Top 4 Small-Cap Growth Stocks to Give Your Portfolio an Edge
Small-cap growth stocks can be attractive to investors for a number of reasons. Chief among those qualities is the fact that, as their name implies, these stocks have the potential to grow at a higher rate. That’s relative to their larger, more established counterparts.
Of course, that doesn’t mean small-cap growth stocks are without their drawbacks. These stocks can also be more volatile, and the companies they represent are more likely to fail entirely. Nevertheless, these stocks can give your portfolio an edge and boost returns.
Here are some of the best small-cap growth stocks to buy right now:
- ACM Research Inc. (Nasdaq: ACMR)
- BRP Group Inc. (Nasdaq: BRP)
- Carparts.com (Nasdaq: PARTS)
- Cassava Sciences Inc. (Nasdaq: SAVA)
What Are Small-Cap Growth Stocks?
To understand what small-cap growth stocks are, you must know there are two parts here: small-cap and growth. A small-cap is a company with a market capitalization between $300 million and $2 billion. Occasionally, a company you see on one of these lists might be above the $2 billion mark. But because their prices can be volatile, they may settle back into the small-cap range.
The definition of “growth” is less tangible. Simply put, analysts predict that small-cap growth stocks will grow at a rate faster than other small caps. These stocks tend not to pay dividends, as that money is used instead for research and development. They invest in other activities that might help grow the company at a higher rate.
All in all, small-cap growth stocks can provide higher returns, but they can also be more volatile. Thus, investors should weigh their performance against increased risk and balance them with more reliable blue-chip stocks.
Best Small-Cap Stocks to Buy
ACM Research’s tagline is “smarter megasonic wafer cleaning.” If that sounds like some nonsensical technical jargon, don’t worry; ACM has an investor overview that makes things a bit simpler. As described on this page, the company develops wet processing technology and products for the semiconductor industry. In other words, ACM develops cleaning technology for semiconductor chips. Semiconductors have been in short supply lately, meaning there is always someone trying to get their hands on them.
Overall, the semiconductor industry can be a great place to invest. If you’re looking for even more investing opportunities, check out these top semiconductor stocks.
BRP Group is an insurance distribution holding company. It provides a wide range of insurance products, including private risk management, home, auto, and life insurance, and Medicare. The company recently announced a collaboration to offer directors and officers insurance. This type of insurance covers business managers in the event of an employee taking legal action against them. BRP is fast-growing and has made several acquisitions recently.
As you probably guessed, Carparts.com sells car parts. Formerly known as US Auto Parts, Carparts.com is yet another company that has done very well during the COVID-19 pandemic. Given that used car sales were up 97% in April 2021 compared to the prior year, it probably makes sense that a company that sells car parts is booming. Indeed, business is growing fast for Carparts.com. The company also looks to continue its rapid growth beyond the pandemic.
The auto industry is going through some big changes. And there are many investing opportunities such as these EV stocks. Investors might see some bigger returns down the road.
Cassava Sciences is a biopharmaceutical company. It develops drugs using its own, proprietary technology. Specifically, its mission is to detect and treat Alzheimer’s disease. It wants to make detecting Alzheimer’s as simple as getting a blood test. At the moment, its market cap is around the upper threshold of small-cap, but it is still a relatively small company. However, this small company is growing fast.
Are Small-Cap Growth Stocks a Good Investment?
Small-cap growth stocks certainly can be a good investment. However, you must be okay with the idea that these stocks can be more volatile than blue-chip stocks. But because these are smaller companies, they may have more potential to grow in the long term.
Thus, owning small-cap growth stocks might boost your overall returns if you are willing to hold them for several years. That not only lessens the impact of short-term fluctuations but also gives your shares a chance to grow more in the long term.
Small-cap growth stocks might be an especially good buy right now. These stocks as a whole have been outpacing the Dow Jones, for example. This is normal, as small-cap stocks tend to perform well early in an economic cycle. As the U.S. finds itself emerging from the COVID-19 pandemic, markets are rebounding, and investors are more willing to bet on smaller companies.
So although small-cap stocks do come with increased risk, right now is a good time to consider them. Plus, they may have a higher upside in the long run. Hence, they can be invaluable for your larger portfolio and give you some additional performance.
If you’re looking for even better investing opportunities, consider signing up for Liberty Through Wealth. It’s a free e-letter that’s packed with investing insight. You’ll hear directly from Alexander Green, a bestselling author. He’s also worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years.
About Bob Haegele
Bob Haegele is a personal finance writer who specializes in investing and planning for retirement. His hefty student loan burden inspired him to pay off his loans, and now he’s helping others get their finances in order. When he’s not writing, he enjoys travel and live music.