Having exposure to small-cap stocks is a smart idea. Small-cap companies with market capitalizations of roughly between $250 million and $2 billion have unique advantages that can help diversify a portfolio and offer excellent growth potential.
Smaller companies are often in the early stages of the corporate life cycle. In other words, they’ve got plenty of room to expand their market share, grow their business and increase shareholder value, especially when compared to mature large-cap stocks.
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Smaller companies are less well known and often receive less coverage by Wall Street analysts. A lack of analysis can make it more difficult to conduct research, but it can create opportunity as well, as the market sometimes overlooks stocks with lower profiles. This can create a kind of market inefficiency that savvy investors can take advantage of.
Also, small-cap companies with good reputations and decent revenue streams can be targets for mergers and buyouts by bigger companies that are looking to grow by acquisition.
There is more risk and higher volatility associated with small-cap investing, however, and investors need to allocate resources accordingly. That said, total returns over the long run can be quite substantial in the small-cap space.
Here are seven small-cap growth stocks to consider:
| Stock | Market Capitalization | 12-month Return* |
| Ivanhoe Electric Inc. (ticker: IE) | $834 million | -57.1% |
| Plug Power Inc. (PLUG) | $1.7 billion | -81.2% |
| HUYA Inc. (HUYA) | $965 million | 59.4% |
| FTAI Infrastructure Inc. (FIP) | $963 million | 152.4% |
| Hertz Global Holdings Inc. (HTZ) | $1.1 billion | -78.1% |
| OFG Bancorp (OFG) | $1.9 billion | 26.4% |
| Lithium Americas (Argentina) Corp. (LAAC) | $377 million | -69.7% |
*As of Aug. 7.
Ivanhoe Electric Inc. (IE)
IE is a relatively young company founded during the COVID-19 pandemic with the goal of protecting America’s vital metals and minerals supply chain.
More specifically, the company wants to enhance and grow copper, cobalt, nickel and platinum production in the U.S. so that America can continue to electrify its economy and transition away from fossil fuels over time.
To that end, it has developed a geophysical survey technology called Typhoon. Typhoon is a sophisticated system that projects electromagnetic signals deep into the earth and then analyzes those signals to determine what precious and industrial metals are present.
The Typhoon system has proven especially accurate in locating copper and sulfide minerals, and it does it at a much lower cost and with very little environmental impact compared to traditional survey methods.
IE is an aggressive small-cap play with a lot of growth potential. Analysts expect the company to generate about $4.5 million in revenue in 2024 and $5.3 million in 2025.
Market capitalization: $834 million
Plug Power Inc. (PLUG)
PLUG operates in an innovative area of the emerging energy markets. The company develops hydrogen fuel cell products. The incredible thing about hydrogen fuel cells is that they give off only water and air as emissions. In other words, PLUG’s products are better for the environment.
Its various products are for use in material-handling electric vehicles as well as for backup grid support in the tech, telecom and utility industries. And that is just a small sampling of the kinds of industries it serves. The goal of PLUG is to be a turn-key solutions provider for anyone and everyone looking to transition to clean fuel cell technology.
Wall Street is looking for $916 million in revenue from PLUG in 2024 and $1.3 billion in 2025. The company is not expected to report positive earnings in that time frame, but it is trending in that direction.
Market capitalization: $1.7 billion
Huya Inc. (HUYA)
Unless you follow the gaming segment of the tech sector, you probably haven’t heard of HUYA. Nonetheless, this is one small-cap growth stock you should have on your radar.
This company operates a live-streaming gaming platform that is quickly gaining popularity in China. Its innovative system lets gamers, viewers and broadcasters all interact with each other in real time. In addition to a large slate of video games, HUYA offers a wide range of music and unscripted entertainment options that hold viewers’ attention and generate cash flow.
JPMorgan and BofA Securities are both bullish on the stock. BofA upgraded the stock from “neutral” to “buy” in March, and JPMorgan followed suit with an upgrade from “neutral” to “overweight” in May. Revenue is expected to hit $904 million in 2024 and $990 million in 2025, or a 9.5% annual growth rate.
Market capitalization: $965 million
FTAI Infrastructure Inc. (FIP)
New York-based FIP is a company that is in the right business at the right time. The company operates in the infrastructure assets space, mostly serving customers in the transportation and energy industries. America’s infrastructure is at the heart of the country’s transition to sustainable energy, and FIP is at the center of that timely business.
FIP has five divisions: rail, terminals, power and gas, and sustainability. These divisions work together to store and transport gas, oil and related products while facilitating an orderly transition to green energy sources. It began mixing in hydrogen for electricity production at its power plant in Ohio in 2022, with the capability of increasing the amount of hydrogen used to reduce carbon emissions.
Wall Street is projecting revenues for FIP to grow 24% from $373 million in 2024 to $464 million in 2025.
Market capitalization: $963 million
Hertz Global Holdings Inc. (HTZ)
The vehicle rental business is a difficult one. The competition is stiff and profit margins are often thin. HTZ, however, is a small-cap company that is up to the challenge.
Florida-based HTZ is a recognized leader in car and truck rentals. Its brands include Hertz, Dollar and Thrifty. The company operates all over America and has an international division as well.
If you choose to buy HTZ, you should know that it’s a turnaround play. HTZ reported a 3.5% year-over-year decline in quarterly earnings for the quarter that ended in June.
Wall Street is cautiously optimistic on the stock, if not quite bullish yet. Analysts are looking for $9.4 billion in revenue for 2024 and a modest 4% increase to $9.8 billion in 2025. A return to profitability should follow revenue growth over time. Aggressive investors may want to buy the stock now before financial improvements are reflected in the stock price.
Market capitalization: $1.1 billion
OFG Bancorp (OFG)
OFG is not well known in the continental U.S., but it is a leading financial services firm in Puerto Rico. As Puerto Rico grows and its middle class develops, OFG should benefit proportionately.
The core of its business is traditional checking accounts, savings vehicles such as certificates of deposit, and consumer and business lending. OFG also has fast-growing financial services divisions that offer insurance policies, auto leasing, and brokerage and investment advisory services as well.
OFG has been based in San Juan since 1964 and is expected to generate $4.13 in earnings per share on $671 million in revenue for 2024. Wall Street is looking for revenues to grow to $692 million in 2025 while EPS is expected to decline a bit to $4.08.
Wells Fargo has a positive outlook on the stock. That bank’s research department has an “overweight” rating on the company, which it reiterated in a note to clients on July 22.
Market capitalization: $1.9 billion
Lithium Americas (Argentina) Corp. (LAAC)
The worldwide demand for electric vehicles is growing at a tremendous pace, and most of the batteries that will power those EVs will be need lithium. That’s very good news for Vancouver-based LAAC.
LAAC is a small lithium exploration company that owns valuable mineral rights to lithium-rich properties in the Jujuy province of Argentina.
This company’s pipeline is full of potential. It has several promising exploration stage projects in the northern regions of Argentina and owns 100% in the productive Antofalla project in Catamarca.
The investment rationale for this small-cap stock is speculation on the growth in demand for lithium to manufacture the next generation of EVs. This is an aggressive stock not suitable for conservative investors, but the potential for this company cannot be denied.
Market capitalization: $377 million
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Update 08/08/24: This story was previously published at an earlier date and has been updated with new information.
