While your typical financial advisor will likely direct you to focus on established blue chips to boost your holdings, few other compelling options exist other than powerful small-cap stocks. To be 100% clear, entities that offer significant upside reward potential usually carry significant risks. You want to be careful about diving into this space.
That said, small-cap market leaders provide many advantages. Sure, they may lack the capitalization of their blue-chip peers. However, it doesn’t take much for these securities to start moving robustly higher. On the flipside, with stocks tethered to mature, established businesses, you must put in a lot of money to see solid nominal gains.
However, just because a company ranks among the heavyweights does not mean they’re immune to downside. Quite the contrary, institutional investors can rush out of these names during a sector-wide correction.
Of course, as stated earlier, smaller enterprises tend to be riskier due to their less-predictable nature. But if you’re patient and seeking greater wealth acceleration, these powerful small-cap stocks might fit the bill.
UTZ Brands (UTZ)
What it is: As a producer and distributor of snacks, UTZ Brands (NYSE:UTZ) might not seem like the most exciting candidate for powerful small-cap stocks to buy. However, with economic conditions starting to fade (as evidenced by declining demand for luxury discretionary items), more people may look to the grocery aisle for “culinary” therapy.
Relevance: At the moment, UTZ Brands features a market cap of a bit over $2 billion, which is right on the cusp of breaking into mid-cap territory. Also, it’s almost down double digits since the beginning of the year, which might give investors pause. Still, the global snacks market size comes in at $1.48 trillion (as of last year). Further, the sector should expand at a compound annual growth rate (CAGR) of 2.8%.
Pros: Basically, UTZ doesn’t need to dominate the snacks market; just a solid nibble, and UTZ can start marching higher. Per analysts, UTZ is a consensus moderate buy with an average price target of $15.56. That should get the ball rolling.
Cons: To be sure, the competition is stiff so that’s something to watch out for. Also, it’s pricey, with shares trading at 66.2x trailing-year earnings.
Archer Aviation (ACHR)
What it is: One of the top manufacturers in the burgeoning industry of electric vertical takeoff and landing (eVTOL) aircraft, Archer Aviation (NYSE:ACHR) aims to revolutionize clean mobility. Right now, the company carries a market cap of $1.97 billion and it may soon graduate to mid-cap territory. Since the start of the year, ACHR gained 239%, putting in a blistering performance.
Relevance: Archer is locked in heavy competition with other eVTOL manufacturers. However, it appears to be one of the small-cap market leaders in its field. If it maintains its dominance, ACHR could easily add to its return. According to Aviation Week, experts project that the industry will deliver more than 1,000 eVTOL aircraft by 2030. By 2040, this figure could expand to over 10,000 deliveries.
Pros: Thanks to its key partnerships and focused business directive, Archer commands confidence among Wall Street experts. Analysts peg shares as a consensus strong buy with an $8.13 average price target. Further, various experts predict air mobility services as the next big thing.
Cons: Like anything innovative, you’re largely dealing with a narrative as Archer is a pre-revenue enterprise.
Green Plains (GPRE)
What it is: An enticing idea among powerful small-cap stocks, Green Plains (NASDAQ:GPRE) ties into the clean energy industry. Specifically, its public profile states that Green Plains represents the third-largest ethanol fuel producer in North America. Presently, the company carries a market cap of $1.56 billion. However, GPRE is attempting to break out of a downcycle.
Relevance: With the broader political and ideological machinery pushing for clean or alternative energy solutions, GPRE may be one of the compelling small-cap market leaders. According to Precedence Research, the global ethanol market reached a valuation of just over $99 billion in 2022. By 2032, the sector could hit a value of $162.12 billion. If so, that would represent a CAGR of 5.1% from 2023.
Pros: Right now, analysts rate GPRE as a consensus strong buy with a $39.71 average price target. Also, the company only needs to grab modest market share for GPRE to possibly shoot higher.
Cons: Frankly, as with many other small-cap stocks, investors will have to plug their nose regarding the financials. Investment data aggregator Gurufocus posts several warnings about Green Plains.
