These 14 small-cap stocks are expected to see the highest gains between 100% to 264%, according to top analysts on Wall Street
US large-cap stocks, especially tech-heavy ones, have carried the bulk of the stock market’s gains so far this year. The Magnificent Seven pulled up the S&P 500, which has seen more than a 14% gain this year. The tech-heavy Nasdaq is up by more than 19% for the same period.
Those are some solid gains, considering that since 1957, the average annual return of the S&P 500 has been 10.32%, a rate we have bypassed midway through the year. It’s understandable why some investors might be concerned that the index is overpriced and may see a pullback or, at best, remain flat for the rest of the year.
One part of the stock market that has largely been left behind is US small-cap stocks. This is because a high-interest-rate environment has not favored smaller companies that rely on more debt. Investors have been aware of these risks: to date, the Russell 2000, a basket of US small-cap stocks, is trading almost 17% below its peak from November 2021.
But as we near the final quarter of 2024, when the Federal Open Market Committee and the futures market expect at least one rate cut, things may rotate. Mid- and small-cap stocks are expected to recover. Morningstar’s chief US market strategist, Dave Sekera, estimates that small-cap stocks are now at an 18% to 20% discount relative to the aggregate of fair values based on the universe of stocks the firm covers.
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A key caveat for those who want to hunt for steeper gains is that smaller companies, specifically those in their growth phase, tend to be riskier and experience more volatility. This is especially the case for pharmaceutical companies because they have a high cash burn rate on research and development with no guarantee that they will come out on the other end with a successful product. Still, investors and traders will bet on them because if they’re right, the gains can be exponentially higher than a mature company that is no longer growing. It’s a high-risk, high-reward approach.
Below are 14 stocks from TipRanks, a financial technology company that compiles and aggregates data. These stocks have “strong buy” ratings and are set to see the highest gains based on top analysts’ price targets. The price targets below are the average among top analysts.
TipRanks designates four or five-star ratings to top analysts based on three main criteria:
- An analyst’s average returns
- Profits or losses on recommendations
- The volume of corrections and transactions they make