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10 Best Small-Cap Stocks to Buy According to Hedge Funds

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·8 min read
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In this article, we will take a look at the 10 best small-cap stocks to buy according to hedge funds. You can skip our detailed analysis of the small-cap stocks and go directly to the 5 Best Small-Cap Stocks to Buy According to Hedge Funds.

As governments around the world begin to vaccinate millions of people, markets are slowly but surely coming back to normal. Small-cap stocks, which proved their mettle even in the midst of the pandemic, remain on investors' radar. At the end of June, the Russell 2000 index of small-cap stocks posted its ninth consecutive month of gains, according data from Dow Jones. Since September 2020, the index has gained 49%, while the S&P 500 benchmark of large-cap stocks was up 30% in the same period.

What makes an average investor successful in the long run is their ability to spot great stocks before they become famous and expensive. For example, Facebook, Inc. (NASDAQ: FB), which trades at around $360 today, was trading at $38 in 2012. Similarly, Amazon.com, Inc. (NASDAQ: AMZN), which is trading at $3292 today, was hovering $20 back in 1998.

Our Methodology:

In this article, we will mention 10 notable small-cap stocks based on our data of 866 hedge funds. These are some of the most popular small-cap stocks among the hedge funds tracked by Insider Monkey. We also took into account long-term growth potential, analyst ratings and fundamentals of these stocks. We ranked these stocks based on the number of hedge funds having stakes in them.

Why pay attention to hedge fund sentiment while choosing stocks?

Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Photo by Austin Distel on Unsplash

Best Small-Cap Stocks to Buy According to Hedge Funds

10. Citi Trends, Inc. (NASDAQ: CTRN)

Market Cap: $706.5 million Number of Hedge Fund Holders: 24

Citi Trends, Inc. (NASDAQ: CTRN) is an American retail company that sells clothes at discounted prices. The company targets the audience specifically from urban areas. Citi Trends, Inc. (NASDAQ: CTRN) has over 570 stores located in 33 U.S. states.

In Q1 2021, Citi Trends, Inc. (NASDAQ: CTRN) generated revenue of $285.4 million, compared with $116.1 million during the same period last year. The company also reported a 142% year-over-year growth in comparable-store sales. Citi Trends, Inc. (NASDAQ: CTRN) raised its guidance for FY21 and expects revenue in the range of $970 million to $990 million.

In May, Craig-Hallum raised its price target on Citi Trends, Inc. (NASDAQ: CTRN) to $150, with a ‘Buy’ rating on the shares. The firm appreciated the company’s transformation from a value stock to a growth stock and expects an EPS to grow at a CAGR of 25% in the upcoming years. In the past year, Citi Trends, Inc. (NASDAQ: CTRN) has delivered a 292.3% return to shareholders.

As of Q1 2021, 24 hedge funds tracked by Insider Monkey have positions in Citi Trends, Inc. (NASDAQ: CTRN), up from 19 in the previous quarter. The total value of these stakes is $170.7 million.

Like Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Hostess Brands, Inc. (NASDAQ: TWNK), Bloomin’ Brands, Inc. (NASDAQ: BLMN) and Cowen Inc. (NASDAQ: COWN), Citi Trends, Inc. (NASDAQ: CTRN) is popular among hedge funds.

9. Xenon Pharmaceuticals Inc. (NASDAQ: XENE)

Market Cap: $765 million Number of Hedge Fund Holders: 27

Xenon Pharmaceuticals Inc. (NASDAQ: XENE) is a Canadian biopharmaceutical company that specializes in therapeutics for patients with neurological disorders. The company pays special focus to channelopathies, a condition caused due to defects in ion channels.

In Q2 2021, Xenon Pharmaceuticals Inc. (NASDAQ: XENE) reported revenue of $2.2 million. The company reported research and development expenses of $18.4 million due to the increased spending on the clinical development of neuro-related drugs. In May, SVB Leerink lifted its price target on Xenon Pharmaceuticals Inc. (NASDAQ: XENE) to $28, with a ‘Buy’ rating on the shares. In the past year, Xenon Pharmaceuticals Inc. (NASDAQ: XENE) gained 66.04% and 26.7% year to date.

The number of hedge funds having stakes in Xenon Pharmaceuticals Inc. (NASDAQ: XENE) in Q1 2021 grew to 27 from 25 in the previous quarter. The total value of these stakes is $385.3 million.

8. Cowen Inc. (NASDAQ: COWN)

Market Cap: $1.1 billion Number of Hedge Fund Holders: 27

Cowen Inc. (NASDAQ: COWN) is an American investment bank and financial services company. The bank focuses on providing value-added capabilities to clients to help them to outperform. Cowen Inc. (NASDAQ: COWN) was founded in 1918 and is headquartered in New York.

