Thinking Small, Winning Big: 7 Small-Cap Stocks to Supercharge Your Portfolio

Stocks to buy

If you’re searching for the best small-cap stocks to buy right now, look no further. Small-cap stocks are set to continue their record run as indices like the S&P 600 begin building momentum in light of rate cutting expectations and an improved economic outlook. Since nearly all companies, even the largest, started as small-caps, the sector tends to outperform larger indices in the long term.

We’re in a particularly unique position, as a year’s worth of higher rates means the worst or least viable companies are on their way out or didn’t survive the financial realignment. Today’s small-cap stocks, therefore, tend to be the strongest of the bunch, with management adept at navigating monetary policy changes and rapidly shifting economic conditions. These seven small-cap stocks stand out as some of the best of the bunch and could prove a solid foundation for a well-rounded portfolio.

Small-Cap Stocks to Buy: PubMatic Inc (PUBM)

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Digital advertising is quickly becoming a perennial sector that tends to retain strength even amid poor economic conditions. While consumer spending may dip and eat into sales growth, the best digital advertising companies successfully navigate shifting conditions to stay afloat, if not thrive. PubMatic Inc (NASDAQ:PUBM) is among just a handful of small-cap digital advertising and media stocks that are successfully adapting to changing preferences – and thriving.

Last year, record revenue figures for the small-cap advertising company hit $267 million in sales. Staying true to its small-cap growth stock designation, the company is plunging excess earnings into a comprehensive growth strategy to build on that momentum. Plans include improved customer acquisition strategies, revenue stream expansion, and increased machine learning emphasis to “[build and scale] ROI and outcomes-based advertising solutions that rival the walled gardens,” with walled gardens being a term describing the largest and impenetrable advertising heavyweights with closed ecosystems like Meta (NASDAQ:META).

Steelcase Inc (SCS)

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Aligned much more closely with the “value” side of the value/growth continuum than PubMatic, Steelcase Inc (NYSE:SCS) is nevertheless a standout small-cap stock offering investors long-term upside potential alongside short-term stability. To the latter point, the company’s gained nearly 50% over the past year and currently offers a 3.06% forward dividend yield – not bad for a company with less than $1.5 billion in market capitalization!

But investors looking for small-cap value stocks to buy shouldn’t focus on dividends alone. Instead, look to Steelcase’s steady revenue and rapidly increasing net income, which hit $777 million and $30.8 million in the most recent quarterly report. To that end, the company’s fiscal year 2025 outlook is especially enticing as it capitalizes on a steadier economy and continued remote work trends. Management reported 10% higher sales in the first three weeks of the fiscal year alone and is targeting 1% – 5% revenue growth and EPS between 85 cents and $1.00. Steelcase reported a year’s end EPS of 68 cents, so the rosy executive outlook should be enough to spark interest in small-cap value investors.

Small-Cap Stocks to Buy: indie Semiconductor Inc (INDI)

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Semiconductor stocks surged over the past year, but mega-caps like Nvidia (NASDAQ:NVDA) and Taiwan Semiconductor (NYSE:TSM). As semiconductor demand remains high, but the biggest names tilt toward massive overvaluation, investors will increasingly turn to small-cap semiconductor stocks to find the “next big thing.” Few small-cap semiconductor stocks are as robust as indie Semiconductor Inc (NASDAQ:INDI). The company’s offerings focus primarily on automotive and self-driving car semiconductor applications, which are increasingly in demand as new car sales climb and drivers demand state-of-the-art luxuries like driver assistance and enjoyable infotainment displays.

The company’s 2023 revenue was record-setting, climbing more than 100% to hit $223.2 million. Likewise, the company’s profit margins are beyond reproach at 52.5% in 2023, more than 2.5% higher than the prior year. This margin expansion indicates that the company is not only navigating shifting economic conditions but also thriving as it finds ways to improve efficiencies and cut costs without sacrificing quality.

