Small-cap stocks, as a group, have largely trailed their larger peers so far in 2023. Just look at the Russell 2000 index, one of the most popular groupings of smaller companies out there. This index is formed by skipping over the 1,000 largest public companies — a group which itself is tracked by the Russell 1000 index — and tracking the next 1,000 largest. Year to date, the small-cap Russell 2000 is up just 12% or so — while the larger Russell 1000 is up about 19% since Jan. 1.
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But with 2023 recession fears abating and the potential for a return to “risk on” investing as the dust settles, now may be the time to consider looking beyond the typical blue-chip stocks and digging into the smaller companies on Wall Street.
The following nine small-cap stocks each have something to offer individually, and collectively span a wide range of sectors and business lines. Here are the best small-cap stocks to buy now:
| Stock | Sector | Year-to-date gain (through July 24) |
| Aehr Test Systems (ticker: AEHR) | Technology | 143.2% |
| Ameresco Inc. (AMRC) | Industrials | 2.2% |
| Amphastar Pharmaceuticals Inc. (AMPH) | Health care | 116.6% |
| Cactus Inc. (WHD) | Energy | 1.5% |
| Dave & Buster’s Entertainment Inc. (PLAY) | Consumer discretionary | 32.1% |
| FTAI Aviation Ltd. (FTAI) | Industrial | 97.4% |
| M/I Homes Inc. (MHO) | Consumer discretionary | 97.5% |
| Shoals Technologies Group Inc. (SHLS) | Technology | 8.4% |
| United States Lime & Minerals Inc. (USLM) | Materials | 46.5% |
Aehr Test Systems (AEHR)
Sector: Technology Market value: $1.5 billion YTD return: 143.2%
AEHR is a red-hot semiconductor stock, riding strong demand for its test systems that help foundries package and produce their chips. Thanks to the supply chain disruptions of the last few years, along with the general march forward for technology at the same time, we are seeing incredible demand for microchips in 2023. While this small-cap stock isn’t as high profile as big design firms or manufacturers like Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) or Intel Corp. (INTC), it’s a critical part of the global production process. The icing on the cake is that Aehr has carved out a niche serving the manufacturers of chips that are going in electric vehicles — a specialization that is a large part of why it just increased fiscal 2024 guidance to project revenue growth of 90% and net income growth of over 50%. News like that is also a good reason why shares have more than doubled this year, too.
Ameresco Inc. (AMRC)
Sector: Industrials Market value: $3 billion YTD return: 2.2%
Clean technology company Ameresco may not have the most impressive year-to-date return, but this firm has tremendous near-term momentum, nearly doubling from its 52-week lows this spring. AMRC engineers and installs projects that reduce the energy use of facilities like industrial parks or office buildings through more efficient HVAC systems, solar array installations and power infrastructure consulting. This is an in-demand service across a wide range of customers, including local and federal government institutions as well as health care, transportation and commercial businesses. It just signed the largest contract in its corporate history, partnering with a Colorado electric cooperative on a battery energy storage project — and in part because of that news, shares are up about 30% in the last 30 days.
Amphastar Pharmaceuticals Inc. (AMPH)
Sector: Health care Market value: $3 billion YTD return: 116.6%
Small pharmaceutical companies can be among the most aggressive bets out there. They rise and fall sharply based on research results for their newest drugs, or distribution partnerships and potential acquisition interest from Big Pharma giants. AMPH is one of these small pharma stocks focused primarily on injectable and inhalable medication. AMPH’s specialized products include an urgent injection to deal with blood clots or drugs that help with contrast dyes used in diagnostic tests. Unlike some smaller drugmakers, AMPH is comfortably profitable and is expecting substantial revenue growth of 20% both this year and next fiscal year — which gives it a good platform to build on its already impressive momentum.
