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20 Small-Cap Stocks With the Potential for Outsized Gains

Josh Enomoto

Some market components, such as small-capitalization companies, require little coaxing. Whether it’s their potential to produce incredible gains, or the chance to get in early on a burgeoning industry, small-cap stocks present enticing opportunities. And while we should all be aware of their highly risky reputation, most investment strategies benefit from their inclusion.

For a start, we must remember the whole point of the investing game: to make as much money as possible in the shortest amount of time. Is this ethos shallow? Perhaps. But this endeavor is about your retirement and your future, and of course, that only affects you. Therefore, you owe it to yourself to find the most profitable opportunities available.

Second, I argue that the current market and economic paradigm incentivize higher risks. Why “old school” conservative strategies may not work is that they assume a stable dollar. But since we’re no longer on the gold standard, inflationary pressure is a near-inevitability. In other words, it’s not enough to be merely profitable; you also must beat inflation for that profit to be meaningful.

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Small-cap stocks provide the catalyst for exceptional growth in part because fewer people recognize their presence. Once the general public gets a hold of the news, the low-hanging fruit is usually gone.

Of course, little attention can lead to zero attention, so you should be mindful of this double-edged sword.

But what exactly do I mean by small-cap stocks? While there’s no set definition, for our purposes, I’ve selected companies with a market cap under $1 billion. These names touch upon various industries, providing you with eclectic options.

So without further ado, here are 20 small-cap stocks with the potential for outsized gains!

No. 1 Small-Cap Stocks with Huge Upside Potential: TETRA Technologies (TTI)

As an equipment manufacturer in the oil and gas sector, TETRA Technologies’ (NYSE:TTI) claim to fame is their water-management solutions. With easily accessible fossil fuels no longer readily available, oil-exploration firms must venture into extreme territory. As a result, finding oil is only half the battle; the other half involves extracting it cleanly and safely.

So far this year, TTI stock is enjoying a solid ride, with shares up 12% since the January opener. Better yet, I expect the run to continue. President Donald Trump’s foreign-policy escapades are anything but uneventful. A “stand-out” component of his international strategies is to condemn Iran. That part isn’t unexpected, as he has been a vocal critic of the prior administration’s nuclear deal.

No, what unsettles Wall Street is that Trump is directly combating Iran while cozying up to its arch-rival, Saudi Arabia. With that, we can kiss any hope of a nearer-term geopolitical resolution goodbye, along with Iran’s massive oil reserves.

Logically, that means TETRA Technologies should have ample revenue-making opportunities, and this also bodes well for TTI stock.

No. 2 Small-Cap Stocks with Huge Upside Potential: Pioneer Energy Services (PES)

A drilling and production services company, Pioneer Energy Services Corp (NYSE:PES) operates in a prime business sector. Pioneer has two factors working in its favor: first, Trump’s revocation of former President Barack Obama’s Iranian nuclear deal squeezes oil supplies, and second, the current administration’s “America First” policy helps ensure support for domestic energy endeavors.

Another thing worth mentioning is that small-cap stocks like PES are low key relative to their bigger brethren. Levering a market cap of around $450 million, Pioneer Energy isn’t exactly a household name. However, PES stock is delivering memorable returns, with shares up nearly 87% year-to-date.

Typically, such outsized performances usually put prospective buyers on the sidelines. But keep in mind that prior to the 2014 energy crisis, PES was moving towards $20. Having survived that onslaught, Pioneer Energy is a much leaner affair, only keeping the essentials.

Of course, being one of the small-cap stocks within the energy sector, their financials don’t inspire overwhelming confidence. That said, the dramatic geopolitical changes may end up being the tide that lifts all boats.

No. 3 Small-cap Stocks with Huge Upside Potential: OFG Bancorp (OFG)

A massive storm devastated Puerto Rico last year, and another storm this year again threatens the island territory. Naturally, most investors are likely to shy away from any investment associated with the region. While risky, I believe Puerto Rico offers a contrarian opportunity.

An investment I’m considering is OFG Bancorp (NYSE:OFG), which through its Oriental Bank subsidiary is one of the biggest banks in the island. While bigger banks offer greater resources, I love how regional banks like OFG are much more agile to clients’ needs. Management understands their market, especially because they’re part of their community.

Moreover, regional banks are not encumbered with multiple, and many times competing, interests. A major bank not only has to worry about domestic issues, but international pressures as well.

