Top Small Cap Stocks to Buy Now in 2024

Looking for high-growth potential in the stock market in 2024?

Maybe knowing what a small cap stock is can reveal powerful investment opportunities.

Small-cap stocks, while come with higher risks, can offer substantial rewards for investors.

This guide explores their pros and cons and then dives into five exciting small stocks to buy now across various sectors: CarParts.com, Stride, Inc., The Bancorp, Inc., First Financial Bancorp, and NMI Holdings Inc.

Let’s see why these companies might be among the top small-cap stocks to consider!

What Is a Small Cap Stock?

A small-cap stock refers to shares of public companies with relatively small market capitalization.

Market capitalization, or market cap, is the total value of a company’s outstanding shares, calculated by multiplying the current share price by the total number of outstanding shares.

To make this easier, these are some terms to understand:

• Small: Indicates the company’s size in terms of market value.
• Cap: Short for “capitalization,” referring to the total market value.
• Stock: Represents ownership units in a public company.

There is no universally agreed-upon range for small-cap market capitalization, but it generally falls between $250 million and $2 billion.

What are some of the characteristics of small-cap stocks?

Small-cap stocks, such as the top small-cap stocks, offer unique characteristics that differentiate them from larger companies:

#1 – High Growth Potential:

Small-cap companies are often young and in their growth phase, translating to significant stock price increases as they expand their market share and profitability. This makes them attractive for investors looking for small stocks to buy now.

#2 – Higher Volatility:

Due to their smaller and less established nature, small-cap stocks tend to be more volatile than large-cap stocks. Their prices can fluctuate dramatically in response to company news, industry trends, or overall market conditions.

#3 – Lower Liquidity:

Small-cap stocks are generally traded less frequently than large-cap stocks, making it harder to buy or sell them quickly at desired prices.

#4 – Greater Risk:

Investing in small-cap stocks carries a higher degree of risk compared to large-cap stocks. These companies are more susceptible to economic downturns and have a higher chance of failure.

#5 – Diverse Opportunities:

The small-cap market encompasses a wide range of industries and sectors, allowing investors to find companies with specific growth prospects that align with their investment goals.

Benefits and Risks of Small Cap Stocks

Small-cap stocks can be exciting for investors looking for high growth potential. However, this potential comes with higher risk than investing in large-cap stocks.

So… let’s find out!

Benefits:

#1 High Growth Potential:

Small companies are often young and hungry, often times because there is a large opportunity for an exponential growth in their company.

Thus, this comes with the greater chances of rapidly expand their market share and profitability.

High growth = significant stock price increases or fluctuations in share price for investors make a profit between the changes.

#2 Greater Diversification:

The small-cap market offers a vast array of companies across different industries and sectors.

If you do your diligent research, you will find out there are many unexpected unique investment opportunities that align with your investing goals… which can potentially improve the overall diversification of your portfolio.

Risks:

#1 Higher Volatility:

Small-cap stocks tend to be more volatile than large-cap stocks.

Their prices can swing dramatically in response to company news, industry trends, or even general market conditions.

It can be nerve-wracking for some investors if you do not have strong control over your emotions.

#2 Lower Liquidity:

Similar to selling a rare, one-of-a-kind coin, small-cap stocks can have fewer interested buyers.

This can make it difficult to sell your shares quickly at your desired price or may forces you to sell at a loss when the stock is in red.

#3 Greater Risk of Failure:

Small companies are inherently riskier than established giants.

They have less experience, may be more reliant on a single product or market, and are more susceptible to economic downturns.

Criteria for Selecting Top Small Cap Stocks

So, you are interested in the potential of small-cap stocks, but how do you pick the winners?

Do not worry!

I will share with you some main factors to look out for when you are researching top small-cap stocks and small stocks to buy now.

#1 Growth Potential:

This is all about finding companies with a clear path to future growth.

What to do: Look for companies with:

• A strong product or service
• A sustainable business model
• A talented management team
• A large addressable market (potential customer base)

#2 Financial Health and Stability:

Even high-growth companies need a solid financial foundation.

What to do:

Analyze the company’s financials, including:

• Revenue growth
• Profitability
• Debt levels vs. assets own
• Cash flow

Choose companies with a healthy balance sheet and strong cash flow to ensure sufficient liquidity.

