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Top Investors’ Stock Portfolio: 10 Small-Cap Stocks To Buy

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·7 min read
In this article:
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In this article, we discuss the best small-cap stocks to buy. You can skip our detailed analysis of the small-cap stocks, and go directly to read Top Investors' Stock Portfolio: 5 Small-Cap Stocks To Buy.

Historically, small-cap stocks have outperformed large-caps, especially in times of financial crisis. For example, the Russell 2000, a benchmark for the small-cap group, returned 20% in 2020, compared with 16.3% gains of S&P 500 during the same year.

According to a report published by Anchor Capital Advisors LLC, small-cap stocks have outpaced large caps in the last nine of the ten recessions, performing better in the second half of the period. This gives solid investment opportunities to invest in stocks with great growth potential. With the resumption of operations in financial markets after the Covid-related suspensions, the small caps are gaining ground among the investors. In 2021, the market cap of Russell 2000 grew by 84.2% to $3.5 trillion, as mentioned in a report by CME Group. This figure is compared with a 49.5% growth in the market cap of Russell 1000, an index listing large-cap index of the U.S.

The average annual return of the small caps was recorded at 17.02% from 1926 to 1983, compared with an 11.26% average return of the S&P 500.

Our Methodology:

Let's analyze our list of the best small-cap stocks to buy. The companies mentioned below have a market cap between $300 million and $3 billion.

These stocks have strong growth catalysts, and they are also popular among the 873 elite hedge funds tracked by Insider Monkey.

Photo by Stephen Dawson on Unsplash

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 wide margins. 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 86 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.

Top Investors' Stock Portfolio: 10 Small-cap Stocks To Buy.

10. Eagle Bulk Shipping Inc. (NASDAQ:EGLE)

Number of Hedge Fund Holders: 25

Market Cap: $629.6 million

Eagle Bulk Shipping Inc. (NASDAQ:EGLE) ranks tenth on our list of the best small-cap stocks to buy. Recently, the company instituted its dividend policy, according to which, 30% of the net income will be allocated to the dividend payouts. The first dividend will be based on the company’s Q3 results.

Eagle Bulk Shipping Inc. (NASDAQ:EGLE) is a transport company that owns a fleet of dry bulk vessels. Recently, BTIG lifted its price target on Eagle Bulk Shipping Inc. (NASDAQ:EGLE) to $65, with a Buy rating on the shares, as the company announced a $50 million share repurchase program.

As of Q2 2021, Oaktree Capital Management is the largest shareholder of Eagle Bulk Shipping Inc. (NASDAQ:EGLE), with shares worth $178.9 million. In addition to this, 25 hedge funds tracked by Insider Monkey have stakes in the company in Q2, valued at $278.8 million. In the previous quarter, 12 hedge funds had positions in the company, highlighting a positive hedge fund sentiment in this quarter.

9. Turning Point Brands, Inc. (NYSE:TPB)

Number of Hedge Fund Holders: 30

Market Cap: $885.2 million

Turning Point Brands, Inc. (NYSE:TPB) reported solid results in Q2 2021, with an EPS of $0.84, beating the estimates by $0.19. On August 4, the American tobacco company also announced a quarterly dividend of $0.055 per share, yielding 0.43%. Turning Point Brands, Inc. (NYSE:TPB) stands ninth on our list of the best small-cap stocks to buy.

DG Capital Management is the leading shareholder of Turning Point Brands, Inc. (NYSE:TPB) in Q2, owning shares worth $19.6 million. Overall, 30 hedge funds tracked by Insider Monkey reported having stakes in the company in Q2, up from 25 in the previous quarter. The total value of these stakes is $168.3 million.

This July, B. Riley raised its price target on Turning Point Brands, Inc. (NYSE:TPB) to $65, with a Buy rating on the shares, citing the company’s strong Q2 results.

