu Holdings Ltd. (NYSE:NU), and First Citizens BancShares, Inc. (NASDAQ:FCNCA). Their share prices are up by 151%, 103%, and 93% over the past twelve months - confirming that small caps pack quite a punch in delivering returns. The significant difference in returns might be due to the fact that when valuations were accounted for, small caps were trading at a two decade high discount compared to large caps.
However, while the picture for price gains in small cap stocks is rosy, it comes with its own set of caveats. For instance, these companies often might face liquidity issues that could see the shares experience limited trading. Or, untoward economic events such as a recession or a crisis in the regional banking industry can dent their shares and wipe out the principal invested.
With these details in mind, let's take a look at some of the best small cap stocks that hedge funds are piling into. Within this list, the notable small cap names are ON Semiconductor Corporation (NASDAQ:ON), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Flex Ltd. (NASDAQ:FLEX).
Photo by Karolina Grabowska from Pexels
Our Methodology
To make our list of the best small cap stocks, we ranked the 100+ holdings of the Janus Henderson Triton Fund by the number of hedge funds that had bought the shares as of Q4 2023 end. Naturally, the small cap stocks with the highest number of hedge fund shareholders were chosen.
For these best small cap stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
11 Best Small-Cap Growth Stocks to Invest In
11. 89bio, Inc. (NASDAQ:ETNB)
Number of Hedge Fund Investors As Of Q4 2023 end: 30
89bio, Inc. (NASDAQ:ETNB) is a small biotechnology company that develops treatments for liver diseases and other ailments. It marks a strong start to our list of the best small cap growth stocks as the shares are rated Strong Buy on average and the average analysts share price target is $30.67.
As of Q4 2023 end, 30 out of the 933 hedge funds covered by Insider Monkey's research had bought and owned 89bio, Inc. (NASDAQ:ETNB)'s shares. Peter Kolchinsky's RA Capital Management was the firm's biggest hedge fund investor due to its $127 million stake.
Along with Neurocrine Biosciences, Inc. (NASDAQ:NBIX), ON Semiconductor Corporation (NASDAQ:ON), and Flex Ltd. (NASDAQ:FLEX), 89bio, Inc. (NASDAQ:ETNB) is a top small cap growth stock.
10. Globus Medical, Inc. (NYSE:GMED)
Number of Hedge Fund Investors As Of Q4 2023 end: 31
Globus Medical, Inc. (NYSE:GMED) is a medical device company whose products enable the proper functioning of the human musculoskeletal system. 2024 has been a dynamic year for the firm to say the least, as after it laid off employees following a merger, the firm added to the news by appointing a new chief financial and operations officer.
For their fourth quarter of 2023 shareholdings, 31 out of the 933 hedge funds tracked by Insider Monkey had bought the firm's shares. Globus Medical, Inc. (NYSE:GMED)'s largest hedge fund stakeholder is Stephen Dubois's Camber Capital Management as it owns 2.2 million shares that are worth $119 million.
9. Lantheus Holdings, Inc. (NASDAQ:LNTH)
Number of Hedge Fund Investors As Of Q4 2023 end: 42
Lantheus Holdings, Inc. (NASDAQ:LNTH) is a healthcare diagnostic materials products provider headquartered in Bedford, Massachusetts. Its shares are rated Strong Buy on average, and 2024 will be a crucial year for the firm as a new CEO takes over and looks to maintain strong earnings performance.
Insider Monkey scanned through 933 hedge fund portfolios for last year's fourth quarter and found 42 Lantheus Holdings, Inc. (NASDAQ:LNTH) investors. Ken Griffin's Citadel Investment Group owned the biggest stake among these which was worth $54.4 million.
8. Crown Holdings, Inc. (NYSE:CCK)
Number of Hedge Fund Investors As Of Q4 2023 end: 46
Crown Holdings, Inc. (NYSE:CCK) is one of the oldest companies on our list of the best small cap stocks since it was founded in 1892. It makes and sells packaging products all over the world. Its fourth quarter earnings, released in February 2024 left investors aghast as the shares tumbled by 21% in the aftermath. You can check out the earnings transcript to find out what happened.
46 out of the 933 hedge funds tracked by Insider Monkey during Q4 2023 had invested in the firm. The largest Crown Holdings, Inc. (NYSE:CCK) shareholder among these is Lauren Taylor Wolfe's Impactive Capital due to its $272 million investment.
ON Semiconductor Corporation (NASDAQ:ON), Crown Holdings, Inc. (NYSE:CCK), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Flex Ltd. (NASDAQ:FLEX) are some small cap growth stocks that hedge funds are piling into.
7. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Number of Hedge Fund Investors As Of Q4 2023 end: 50
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is an American software company whose products form the backbone of the financial services companies that rely on them. While the firm has struggled on the financial front as of late as it has not beaten analyst EPS estimates in any of its four latest quarters, Q4 2023 saw Richard Pzena's hedge fund increase its stake in the company by roughly $24 million.
During the same quarter, 50 out of the 933 hedge funds surveyed by Insider Monkey were the firm's shareholders. The largest shareholder among these was Richard S. Pzena's Pzena Investment Management as it owns $884 million worth of shares.
6. ImmunoGen, Inc. (NASDAQ:IMGN)
Number of Hedge Fund Investors As Of Q4 2023 end: 67
ImmunoGen, Inc. (NASDAQ:IMGN) is yet another biotechnology company to make it on our list of the best small cap stocks. It develops treatments for helping cancer patients, and the shares are rated Buy on average despite countless downgrades in December 2023 which followed an announcement that the pharma giant Abbvie would buy the firm.
Insider Monkey dug through 933 hedge fund portfolios for 2023's December quarter and found 46 ImmunoGen, Inc. (NASDAQ:IMGN) shareholders. Peter Kolchinsky's RA Capital Management was the biggest investor since it held a $704 million stake.
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Disclosure: None. 11 Best Small-Cap Growth Stocks to Invest In is originally published on Insider Monkey.