Cactus Inc. (WHD)
Sector: Energy Market value: $3.2 billion YTD return: 1.5%
With a barely positive year-to-date return, WHD may not immediately stand out as one of the best small-cap stocks to buy now. Furthermore, the company’s business of designing and servicing wellhead systems may not be particularly glamorous. However, it is definitely feeling some tailwinds in its business as energy prices remain elevated and demand has been strong. In fact, the company is projecting more than 60% growth this year and nearly 15% growth in fiscal year 2024 on top of that. Profits are set to surge, too, with this year’s earnings per share projected to be up more than 50% and fiscal year 2024 earnings per share forecast to rise another 75% more. As it’s not directly exploring or selling fossil fuels, WHD is a bit insulated from energy market volatility. So if you want a small-cap stock that is not tied to oil prices, WHD could be a good growth bet.
[READ: 7 Best Green Hydrogen Stocks and ETFs to Buy Now]
Dave & Buster’s Entertainment Inc. (PLAY)
Sector: Consumer discretionary Market value: $2 billion YTD return: 32.1%
Whether you have kids and need to melt the clock on a weekend or whether you’re just a kid at heart who likes to play a few games over an adult beverage, Dave & Buster’s is the place for you. The pandemic gutted operations a few years ago, since sharing video game joysticks as well as sharing a plate of wings was a big no-no during the peak of COVID-19 contagion. However, PLAY stock has bounced back since then and is back to its early 2020 levels. Furthermore, the fundamentals are looking up as consumer spending stays strong. The company is projecting nearly 20% revenue growth for the current fiscal year and more than 30% earnings growth on top of that.
FTAI Aviation Ltd. (FTAI)
Sector: Industrial Market value: $3.3 billion YTD return: 97.4%
FTAI is admittedly a weird company. It owns and maintains airplanes and leases them out to third parties, and does the same with jet engines. Yes, just the engines. The company specializes in the CFM56, the world’s best-selling aircraft engine, and undoubtedly has a ton of expertise in the area. And while it may be hard to wrap your head around the idea it leases more than 200 of these individual propulsion units out without wings attached, it’s not hard to understand the growth story here. Revenue is slated to rise more than 60% this year as carriers look to scale up to meet demand. FTAI is also predicting nearly double-digit growth next year on top of this. Shares have surged in 2023 as a result of strong interest in both its engines as well as its 100-plus complete commercial aircraft that have been leased out.
M/I Homes Inc. (MHO)
Sector: Consumer discretionary Market value: $2.6 billion YTD return: 97.5%
Though there continues to be some handwringing about housing inventories or the overall volume of sales, it’s hard to argue that real estate is anything but red hot as home prices flirted with yet another record high in June. That’s great news for builders like M/I Homes, which services markets ranging from Minnesota to Texas to Florida. Furthermore, it originates and sells mortgages — a great business to be in with rates rising lately, which allows it to profit from both the homebuilding as well as the financing. Shares have been on a tear this year, and with builder sentiment the highest it has been in more than a year there’s a good chance that MHO stock will continue to run in the months ahead.
Shoals Technologies Group Inc. (SHLS)
Sector: Technology Market value: $4.5 billion YTD return: 8.4%
Shoals has lagged the market a bit this year, but it has a great resume if you’re looking at strong small-cap stocks to buy for the second half of the year. The company has an attractive business model at the current moment in time, providing electrical balance solutions to assist in solar, battery energy and electric vehicle charging applications in the United States. These are all thriving areas, and SHLS is growing as a result, too. Specifically, forecasts for the current year show more than 50% revenue growth and fiscal year 2024 estimates look for another 40% growth next year, too. The small-cap stock is admittedly a bit volatile, but the long-term potential may make it worth a look.
United States Lime & Minerals Inc. (USLM)
Sector: Materials Market value: $1.2 billion YTD return: 46.5%
The last stock on our list is a hidden gem that, at first blush, may seem too boring to be worth your time. U.S. Lime manufactures and supplies lime and limestone products in the United States, operating quarries and providing its materials to builders. But while the biz isn’t terribly interesting, the growth of this small-cap stock should make every investor sit up and pay attention. For starters, it has more than doubled the return of the S&P 500 this year — and longer term, it has in more than doubled the index over the last five years, too, with a 150% return during that period.
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9 Best Small-Cap Stocks to Buy in 2023 originally appeared on usnews.com
Update 07/25/23: This story was previously published at an earlier date and has been updated with new information.
