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  • Writer's pictureAlpesh Patel

Small Cap Stock Winners for 2023

Updated: Nov 15, 2023

Will small cap US stocks be the winners in 2023? We look at the expert views and name the stocks they like.

Over 1,000 companies with market capitalizations between $300 million and $2 billion were screened for stock returns, sales growth, return on equity, and earnings growth to rank the 100 best of last year.

For a company to qualify for the list, it needed positive sales growth during the last 12 months. The previous year has seen only half of the stocks increase.

The top company on the list is SIGA Technologies, which produces antiviral treatments for diseases like monkeypox. Its share price has declined 63% since August's peak.

The next company is Vaalco EnergyEGY, an oil drilling company based in Houston that operates primarily in Gabon, a small country in West Africa. This year's rising energy prices have benefited Vaalco, and it has ramped up its production capacity from about 5,000 barrels per day to 20,000 barrels per day in the last 18 months, partly due to its $307 million acquisition of TransGlobe, a Canadian oil company.

According to BlackRock Investment Institute strategists, the healthcare sector is less sensitive to economic fluctuations than other sectors. Its performance exceeds the broader index's performance year-to-date by about 1.7%.

In the first quarter of next year, JPMorgan analysts predict a "mild recession," and the S&P 500 will test its 2022 lows. The bank said that compared to other developed markets, U.S. stocks could be more attractive due to their high valuations and Fed hawkishness.

The BoFA Global Research forecasts U.S. equities to end broadly flat in 2023, but gold prices are expected to rise to 20% as the dollar falls. A decline in the greenback makes raw materials like gold more attractive to foreign buyers.

According to Jill Carey Hall, head of small- and mid-cap strategy at BofA Securities, small caps are likely to outperform large caps in 2023.

During a market bottom, She believes that small caps would be more susceptible to the further downside than large caps.

Despite additional downside risks to equities, Jill says we should still buy small caps over large caps because small caps are discounting a deep recession, and "relative valuations suggest a good time to buy."

According to Bank of America, stocks are on track for a great bull market in 2023, but not in the place most investors anticipate. Next year and beyond, small-cap stocks are expected to lead the market higher than large-cap behemoths.

Because of a combination of factors, the stock market has historically favored smaller, localized companies. Banking of America's Michael Hartnett said that secular trends of stagflation, reshoring, localization, and fiscal stimuli would equal a bull market for small-cap stocks in 2023.

It is currently anticipated that a recession in 2023 will occur, according to Gargi Chaudhuri, iShares investment strategist for the Americas at BlackRock. In a regime of higher interest rates, investors might want to buy small-cap stocks instead of growth stocks in case the Fed "engineers a soft landing" for the U.S. economy.

She mentioned the iShares Core S&P Small-Cap ETF IJR, -0.42%, in her recommendation. FactSet data shows that the ETF is down 11.1% so far this year. According to Chaudhuri, the S&P 500 index, which is heavily oriented toward technology companies, dropped 14.4% over the same period.

When investors' primary concerns shift from policy and inflation to the economy's health, stock and bond outlooks diverge. This is why investors may benefit from favoring bonds over stocks in 2023. As measured by the S&P 500 Index, U.S. large-cap stocks don't look as attractive. Investing in them is still too expensive, and the benefits of owning them over risk-free debt are minimal.

As the Wall Street Journal reported, small-cap shares are cheaper than their larger counterparts, making them more appealing to investors. When dividends are reinvested, small-cap stocks have outperformed large-cap stocks. According to Yahoo Finance, Calavo Growers, Inc. (NASDAQ: CVGW), which pays a quarterly dividend of $0.285 and has a dividend yield of 0.77%, is one of the best small-cap dividend stocks to buy now. The company has consistently paid dividends since it went public in 2002, making it one of our best dividend stocks. Due to its dividend consistency, it is a good choice for dividend portfolios alongside the likes of Caterpillar Inc. (NYSE: CAT), Chevron Corporation (NYSE: CVX), and Pentair plc (NYSE: PNR).