Given the wild foreign-policy situation, I’m more comfortable limiting my variables. With OFG stock, you’re not just dealing with an exclusively American institution, but a specific region.

No. 4 Small-Cap Stocks with Huge Upside Potential: Full House Resorts (FLL)

Unemployment is reaching recent lows, and that means more Americans with a bit of free cash. That being the case, more of those Americans just might spend that extra money at Full House Resorts (NASDAQ:FLL).

As you might expect from its name, Full House Resorts is a casino and entertainment-facilities operator. While the larger players in the gaming sector get most of the attention, small-cap stocks like FLL provide greater potential.

How so? For starters, Full House isn’t as bloated as major casino operators. That enables them to provide world-class service that’s especially tailored to their customers. And as a smaller outfit, they’re flexible and agile enough to make any necessary changes.

So far this year, FLL stock is down a disappointing 16%. But shares have stabilized since mid-February, providing hope for a surprising revival.

No. 5 Small-Cap Stocks with Huge Upside Potential: QuinStreet (QNST)

If you haven’t already noticed from the successes of companies like Amazon.com (NASDAQ:AMZN) or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), to thrive in this business environment requires extensive internet knowledge. For those institutions that need a leg-up on the competition, QuinStreet (NASDAQ:QNST) offers the ideal solution.

QuinStreet calls itself a performance-marketing technologies and services company. In lay terms, QNST helps drive customers to their clients’ businesses through various marketing strategies. Furthermore, QNST advertises scalability for their services, providing initial low-cost programs that can grow with their clients. Since internet presence is everything nowadays, a company’s initial investment into QuinStreet can pay serious dividends down the road.

It’s no surprise, then, that the markets have responded positively to QNST stock. On a YTD basis, shares are already up a whopping 77%. I understand that such massive momentum is a killjoy. However, the importance of QuinStreet’s expertise will only grow with time.

Finally, check out its financials. While it could use a pick-me-up in the income statement, QNST features a very strong balance sheet. A big highlight is zero debt, which gives management more flexibility for future endeavors.

No. 6 Small-Cap Stocks with Huge Upside Potential: Vitamin Shoppe (VSI)

The American public is a funny bunch. On one hand, we’ve all heard about — and seen — the incredibly poor diet that we consume daily. As I pointed out in a recent InvestorPlace article, 60% to 70% of our diets consist of processed foods. But on the flipside, we love our vitamins and supplements.

This contradiction is where Vitamin Shoppe (NYSE:VSI) plies its trade — and if recent market performance is any indicator, VSI has found its groove. Since its opening session in January, VSI stock has gained nearly 60%. Notably, though, shares are down more than 70% from the start of 2017. Make no mistake about it: despite its remarkable performance this year, Vitamin Shoppe is still a recovery play.

With a market cap shy of $164 million, VSI is also incredibly risky. But bear in mind some statistics. First, more than two-thirds of Americans take vitamins and dietary supplements, and that trend isn’t likely to change negatively. Second, in the U.S. alone, the nutritional-supplement space is worth over $36 billion.

Plus, every year since at least the turn of the century, industry sales have increased.

No. 7 Small-Cap Stocks with Huge Upside Potential: Digi International (DGII)

With a market cap of just over $373 million, Digi International (NASDAQ:DGII) doesn’t generate much attention. However, that will change over the next several years due to the Internet of Things, or IoT. Long before people used the term IoT, Digi International focused heavily on machine-to-machine connectivity. Thanks to their decades of research and experience, they’re ready to provide comprehensive solutions for their clients.

DGII works tirelessly to provide businesses with the best use of IoT technologies. But they’re not just about maximizing performances. For instance, how will people react when the 5G network rolls out, and older wireless networks invariably roll away? Thinking ahead of time, DGII has strategized several options to decipher tomorrow’s tech-related challenges.

The significant drawback to DGII is that, like other small-cap stocks, it’s historically volatile. That said, this year has been a banner one for Digi, with shares up over 44%. Truth be told, I’m expecting a pullback in the nearer-term. But if it does, I’d strongly encourage considering DGII for the speculative portion of your portfolio.

The IoT industry is too big and too significant to ignore.

No. 8 Small-Cap Stocks with Huge Upside Potential: Comtech Telecomm (CMTL)

Among reputable small-cap stocks, Comtech Telecomm (NASDAQ:CMTL) is one of the most impressive. As an advanced satellite communications provider, Comtech offers civilian and government applications. Both divisions are in high demand as Comtech answers businesses’ ever-growing concerns about security, while governments seek up-to-date defense solutions.