Talos Energy (TALO)
What it is: An oil and gas company, Talos Energy (NYSE:TALO) engages in the exploration, development and production of oil and natural gas properties (called upstream), which are located in the Gulf Coast and the Gulf of Mexico. As alluded to earlier, the shift toward alternative energy sources might appear to make hydrocarbons anachronistic. However, few resources command as much energy density as fossil fuels.
Relevance: As much as electric vehicles may be the future of mobility and transportation, most people depend on combustion-powered vehicles. Depending on economic conditions as well as the security of EV-related supply chains, adoption could be a huge problem. Realistically, hydrocarbons should have a longer-than-expected lease on life. Thus, TALO is worth consideration for powerful small-cap stocks.
Pros: While Wall Street may be talking a good game about EVs and green energy, they also appreciate Talos. Presently, shares carry a unanimous strong buy assessment. Further, the average price target lands at $21.33, implying significant upside potential from here.
Cons: One look at TALO’s chart and you can see how volatile it is. Also, it’s a bit pricey, trading at 13.17x trailing earnings (compared to the sector median of 9.26x).
Compass Minerals (CMP)
What it is: An interesting idea for powerful small-cap stocks (but only if you’re the speculative type), Compass Minerals (NYSE:CMP) is a leading producer of essential minerals. Per its public profile, these minerals include salt, magnesium chloride, and sulfate of potash. While it’s not the most exciting business, Compass empowers multiple industries.
Relevance: While it’s a matter that’s often taken for granted, essential minerals are vital for infrastructure. For instance, just the global industrial salt market will reach a valuation of $14.7 billion by the end of 2023. Further, experts project that this segment will expand at a CAGR of 4% from 2023 to 2033. That translates to a projected market value of $21.8 billion.
Pros: As with other small-cap market leaders, Compass only needs to grab a reasonable share to likely see CMP shoot up. Also, analysts like the business, rating shares a moderate buy with a $40.40 average price target.
Cons: Unfortunately, CMP is extremely volatile as you can see from its chart. Plus, broader economic headwinds and even uncontrollable factors such as unusual weather patterns could negatively affect the business.
OmniAb (OABI)
What it is: Headquartered in Emeryville, California, OmniAb (NASDAQ:OABI) provides its pharmaceutical industry partners access to the most diverse antibody portfolio. As well, it offers cutting-edge screening technologies to enable the discovery of next-generation therapeutics. With the biotechnology field rapidly expanding and delivering groundbreaking solutions, OABI could be one of the most powerful small-cap stocks.
Relevance: One of the main benefits of OABI is the pertinence of the underlying industry. No matter what the economic conditions, society will invest in finding effective solutions to various diseases and conditions. Further, Precedence Research states that the global research antibodies market size reached a valuation of $4 billion last year. It’s also projected to hit a value of $6.54 billion by 2032.
Pros: Again, the speculative argument calls for OmniAb to grab a bite out of its core market. Analysts are in unanimous agreement that the company can accomplish this, pegging OABI a strong buy with a $9.29 target.
Cons: Like other small-cap stocks in the biotech-related field, volatility is a concern. Also, revenue growth has been slipping recently, warranting a closer examination.
Planet Labs (PL)
What it is: One of the more intriguing (and arguably realistic) players within the burgeoning space economy, Planet Labs (NYSE:PL) operates a constellation of nanosatellites to collect and analyze Earth observation data. Further, various publications have used the company’s services to investigate global developments. Thus, it offers practical utility, not just theoretical musings.
Relevance: Fundamentally, all eyes are centered on the space economy. According to McKinsey & Company, this sector has recently jumped in valuation to $447 billion. That’s up from $280 billion in 2010. Even better, experts project that the industry could hit $1 trillion by 2030. As mentioned above, Planet Labs has the advantage of owning a portfolio of actual uses, making it one of the most powerful small-cap stocks.
Pros: Analysts believe in the bullish narrative for PL, rating the stock a consensus strong buy. Also, the average price target clocks in at $4.92, implying a triple-digit percentage return.
Cons: As much as we would love to believe that space is the final frontier, the market isn’t showing it right now. In the past 52 weeks, PL lost about 53% of equity value.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
