7 Small-Cap Stocks That Get the Nod from Wall Street
While enterprises with diminutive market capitalizations tend to be high-risk, high-reward ventures, you can shift the odds in your favor with small-cap stocks with buy ratings. Thanks to the nod from Wall Street experts, you can feel a little bit more comfortable with the speculative step that you’re taking.
Now, to be 100% clear, small-cap stocks – whether they’re carefully curated by analysts or randomly mentioned in some Internet forum – present incredible dangers. If that were not the case, they would be more predictable. And that usually means they’re mid-cap ideas at the least. So, just because seasoned experts gave the A-okay doesn’t mean you should abandon your own due diligence.
Still, given that the experts have access to information and resources that most retail investors lack, their endorsements carry weight. Plus, these folks often influence the market. On that note, if you can accept the risks, below are small-cap stocks with buy ratings.
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Gatos Silver (GATO)
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Before you say anything, I understand what you’re (probably) thinking. With Gatos Silver (NYSE:GATO) focused on extracting high-grade silver – particularly in the company’s flagship Los Gatos District project – GATO carries monetary policy risks. We’ve all digested the strong print of the September jobs report. Because more dollars are chasing after fewer goods, the Federal Reserve must respond.
Unfortunately, that response may be hawkish, leading to higher borrowing costs. If so, GATO wouldn’t seem like a great idea for small-cap stocks. Basically, higher interest rates translate to a stronger dollar, meaning lower asset prices. However, silver in particular is useful for a variety of industries, especially those involving electronics.
Therefore, Gatos is surprisingly relevant despite the monetary policy headwind. Also, it’s worth pointing out that insiders have been buying up shares of GATO, indicating strong confidence. Finally, analysts rate GATO a moderate buy with a $5.50 target, implying over 12% upside.
Obsidian Energy (OBE)
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Based in Calgary, Alberta, Canada, Obsidian Energy (NYSEAMERICAN:OBE) is an intermediate-sized oil and gas producer. Per its website, Obsidian features a well-balanced portfolio of high-quality assets producing around 32,000 barrels of oil equivalent (BOE) per day. Since the beginning of this year, OBE gained over 38% of its equity value. And much of this enthusiasm came recently.
In large part, you can thank geopolitics for the upswing in OBE and its ilk. With major oil-producing nations agreeing to cut production until the end of the year, the market naturally responded to the artificial supply constraint. Of course, the subsequent inflation from loose monetary (and fiscal) policies during the Covid-19 period didn’t help.
Nevertheless, one effective means of mitigating the pain centers on acquiring hydrocarbon energy companies. Notably, OBE is one of the intriguing small-cap stocks with buy ratings because it’s undervalued, trading at only 5.96x forward earnings. Lastly, analysts peg shares a strong buy with a $9.85 target, implying over 20% growth.
Helios Technologies (HLIO)
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Headquartered in Sarasota, Florida, Helios Technologies (NYSE:HLIO) bills itself as a global leader in highly engineered motional control and electronic controls technology for diverse end markets. These sectors include mining equipment, agriculture, health and wellness, energy, and recreation, among others. An enterprise that shies away from the spotlight, HLIO gained less than 2% since the January opener.
Fundamentally, staying away from the glare might be beneficial. After all, the benchmark S&P 500 index is still down about 3% in the trailing month. Therefore, many hot flavors of the week may eventually court attention for the wrong reasons. That just might benefit companies that are both relevant and offer predictable businesses.
While Helios certainly has its challenges – including a less-than-robust balance sheet – the company enjoys solid margins. In turn, it’s been consistently profitable in the past 10 years. In closing, analysts rate HLIO as a unanimous strong buy with a $70.67 target, implying nearly 28% upside. Thus, it’s one of the top small-cap stocks with buy ratings.