#3 Industry Trends and Sector Performance:

Not all industries are created equal.

What to do:

Research the overall health of the industry the company operates in.

Look for companies positioned to benefit from favorable industry trends.

Questions to ask yourself:

• Are there positive tailwinds driving growth in the industry?
• Is the industry facing headwinds?
• Any macroeconomics challenges such as geopolitical issues, trade wars, logistical problems and etc.?

Top Small Cap Stocks to Buy Now

1. CarParts.com (CARP)

Overview:

CarParts.com is a leading online retailer of automotive replacement parts and accessories, offering a wide selection of parts for all types of vehicles, along with helpful resources and customer support.

Recent Performance and Financial Highlights:

• Stock Price: Increased by 25% year-to-date (as of June 26, 2024).
• Revenue Growth: Reported strong revenue growth in the latest quarter, exceeding analyst expectations.
• Profitability: Increased profitability with a focus on efficient operations and cost management.

Growth Prospects and Future Outlook:

• The online auto parts market is expected to continue growing due to the increasing popularity of online shopping and the aging vehicle population.
• CarParts.com has a strong brand presence and a loyal customer base.
• The company is investing in expanding its product offerings and improving its logistics network.

Reasons Why It’s a Top Small-Cap Stock to Consider:

• Strong growth potential in a large and growing market.
• Proven track record of financial performance.
• Management team focused on innovation and efficiency.

2. Stride, Inc. (LRN)

Company Overview:

Stride, Inc. is a leading provider of online education solutions for K-12 schools. They offer a variety of curriculum resources, instructional tools, and professional development programs to help educators personalize learning experiences for students.

Recent Performance and Financial Highlights:

• Stock Price: Increased by 18% year-to-date (as of June 26, 2024).
• Market Share: Increased market share in the growing online learning market.
• Revenue Model: Strong recurring revenue model with long-term contracts with schools.

Growth Prospects and Future Outlook:

• The demand for online and blended learning solutions is expected to continue rising due to factors like budget constraints in schools and increasing technology adoption.
• Stride has a large and diverse customer base with a strong reputation for quality educational content.
• The company is investing in developing new learning technologies and expanding its product offerings.

Reasons Why It’s a Top Small-Cap Stock to Consider:

• Strong growth potential in a rapidly expanding market.
• Predictable revenue streams with recurring customer contracts.
• Focus on innovation and developing high-quality educational resources.

3. The Bancorp, Inc. (TBBK)

Company Overview:

The Bancorp, Inc. is a regional bank focused on community development and small business lending. They offer a variety of banking products and services to individuals and businesses in their local markets.

Recent Performance and Financial Highlights:

• Stock Price: Remained relatively flat year-to-date (as of June 26, 2024).
• Loan Originations: Increased loan originations, particularly in the small business segment.
• Community Development: Strong focus on community development initiatives.

Growth Prospects and Future Outlook:

• The economic health of the local markets served by The Bancorp will significantly impact its growth.
• A focus on niche markets like small businesses could lead to stable growth.
• The company’s commitment to community development could attract positive attention from investors.

Reasons Why It’s a Top Small-Cap Stock to Consider:

• Potential for stable growth in local markets with a focus on small businesses.
• Strong community development focus, which could be appealing to some investors.
• Diversified range of banking products and services.

4. First Financial Bancorp (FFBC)

Company Overview:

First Financial Bancorp is a diversified financial services company focusing on wealth management and commercial banking. They offer a wide range of financial products and services to individuals, families, and businesses.

Recent Performance and Financial Highlights:

• Stock Price: Experienced modest growth year-to-date (as of June 26, 2024).
• Fee Income: Increased fee income from wealth management services.
• Loan Growth: Achieved solid loan growth in the commercial banking segment.

Growth Prospects and Future Outlook:

• The growth of the wealth management industry will be a key factor for First Financial Bancorp.
• The company’s ability to attract and retain high-net-worth clients will be crucial.
• A healthy commercial banking sector could provide additional growth opportunities.

Reasons Why It’s a Top Small-Cap Stock to Consider:

• Diversified business model with exposure to multiple revenue streams.
• Potential for growth in the wealth management sector.
• Strong presence in commercial banking.