On a YTD basis, CMTL is up around 57%. Therefore, it’s not exactly a hidden gem. However, I still believe the company has significant upside remaining.

Fundamentally, CMTL continues to impress Wall Street. It has established a pattern of strong annual revenue growth recently. More importantly, the trend sustained itself into the last reporting quarter, in which Comtech reported a 16% year-over-year sales lift to $147.9 million.

In addition, CMTL has above average profitability margins compared to its industry peers. That should remain true for the foreseeable future as management keeps its expenses in line with revenue growth. And for a smaller company, Comtech has positive and stable free cash flow on an annual basis.

No. 9 Small-Cap Stocks with Huge Upside Potential: PetIQ (PETQ)

As an animal-lover myself, there’s one characteristic of the American public that I absolutely cannot fault: we love our pets! According to a survey conducted by the American Pet Products Association, 68% of Americans, or approximately 85 million families, own a pet. That’s up significantly from 56% back in 1988, the first year of the survey.

In my view, that’s reason enough to consider buying shares of PetIQ (NASDAQ:PETQ). And let’s also look at this anecdotally: we’ve all seen goofy pet owners dress up their cats and dogs with ridiculous-looking garments. It only makes sense that such adoration for their four-legged friends is a boon for PetIQ, which specializes in pet treats, food, and health products.

If you needed another reason to invest in PETQ stock, consider that Millennials are the biggest pet-owning demographic. This is obviously important because they’re also the biggest working demographic, and their earnings power will only increase from here on out.

Plus, Millennials will never age beyond 40 years, ensuring an indefinitely robust revenue base.

No. 10 Small-Cap Stocks with Huge Upside Potential: CV Sciences (CVSI)

Medicinal marijuana presents a tricky moral dilemma for conservative Americans. While I respect their point of view, I must admit difficulty in understanding it. Marijuana arouses sharp emotions, primarily because the federal government classifies it as a Schedule I drug. Good people don’t do drugs. But these same folks don’t mind subjecting themselves to weird pharmaceutical concoctions because an official in a lab-coat prescribed them.

God forbid, if I ever come down with something serious, I want to exercise all natural options before going the pharmaceutical route. And that’s why I have no issues with companies like CV Sciences (OTCMKTS:CVSI), which strive for disease cures through cannabis. My thinking — and I’m not the only one — is that something natural has far better longer-term implications than something artificial.

Even if you completely disagree with my logic, the political tide has turned. Last month, Canada became the first G7 nation to legalize recreational weed. Eventually, the U.S. will follow. Primarily, the money is too good, and states with failing financials can give themselves a much-needed boost. Plus, we’ve been down this road before with the Prohibition era.

That didn’t work out so well, and neither will restricting marijuana. I’m liking CVSI stock, and indeed most small-cap stocks in this sector.

No. 11 Small-Cap Stocks with Huge Upside Potential: Medicine Man Technologies (MDCL)

A key reason why I’m so confident President Trump won’t act harshly on state marijuana laws boils down to politics. As much as Trump proclaims that he’s above public criticism, it’s just not true. Like any person with an outsized ego, POTUS seeks mass adoration — and he’ll evaporate more of his support if he cracks down on marijuana.

While many cannabis advocates feared Trump’s “law and order” mantra, ironically, his sharp rhetoric on this issue stymies him. He’s no dummy. In a little over two years’ time, he’ll need all the support he can get for reelection. Now is not the time for him to take unnecessary risks. But now is the time to consider Medicine Man Technologies (OTCMKTS:MDCL).

Why? Because MDCL offers consultation services across a variety of marijuana subcategories. Whether you’re looking for licensing support, facilities management or a host of other things, Medicine Man has you covered. The current federal law provides MDCL with strong business opportunities due to its conflict with individual state laws.

But if the federal law changes, that too benefits MDCL. “Weedpreneurs” will have several questions and concerns in starting up their companies, and Medicine Man will be one of the few companies that can provide comprehensive solutions.

No. 12 Small-cap Stocks with Huge Upside Potential: Craft Brew Alliance (BREW)

While we’re on the subject of adult liberties, it’s a great time to bring up Craft Brew Alliance (NASDAQ:BREW). Some manufacturers, such as Anheuser Busch Inbev (NYSE:BUD), focus on putrid offerings like Bud Light.