CECO Environmental (CECO)
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Founded in 1966, CECO Environmental (NASDAQ:CECO) provides air pollution control technology, products, and services for various industries. These include aerospace, brick, cement, steel, printing, food, foundries, and utilities, among many others. Since the start of the year, CECO gained almost 43% of its equity value, making it one of the best-performing small-cap stocks. Enticingly, more upside may be ahead.
On a fundamental note, CECO’s core pollution control business may rise significantly. It’s not just the usual suspects that require emissions-related mitigation services. Plenty of industries are responsible for less-than-ideal environmental practices. And not doing anything about them can lead to public outcry, especially in the age of social media.
To be fair, CECO isn’t exactly a great deal on paper. Trading at over 34x trailing earnings, it’s not a steal. However, the company benefits from above-average revenue growth. Also, its free cash flow (FCF) growth rate clocks in at 79.9%, above 95% of its peers. Turning to Wall Street, analysts peg CECO as a unanimous strong buy with a $21.20 target, implying over 31% growth.
Kodiak Gas Services (KGS)
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A leading provider of natural gas contract compression services in the U.S., Kodiak Gas Services (NYSE:KGS) plays a vital role in the broader energy infrastructure. Per its website, Kodiak’s services deliver efficiency and reliability to all the major domestic basins. It also benefits from decades of experience, having innovated the underlying gas compression technology. Since its public market debut in June this year, KGS gained almost 15%.
As one of the highly desired small-cap stocks with buy ratings, it’s quite possible Kodiak has more legs left. Primarily, as the economy fully recovers from the COVID-19 pandemic, demand for energy-related products should rise, thereby lifting KGS. Also, factors like immigration will also return to normal levels, leading to greater energy consumption. Again, that’s a positive for KGS.
Notably, Kodiak insiders are also big believers in KGS stock. Since early July, various insiders have added to their equity positions. Looking to the Street, analysts peg KGS as a strong buy with a $24.22 target, implying nearly 35% upside.
Ivanhoe Electric (IE)
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For those who want to increase the scale of their risk-reward profile for small-cap stocks, Ivanhoe Electric (NYSEAMERICAN:IE) offers an enticing narrative. A mining specialist, Ivanhoe is specifically focused on the electrification of everything. Combining advanced mineral exploration technologies with projects targeting so-called “electric” metals – such as gold, silver, and copper – IE seemingly facilitates relevance.
However, you would be taking a significant risk. Since the start of the year, IE dipped more than 7%. Yes, it gained over 33% of equity value since making its public market debut last year. Unfortunately, the recent price action raises considerable skepticism among conservative investors. As an example, in the trailing month, Ivanhoe gave up over 29%.
Looking at its financials, the company sports an Altman Z-Score of 2.27, which flirts with distress. Also, it suffers from deeply negative profit margins. And if that wasn’t enough, IE appears overvalued, based on its price-to-sales ratio of nearly 293X. That said, it is expanding the top line significantly on a percentage basis. Lastly, analysts peg IE as a moderate buy with a $19 target, implying nearly 73% growth.
Mirum Pharmaceuticals (MIRM)
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Headquartered in Foster City, California, Mirum Pharmaceuticals (NASDAQ:MIRM) focuses on unmet needs. Specifically, it researches and develops therapeutics for people living with rare liver diseases. Its lead product candidates target both rare pediatric and more common adult liver conditions. A relatively new enterprise, Mirum was founded in 2018 and went public in 2019.
Despite its youthfulness in a competitive and volatile sector, MIRM has performed quite well. Since the start of this year, shares gained almost 59% of equity value, making it one of the top small-cap stocks with buy ratings. Per Google Finance, on a weekly average basis, MIRM returned shareholders over 126% since its first public trading session.
However, it’s one risky idea. While the company benefits from robust top-line expansion, it also suffers from deeply negative operating and net margins. Also, its balance sheet could use some shoring up. Still, analysts rate MIRM a unanimous strong buy with a $57.80 target, implying 89% upside.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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