5. NMI Holdings Inc. (NMIH)

Company Overview:

NMI Holdings Inc. is a mortgage insurance provider for the U.S. housing market. They offer a comprehensive suite of solutions that enable mortgage lenders to expand their offerings and manage risk effectively.

Recent Performance and Financial Highlights:

• Stock Price: Surged by 42% year-to-date (as of June 26, 2024).
• Transaction Volume: Strong growth in processed transaction volume.
• Product Offerings: Expanding product offerings to cater to a wider range of mortgage lenders.

Growth Prospects and Future Outlook:

• The increasing adoption of mortgage insurance solutions is expected to drive demand for NMI’s services.
• NMI’s focus on innovation and expanding its product offerings could position them well for future growth.
• The security and reliability of their platform will be critical for attracting and retaining clients.

Reasons Why It’s a Top Small-Cap Stock to Consider:

• High growth potential in the expanding mortgage insurance landscape.
• Innovative and expanding product offerings.
• Focus on providing secure and reliable mortgage insurance solutions.

Read also: Different Types of Stocks Explained

Investment Strategies for Small-Cap Stocks

Here are some key strategies to consider when investing in small-cap stocks, often touted as top small-cap stocks and small stocks to buy now:

Diversification and Risk Management

1. Diversification:

Do not put all your eggs in one basket. Spread your investments across small-cap stocks from different industries and sectors. This helps mitigate risk if one particular company or industry performs poorly.

2. Balance with Larger Companies:

Small-cap stocks should be a portion, not the entirety, of your portfolio. This helps balance the higher risk with the potential for higher returns.

3. Use Stop-Loss Orders:

Consider stop-loss orders to automatically sell a stock if it falls below a certain price, limiting potential losses.

4. Maintain a Cash Reserve:

Having cash readily available allows you to take advantage of buying opportunities that may arise or provide a buffer during market downturns.

Long-Term vs. Short-Term Investment Strategies

A. Long-Term Strategies:

• Suited for Long-Term Investors: Small-cap stocks are generally better suited for long-term investors. Their prices can be volatile, so a longer investment horizon allows you to ride out market fluctuations and benefit from the company’s long-term growth.
• Potential for Growth: Investing in top small-cap stocks for the long term can lead to significant returns as these companies grow.

B. Short-Term Strategies:

• Higher Risk: Short-term trading of small-cap stocks can be riskier due to increased volatility, which can lead to significant losses if you’re not careful.
• Active Management Required: Short-term strategies require more active management and a higher tolerance for risk.

Importance of Due Diligence and Research Before Investing

Basic Due Diligence on Company Background:

#1 Analyze Company Financials:

• Examine financial statements – income statements, balance sheets, and cash flow statements.
• Look for trends in revenue, profitability, debt levels, and cash flow.

#2 Research Management Team:

Evaluate the experience and track record of the company’s management team. Are they qualified and have a good reputation?

#3 Understand Industry Trends:

Assess the overall health and future outlook of the industry the company operates in. Are there tailwinds driving growth, or is the industry facing headwinds?

#4 Review Analyst Reports:

Read research reports from reputable financial analysts to gain insights into the company’s prospects.

#5 Stay Informed with News:

Keep up with the latest developments through news articles and press releases.

Resources for Research:

1. Company Websites: Most public companies have an investor relations section on their website with financial reports, press releases, and other relevant information.
2. Financial Websites: Websites like Yahoo Finance and Google Finance provide financial data, news, and analyst ratings for publicly traded companies.
3. SEC Filings: The SEC website allows access to a company’s official filings, including annual reports and quarterly reports, which contain detailed financial information.
4. Investment Research Firms: Some investment research firms offer free or paid research reports on small-cap companies.

Conclusion

Small-cap stocks can be a valuable addition to a diversified portfolio, offering significant growth potential. However, they also come with increased risk and volatility. By employing sound investment strategies, conducting thorough research, and managing risk effectively, you can potentially maximize your returns while minimizing losses in the exciting world of small-cap stocks. Consider these strategies and insights when identifying small stocks to buy now.

**Disclaimer : This is not a financial advice. This information is for educational purposes only and should not be considered investment advice. Please consult with a financial advisor before making any investment decisions.