But as income grows, so too does taste. For those that want to enjoy a classier approach, Craft Brew Alliance offers a delectable array of beverage options. Better yet, the markets have responded positively to Craft Brew’s focus on quality, not quantity. BREW stock is up 8% YTD, and while not as impressive as some of the other small-cap stocks mentioned, I fully expect greater things to come.

In large part, that’s because BREW stock benefits from strong demographic trends. Millennials lead craft-beer consumption, followed by the significantly wealthier Generation X. Craft Brew also enjoys robust demand from Hispanics and women.

No. 13 Small-Cap Stocks with Huge Upside Potential: Axcelis Technologies (ACLS)

When investors consider technology firms, they usually look for a direct play. For instance, if you’re bullish on graphics-processing units — and you should be — Nvidia (NASDAQ:NVDA) comes quickly to mind. But we often forget that these companies need other manufacturers to provide the platform for the sexy innovation to occur. Essentially, this is what Axcelis Technologies (NASDAQ:ACLS) does.

Providing equipment for other companies to actualize their innovations may not sound exciting, but look at their financials. For a company that has a market cap of only around $700 million, management runs a tight ship. ACLS features a strong balance sheet, with a high cash-to-debt ratio being a particular highlight. Also, ACLS levers well-above average profitability margins against its semiconductor-equipment peers.

The only problem? ACLS stock isn’t getting the job done in the markets, with shares down nearly 24% YTD. I get that Trump’s China tariffs weigh heavily on the tech sector, but the selloff is overdone. At the end of the day, Axcelis is a fundamentally stable organization, but the markets don’t recognize it as such.

No. 14 Small-Cap Stocks with Huge Upside Potential: Lannett Company (LCI)

Modern pharmaceutical companies are always on the prowl for the “blockbuster” drug. If a promising therapy passes clinical trials, the drugmaker eventually enjoys exclusive patent rights. But the controversy is that this approach puts profitability ahead of patients. Lannett Company (NYSE:LCI) does its part to balance out this unfavorable equation for individuals and their families.

Lannett is a generic drug-maker, and the organization has worked this business for over 75 years. Patent-exclusivity offers incredible revenue-generating potential, but the term is not indefinite. Over time, every pharmaceutical loses exclusivity, allowing competitors like Lannett to offer a generic, and less costly variant. For the patient, this dynamic translates to cheaper medicines, while LCI benefits from a new money-making channel.

In my opinion, this is the ultimate win-win. Unfortunately, the markets don’t see it that way. LCI stock is down 39% YTD, despite strong growth and profitability metrics. Dissimilar to small-cap stocks in this sector, LCI demonstrates outstanding top-line sales growth, as well as positive earnings.

I think Wall Street has LCI all wrong, which is an opportunity for you.

No. 15 Small-Cap Stocks with Huge Upside Potential: Sorl Auto Parts (SORL)

Due to a population over four times that of the U.S., China is inevitably the go-to hub for automakers. The lucrative region has aroused fierce competition in the automotive-manufacturing world, as you might expect. But a lesser-appreciated play is the Chinese automotive parts market. This road has only one direction: up, up, and away!

That’s why investors should definitely consider adding Sorl Auto Parts (NASDAQ:SORL) to their must-watch list. I’m not the biggest fan of Chinese stocks, let alone Chinese small-cap stocks. But even I can’t deny the revenue-generating opportunities here.

But don’t take my word for it. Sorl levers relatively strong financials, especially in their income statement. Profitability margins for SORL are within the upper echelon of the global auto-parts industry. Over the last three years, the company posted consecutive sales increases. Moreover, the momentum continues, with its most recent quarter delivering a 44% YOY revenue lift to $107.7 million.

The major knock on SORL stock is its current market performance, with shares down 31% YTD. I’m almost certain this will change for the positive due to China’s growing GDP per capita.

No. 16 Small-Cap Stocks with Huge Upside Potential: J C Penney (JCP)

A generation ago, J C Penney (NYSE:JCP) was one of the most recognized names among department stores. Today, it’s on the verge of collapse, which also means that JCP is a small-cap stock. It’s a surreal moment, especially for those who have lived through the retailer’s heyday.

But can management pull off a comeback? On the surface, every indicator says no. The organization has suffered embarrassing internal problems, and is burning cash like no one’s business. Due to the rise of e-commerce, JCP can’t catch a break. They’re essentially forced to grow through cutting, which they’ve done vociferously.