In Q2 2021, Cowen Inc. (NASDAQ: COWN) reported a net income of $50.8 million and an EPS of $1.50, beating the consensus by $0.20. The consolidated revenue stood at $381.5 million. In the second quarter, Cowen Inc. (NASDAQ: COWN) repurchased shares worth $49.9 million and the company’s board announced the quarterly dividend of $0.10 per share. In May, JMP Securities lifted its price target on Cowen Inc. (NASDAQ: COWN) to $60, with a ‘Buy’ rating on the shares. Cowen Inc. (NASDAQ: COWN) gained over 134.2% in the past year and 56.7% year to date.

As of Q1 2021, 27 hedge funds tracked by Insider Monkey have positions in Cowen Inc. (NASDAQ: COWN), as compared with 25 in the previous quarter. Fisher Asset Management is the company’s leading shareholder, with shares worth $5.79 million.

Like Hostess Brands, Inc. (NASDAQ: TWNK), Aclaris Therapeutics, Inc. (NASDAQ: ACRS), Bloomin’ Brands, Inc. (NASDAQ: BLMN), Turning Point Brands, Inc. (NYSE: TPB), and Clear Channel Outdoor Holdings, Inc. (NYSE: CCO), Cowen Inc. (NASDAQ: COWN) is one of the best small-cap stocks to buy according to hedge funds.

7. Tenneco Inc. (NYSE: TEN)

Market Cap: $1.41 billion Number of Hedge Fund Holders: 28

Tenneco Inc. (NYSE: TEN) is an American company that designs and manufactures automotive products for aftermarket customers. The company has operations in over 270 sites located worldwide. Tenneco Inc. (NYSE: TEN) brings technology solutions to enhance advancements in global mobility.

In Q2 2021, Tenneco Inc. (NYSE: TEN) reported revenue of $4.6 billion, up 74% year-over-year. The net income for the quarter was recorded at $69 million, with an EPS of $0.84. For FY21, Tenneco Inc. (NYSE: TEN) expects revenue of between $18.3 billion-$18.6 billion. In June, Wells Fargo showed confidence in the company’s future earnings and also indicated a significant upside. The firm lifted its price target on Tenneco Inc. (NYSE: TEN) to $25, with an ‘Overweight’ rating on the shares. In the past year, Tenneco Inc. (NYSE: TEN) has soared by 90.1%.

The number of hedge funds having stakes in Tenneco Inc. (NYSE: TEN) as of Q1'2021 grew to 28 from 25 in the previous quarter. The total value of these stakes is $196.4 million. Icahn Capital LP is the company’s leading shareholder with 9.5 million shares, worth $102.8 million.

Like Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Hostess Brands, Inc. (NASDAQ: TWNK), Bloomin’ Brands, Inc. (NASDAQ: BLMN) and Cowen Inc. (NASDAQ: COWN), Tenneco Inc. (NYSE: TEN) is popular among hedge funds.

6. Dine Brands Global, Inc. (NYSE: DIN)

Market Cap: $1.3 billion Number of Hedge Fund Holders: 28

Dine Brands Global, Inc. (NYSE: DIN) is an American food and dining company that franchises two of the most famous brands, IHOP and Applebee’s International, Inc. Dine Brands Global, Inc. (NYSE: DIN) has over 3,500 restaurants in more than 16 countries.

Dine Brands Global, Inc. (NYSE: DIN) reported solid earnings in Q2 2021. The company generated $233.6 million in revenue, up from $109.7 million during the same period last year. The EPS of $1.94 beat the consensus by $0.27. Franchise revenue accounted for $177 million of the gross revenue.

Recently, Deutsche Bank upgraded Dine Brands Global, Inc. (NYSE: DIN) to ‘Buy’ with a $93 price target. The bank appreciated the company’s strong earnings and expects a recovery in dine-in sales. Since the beginning of the year, Dine Brands Global, Inc. (NYSE: DIN) has delivered a 33% return to shareholders and has gained 44.9% in the past year.

As of Q1 2021, 28 hedge funds have positions in Dine Brands Global, Inc. (NYSE: DIN), up from 26 in the previous quarter. The total value of these stakes is $248.9 million.

Like Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Hostess Brands, Inc. (NASDAQ: TWNK), Bloomin’ Brands, Inc. (NASDAQ: BLMN) and Cowen Inc. (NASDAQ: COWN), Dine Brands Global, Inc. (NYSE: DIN) is popular among hedge funds.

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Disclosure. None. 10 Best Small-Cap Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.