Buy these 40 smaller stocks with up to 106% upside despite higher interest rates: UBS

• Large caps have consistently led small- and mid-sized companies in recent years.
• But smaller firms have fared well lately, despite expectations for higher interest rates.
• UBS shared 40 top small- and mid-cap stocks to buy now.

A forgettable multi-year stretch for smaller stocks could end in 2025, researchers at UBS say — even though key risks are looming over the cohort.

The S&P 400 and S&P 600 indexes, which track US-based mid- and small-cap stocks, have made little progress in the last few years, at least compared to the better-known S&P 500.

Since the start of 2022, mid caps have risen 12.7% and small caps are up just 2.1% while large caps have surged nearly 25%, despite having their worst year since the financial crisis in 2022. That tepid performance has come despite a slew of predictions that small caps would finally take the baton from large caps.

Smaller stocks have held up in 2025, despite headwinds

This long-awaited reversal is bound to happen eventually, especially since UBS analysts led by Joseph Parkhill pointed out in a mid-January note that smaller stocks have bested their bigger peers by 2% per year in the long term.

But it would be fair for investors to question whether this is the year the streak snaps, given that interest rates seem set to stay higher for longer following last month’s blowout jobs report. The US economy doesn’t appear to be anywhere near a recession, so there’s little rush to cut rates.

Persistently high rates would weigh on all stock valuations, though it could be an especially tough break for smaller companies, which disproportionately hold floating-rate debt. Roughly 46% of small- and mid-cap stocks’ debt is at floating rates, compared to just 10% for large caps.

Smaller firms may also be more adversely affected by tariffs and major regulatory reforms.

“Given the uncertain rate and policy backdrop, stock selection and strong fundamentals are critical,” UBS analysts wrote in the note.

However, these risks may be priced into small- and mid-cap stocks, which are trading a full standard deviation under their 10-year average earnings multiple, UBS noted. Besides, these groups could benefit from lower corporate taxes and deregulation, or if rates actually do fall.

Investors may be adopting that glass-half-full thesis, as small- and mid-caps have led large caps through the first two weeks of the year, albeit modestly, after getting off to a shaky start.

40 smaller stocks to buy now

After making the case for small- and mid-cap companies, UBS researchers shared the 40 US stocks worth $10 billion or less as of mid-January that its analysts are most bullish on in 2025.

Below are these companies along with the tickers, market capitalizations, price targets from UBS, upsides to those targets, industries, and the theses (trimmed for length in some cases) for each.