But JCP stock is a stubborn animal. Last October, I blasted the organization as an unmitigated disaster. I was initially right on my call … and then I was wrong. At the present juncture, I’ve been proven right yet again. However, I’ve noticed an apparent floor on the JCP share price around the $2.30 level.

This is not something you want to engage if you’re risk-intolerant. That said, a few surprises could swing JCP stock for a robust, shorter-term speculation.

No. 17 Small-Cap Stocks with Huge Upside Potential: Barnes & Noble (BKS)

During the years before Amazon.com, places like Borders and Barnes & Noble (NYSE:BKS) represented the hip places to be. Today, Borders went the way of the Thylacine and the public phone booth. And while Barnes & Noble still exists, the company is hanging on by a thread. At least, that’s the story we’re led to believe.

Don’t get me wrong: Barnes & Noble is a sharply underperforming company, which makes BKS stock incredibly risky. The brick-and-mortar bookstore has posted several years of declining revenue growth and spotty earnings. Management has also racked up significant debt relative to its meager cash holdings. Finally, its free cash flow is an on-again, off-again affair.

So why am I including BKS in my small-cap stocks list? While the bookstore industry is on the decline, the worst of it has faded. And it’s not as if people today aren’t reading books, and those that do are often older, educated and affluent. That’s prime-time demographics!

The issue, though, is keeping expenses in check. BKS management is running a tight ship, but they could run it a little tighter. Like I said, it’s super-risky, but if they can whittle down some more costs, they can conceivably hit an earnings “sweet spot.”

No. 18 Small-Cap Stocks with Huge Upside Potential: Vuzix (VUZI)

Virtual reality and augmented reality used to feature significantly in older science-fiction movies. Today, not only are these technologies commonplace, but their effectiveness has improved dramatically since the concept first launched. However, the challenge is to find consumer appeal beyond a hardcore, niche demographic.

Vuzix’s (NASDAQ:VUZI) foray into VR headsets and especially AR smart-glasses, has produced encouraging feedback and results. For instance, earlier this year, Time.com raved about the company’s Blade AR glasses. In their view, Vuzix could give Alphabet and its Google Glass a run for its money.

But are positive reviews enough to spark a run-up in VUZI stock? I’m compelled to give this organization a chance. VUZI shares are up nearly 30% YTD, while fundamentally, the company features an excellent balance sheet. But you’ll have to watch its income sheet, where the company is consistently losing money.

With such an exciting sector, though, and its proven technological prowess, VUZI deserves a solid look.

No. 19 Small-Cap Stocks with Huge Upside Potential: Workhorse Group (WKHS)

Among small-cap stocks, Workhorse Group (NASDAQ:WKHS) is what I call a 50/50 investment. With WKHS, you get direct exposure to an innovative product, the W-15 pickup truck. The W-15 is the first of its kind that’s powered by a plug-in electric motor.

That sounds very exciting, given that electric vehicles are usually luxury affairs. The problem, though, is that Workhorse’s financials are terrible. It’s extremely indebted, and it’s also awash in red ink, earnings-wise. Although WKHS has demonstrated astounding sales growth over the past two years, its most recent quarter showed revenue decline.

The biggest setback is market “performance,” and I use that term very lightly. WKHS has lost over 40% YTD, with most of the pain occurring last month.

Ultimately, the speculative side of my brain wants to give this innovative company a shot. It is, however, a high-risk, high-reward play, so only engage it with money you can afford to lose.

No. 20 Small-Cap stocks with Huge Upside Potential: Shotspotter (SSTI)

Gun violence in America needlessly takes the lives of innocent people on a frighteningly frequent basis. Politicians from all sides of the spectrum don’t have solutions, other than “thoughts and prayers.” Fortunately, tech-firm and “feel-good” company Shotspotter (NASDAQ:SSTI) has a far more substantive solution.

According to their website, 80% of gunshot incidents are never reported to law enforcement. That leads to untold consequences, the most significant being shooting-victim deaths. To combat this alarming gap, Shotspotter makes gunshot-detection systems, facilitating faster response times to firearms-related crimes.

Law-enforcement agencies have responded enthusiastically to the system, with SSTI recording consecutive sales growth in the last three years. The company also maintains a strong balance sheet that’s unencumbered with debt.

Because of its incredible and potentially life-saving utility, SSTI has gained Wall Street’s attention. On a YTD basis, SSTI is already up an amazing 200%-plus. While Shotspotter certainly isn’t on discount, the need for their product is patently obvious.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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