Chegg Inc (CHGG)

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Chegg Inc (NYSE:CHGG) is a small-cap tech stock capturing one of the AI-adjacent sectors I’m particularly bullish on: education and EdTech. This year saw increased scrutiny and even dismissal of legacy learning institutions, even the most elite, and I think artificial intelligence (AI) and emerging remote work and learning tech will be among the next massive social revolutions. Chegg is adapting AI to a range of learning applications, including CheggMate, a companion and tutoring service on Chegg’s connected learning platform. The tool is built on the back of OpenAI’s GPT-4 and represents one of the few, if not only, broadly successful adaptations or applications of the tools within the EdTech sector.

Of course, new and next-gen tools tend to be costly and unpredictable early in their lifecycle. To that end, Chegg shares dropped more than 30% since 2024 began, primarily on the heels of a less-than-desirable earnings report that included a more modest forecast than analysts expected. Still, Chegg’s management acknowledged the rough patch as part of its R&D into AI EdTech applications, telling investors that its development is “ongoing and iterative” but that R&D costs mean it’s also “too early to predict when we will return to revenue and margin growth.” Still, at its current price point and relatively low valuation, Chegg is a top small-cap stock to capitalize on EdTech’s AI-enabled future.

Small-Cap Stocks to Buy: H&R Block (HRB)

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Have you filed your taxes yet? If not, you may be one of many Americans scrambling over the next two weeks, setting H&R Block (NYSE:HRB) for another solid earnings season. One of the primary concerns about companies like H&R Block is the inherent cyclical nature of their business – tax time comes every April, so customers tend to flock to the platform in January but fall off by mid-spring. However, H&R Block’s recent initiatives to smooth its sales cycle are bearing fruit, as spin-off initiatives like its Spruce mobile banking platform set increasingly higher client acquisition and retention rates.

H&R Block’s last financial filing attributed more than $26 million in quarterly revenue to the banking platform. At roughly one-fourth of tax prep sales, that’s still a solid stat – especially when considering $26 million represents customer deposits quadrupling. As rates stay steady or fall, H&R Block will be able to capitalize on increasing deposit rates more and ultimately see income from peripheral financial services surge.

Valley National Bancorp

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I wrote about Valley National Bancorp (NASDAQ:VLY) last week, focusing on the company’s potential strength as a cannabis stock. However, there’s far more to this small-cap regional bank than its cannabis-centric initiatives. Trading at just 0.6x book value and 7.5x earnings, the small-cap financial stock is undervalued and, in many cases, under-appreciated. Valley’s strong balance sheet and relatively low debt load (a debt-to-equity ratio of just 0.56, compared to the industry’s 1.2 average) means that management is positioned to adapt to whatever economic conditions may come, as evidenced by its newest stock buyback plan and 5.71% trailing dividend yield.

Analysts broadly see Valley National as undervalued, with an average $9.50 price target that sits about 20% above today’s per-share pricing. Likewise, they’re increasingly bullish about the small-cap bank stock as 56% call the stock a “hold”, compared to 50% calling for investors to sell during the previous polling period.

GigaCloud Technology Inc (GCT)

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GigaCloud Technology Inc (NASDAQ:GCT) has been on a wild ride thus far in 2024, surging to nearly $45 per share after a solid earnings report before falling back down to pre-earnings levels where it sits today (slightly above $25 per share). But much of that decline seems to be investors merely taking profit rather than a substantial statement about GigaCloud’s long-term potential. The company, whose closest analog is Alibaba (NYSE:BABA) trades at just 11x earnings. Those looking at the stock with skepticism considering Alibaba’s fall from grace should consider one major differentiator: GigaCloud services B2B markets and, more than just offering product sourcing, is an all-in-one vendor management platform to navigate cross-border payments and other tricky facets of global eCommerce that small businesses tend to struggle with.

The small-and-medium-sized business (SMB) market is largely unaddressed, and GigaCloud’s solutions include payment processing, shipment and freight management, AI-enabled fulfillment, and even warehouse storage. This all-in-one package is a boon to SMBs struggling to compete with or work through larger players like Amazon (NASDAQ:AMZN). As time goes on and companies like Amazon increasingly squeeze SMBs through fee and fulfillment rate hikes, those going it alone will increasingly turn to self-sourced/self-managed platforms like GigaCloud.

On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.

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