Nasdaq listed H&E Equipment Services (HEES) and Patrick Industries (PATK) as two small-cap stocks rated as Strong Buys. Having a market cap of around $1.5 billion, H&E has small-cap credentials. Currently, H&E shares are trading at $40.73, and their average target of $52 implies a gain of 28% over the next year.

PATK shares are rated a Buy, with a $60 price target. With the figure met, investors will pocket gains of 25% in a year.

Due to the strong U.S. dollar, small-cap stocks are now a smarter investment. According to the Wall Street Journal, the S&P 600 small-cap index rose by 5.3% in October, outperforming the large-cap S&P 500 by 2.6%. For the first time since 2016, the S&P 600 will outperform the broader benchmark in 2022.

Yahoo Finance's list of top small-cap stocks includes:

● SmartRent, Inc. (NASDAQ: SMRT)

● PubMatic, Inc. (NASDAQ: PUBM)

● Upstart Holdings, Inc. (NASDAQ: UPST)

● Axcelis Technologies Inc. (NASDAQ: ACLS)

● GoPro, Inc. (NASDAQ: GPRO)

Yahoo Finance shares 15 stocks that will double in 2023:

● Blink Charging Co. (NASDAQ: BLNK)

● Lithium Americas Corp. (NYSE: LAC)

● The Lovesac Company (NASDAQ: LOVE)

● Riot Blockchain, Inc (NASDAQ: RIOT)

● AppHarvest, Inc. (NASDAQ: APPH)

● Solid Power, Inc. (NASDAQ: SLDP)

● EXACT Sciences Corporation (NASDAQ: EXAS)

● Transocean Ltd (NYSE: RIG)

● Ginkgo Bioworks Holdings Inc (NYSE:DNA)

● Zscaler, Inc. (NASDAQ: Z.S.)

● Cloudflare, Inc. (NYSE: NET)

● Holdings, Inc. (NYSE: BILL)

● Marvell Technology Inc (NASDAQ: MRVL)

● Atlassian Corporation Plc (NASDAQ: TEAM)

● Block, Inc. (NYSE: S.Q.)

Yahoo Finance shares top 10 small-cap stocks:

● Omnicell, Inc. (NASDAQ: OMCL)

● WD-40 Company (NASDAQ: WDFC)

● TreeHouse Foods, Inc. (NYSE: THS)

● Evolent Health, Inc. (NYSE: EVH)

● Mr. Cooper Group Inc. (NASDAQ: COOP)

● Adtalem Global Education Inc. (NYSE:ATGE)

● Helen of Troy Limited (NASDAQ: HELE)

● 360 DigiTech, Inc. (NASDAQ: QFIN)

● GDS Holdings Limited (NASDAQ: GDS)

● Silvergate Capital Corporation (NYSE: S.I.)

After the rise in the consumer price index cooled in October by more than expected, the S&P 500 Index recently surged 4.7%, its best CPI day since December 2008. The Nasdaq 100 Index also recorded a 6.1% jump. It is set to be the best session for both indices since April 2020.

Amid the market turmoil, Investor Place recommends these penny stocks to buy:

Amyris (AMRS): A specialized biotech that may have a molecule in a product you use every day.

Meta Materials (MMAT): New partnerships could accelerate this company's growth.

Bionano Genomics (BNGO): While the company's technology is ahead of its time, it is still a good genomics investment.

B2G Gold (B2G): Speculative investors can invest in precious metals without committing a lot of money.

Canopy Growth (CGC): The Canadian company has gained a foothold in the U.S. market with a recent acquisition.

Fuelcell Energy (FCEL): The company's backlog of orders should give it time to implement fuel cell technology.

Hall of Fame Resort & Entertainment (HOFV): Worth buying if you don't mind a reverse split.

Below are seven small-cap stocks well-positioned for market trends likely to stick around through 2023.

● Boot Barn (NYSE: BOOT)

● Hudbay Minerals (NYSE: HBM)

● Gossamer Bio (NASDAQ:GOSS)

● Vivid Seats (NASDAQ: SEAT)

● Maxar Technologies (NYSE: MAXR)

● Hain Celestial Group (NASDAQ: HAIN)

● ThredUp (NASDAQ: TDUP)

I suggest my free to teach a million people more about the markets.

Alpesh Patel OBE


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