Small Cap Stocks

What are Small-Cap Stocks?

Small-cap stocks refer to stocks of relatively small companies that have value also known as market capitalization in between US dollar three hundred million to the dollar two billion, and it comprises of investors which have chances of high return and high risk and they are outperforming large-cap stocks.

These stocks have a lower market price and have easier access to funds required for growth. They do reasonably well in an economic recovery but are also the riskiest during an economic downturn.

Small-cap stocks are more likely to fail in a recessionary scenario as they may not have large businesses to survive and are the first to get hit in stressful situations. As a result, investors should constantly re-allocate such stocks depending on the economic situation prevailing.

Small-Cap Stocks List & Examples

Small Cap Stock

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Source: Small Cap Stocks (wallstreetmojo.com)

Some examples of these small-cap stocks list in the U.S. are:

S. NoNameMarket Cap ($ Million)
1Catalyst Biosciences 300.2
2NeoPhotonics 300.7
3GenMark Diagnostics300.7
4Rockwell Medical 300.8
5Quintana Energy Services 301.0
6First Bancorp301.1
7NantKwest 301.1
8Resource Capital 301.3
9Bellicum Pharmaceuticals 301.5
10BSB Bancorp301.5
11Tsakos Energy Navigation 301.6
12Westport Fuel Systems  301.9
13Celldex Therapeutics 303.3
14GNC Holdings  303.7
15Aquinox Pharmaceuticals304.2
16Noodles304.4
17First Internet304.5
18Invitae304.5
19Sterling Construction305.0
20BankFinancial 305.2

Why Invest in Small-Cap Stocks?

#1 – Performance

These cap stocks have historically known to outperform the large-cap stocks in the past, especially in the U.S., when such stocks gained prominence post the dot-com bubble. Such companies tend to be aggressive players and explore new opportunities for stabilizing their situation.

#2 – Growth Potential

These stocks have a high potential for growth and come up with innovative business strategies. Since many of them are then infancy stages, they do not hesitate to take risks as growth prospects are measured based on innovation ability.

#3 – Price Advantage

One of the benefits of such investments is that the stocks provide high returns and volatility. It gives the investor the opportunity to extract maximum benefit if potential exists before others can enter. If a particular stock goes skyrocketing, investors have much room for huge returns in the future.

#4 – Lack of Coverage

These stocks do not catch the attention of the analysts in com/parison to the large-cap ones. Many such stocks have high growth potential and could be waiting for the right time to be showcased. This lack of coverage is a tremendous opportunity for investors willing to stay in the long-run.

Small Caps Stocks Impact On Economy

The small caps are critical for the functioning of the economy as well as essential options for investors due to the following reasons:

Benefits of New U.S. Corporate Tax Law

How to Identify Suitable Small-Cap Stocks

  1. Search for Paradigm shifts that are opening up new opportunities: One such example was the move from a Mainframe computer environment to the Personal computer environment or the move from CD to DVD format.
  2. Consider investment only when the market opportunity is huge and quantifiable: This will give them an opportunity to establish themselves and take a large market share. Large medical patient populations and new technology users are instances of vast market targets.
  3. Invest in small-cap stocks before the Large Institutions set their Eyes: The strategy here is that subsequent investments by institutions will push up the value of the stock.
  4. Consider the investment in stocks that offer Value and Growth: The firms may have growth-oriented ideas, but its valuation must be reasonable as compared to their peers. From a financial perspective, it should have a Balance Sheet with sufficient cash balances and minimum debt obligations. It will offer the comfort that companies can survive in unforeseen circumstances.
  5. Avoid Big Losses: Though these stocks tend to be volatile and can face losses, the point is to avoid any repeated or catastrophic losses. The critical component is to determine if the fall is due to a fundamentally negative event or trend which undermines the company’s long-term potential or if it is market turbulence. It is here that the fundamental of the firm comes into the picture. If the culture and business model is strong, there is a good possibility of attracting lucrative investments.

This article has been a guide to what is small-cap stocks? Here we also discuss small-cap stock examples, why invest in such stocks, and how to identify such stocks for profitable opportunities. you may also have read through our following articles on corporate finance –

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