Kinsman Oak Capital Partners mentioned Turning Point Brands, Inc. (NYSE:TPB) in its recently published Q2 2021 investor letter. Here is what the firm has to say:

TPB continues to be a volatile stock, but business execution has been admirable since we first initiated our position. The company has put forth consecutive beat and raise quarters, announced a few tuck-in acquisitions, and recently promoted a new CFO. We view these developments as positives for the stock. We believe TPB remains undervalued at ~14x FY22 EPS and ~10x FY22 EBITDA.”

8. Hostess Brands, Inc. (NASDAQ:TWNK)

Number of Hedge Fund Holders: 32

Market Cap: $2.37 billion

Robert Moscow of Credit Suisse presented a positive outlook on Hostess Brands, Inc. (NASDAQ:TWNK) as other packaged food companies struggle with the ongoing inflation. Recently, the analyst initiated his coverage on the stock with a Buy rating and a $22 price target. An American packaged food and bakery company, Hostess Brands, Inc. (NASDAQ:TWNK) ranks eighth on our list of the best small-cap stocks to buy.

After hitting an all-time low of $10.09 per share in March 2020, Hostess Brands, Inc. (NASDAQ:TWNK) bounced back, delivering a 30% return to shareholders in 2021.

Of the 873 elite funds tracked by Insider Monkey, 32 hedge funds have stakes in Hostess Brands, Inc. (NASDAQ:TWNK) in Q2, down from 34 in the previous quarter. The total value of these stakes is roughly $439 million.

7. The Beauty Health Company (NASDAQ:SKIN)

Number of Hedge Fund Holders: 33

Market Cap: $3.63 billion

The Beauty Health Company (NASDAQ:SKIN) is an American company that focuses on estheticians and brings innovative personalized skin care solutions to the market. The company stands seventh on our list of the best small-cap stocks to buy.

In Q2 2021, Redmile Group is the largest shareholder of The Beauty Health Company (NASDAQ:SKIN), with shares worth $106.5 million. Overall, 33 hedge funds tracked by Insider Monkey were bullish on the company in Q2, valued at $665.2 million.

Baron Discovery Fund mentioned The Beauty Health Company (NASDAQ:SKIN) in its Q2 2021 investor letter. Here is what the firm has to say:

“The Beauty Health Company, formerly known as HydraFacial, is an innovative skin care and beauty health company providing consumers the benefits of a professional medical treatment with the experience of a consumer brand. The Beauty Health company came public via a special purpose acquisition corporation (“SPAC”). Shares outperformed during the quarter as investors became increasingly aware of the company’s growth opportunities following the closing of the SPAC acquisition and strong earnings results where the company significantly increased annual revenue guidance. We continue to be attracted to Beauty Health’s asset light, recurring revenue business model and see a long runway for growth as the company more than doubles its base of delivery systems both domestically and internationally while better monetizing each system with new serums and different product and category extensions.”

6. Origin Materials, Inc. (NASDAQ:ORGN)

Number of Hedge Fund Holders: 34

Market Cap: $864.4 million

Origin Materials, Inc. (NASDAQ:ORGN) is the world’s leading carbon-negative materials company. Recently, the company announced its collaboration with a platform, Drive+, to enhance sustainability throughout the automotive industry. Origin Materials, Inc. (NASDAQ:ORGN) stands sixth on our list of the best small-cap stocks to buy.

Recently, BofA initiated its coverage on Origin Materials, Inc. (NASDAQ:ORGN) with a Neutral rating and an $8 price target. The firm’s analyst Steve Byrnes believes that the company will have commercial production and revenues by 2023. At the end of Q2 2021, Origin Materials, Inc. (NASDAQ:ORGN) reported cash and cash equivalents of $471 million.

Of the 873 elite funds tracked by Insider Monkey, 34 hedge funds reported having stakes in the company in Q2, worth $114.7 million.

Click to continue reading and see the Top Investors' Stock Portfolio: 5 Small-Cap Stocks To Buy.

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Disclosure. None. Top Investors' Stock Portfolio: 10 Small-Cap Stocks To Buy is originally published on Insider Monkey.