7 Must-Own Small-Cap Stocks That Could Outperform the Market

Stocks to buy

While targeting small-cap stocks to buy might not be the go-to recipe for predictable and consistent market success, in some cases, you just have to do what you have to do. Think of it this way. Will a quarterback in a championship game huddle up before every play when the team’s down a score late? No, you’d go into your two-minute drill.

So it is with small-cap stocks to buy. Just like you wouldn’t run a hurry-up offense when you have a lead, the idea of speculation is more about the situation than it is the gambling component. The reality is that certain market cycles call for a more aggressive approach while other cycles demand cautious vigilance.

Under the current framework, several high-profile growth names have already enjoyed robust returns. Therefore, many investors are rotating away from these holdings and instead electing other opportunities, including speculative ideas that might not have enjoyed the spotlight.

On that note, below are must-own small-cap stocks that could outperform the market.

Small-Cap Stocks to Buy: Taboola.com (TBLA)

TBLA stock: Taboola company website with logo close up

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Billed as the world’s largest discovery platform, Taboola.com (NASDAQ:TBLA) partners with many of the world’s top publishers, serving 360 billion content recommendations to over a billion people across the web each month. While TBLA has been choppy because of shifting paradigms in digital content publications, it gained over 29% since the January start.

Notably, in the trailing six months, TBLA soared to over a 62% run. Presumably, it can go even higher. According to a recent Axios report, the ad tech giant signing an exclusive 30-year native advertising deal with Yahoo last year should increase Taboola’s annual top line by roughly $1 billion.

Now, what raises concerns about TBLA being one of the small-cap stocks to buy is recent revenue underperformance. Still, as society fully adjusts to post-pandemic realities, this top line – as stated above – could march higher. Presently, analysts rate TBLA as a consensus strong buy with a $5.90 target, implying over 48% upside.

Nerdy (NRDY)

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An educational technology (edtech) specialist, Nerdy (NYSE:NRDY) aims to transform how people learn. Through its curated platform for live online learning combined with solutions based on artificial intelligence, Nerdy supercharges academia for the current century. Based on studies showing American students falling behind academically due to the COVID-19 recovery slog, NRDY is supremely relevant.

To be sure, NRDY has been choppy. However, even with the wild gyrations, shares managed to gain over 58% of equity value. Even better, there could be additional expansion on tap. Right now, Nerdy posts a three-year revenue growth rate of 20.7%, above 75% of its software industry peers.

Does that mean the edtech specialist is a clear winner for small-cap stocks to buy? Frankly, not quite. Several of its financial metrics could use some shoring up, particularly in the profitability department. However, Nerdy carries zero debt. Also, analysts rate NRDY a consensus strong buy with a $5.75 target, implying 62% growth.

Small-Cap Stocks to Buy: Coeur Mining (CDE)

Macro of silver

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At first blush, Coeur Mining (NYSE:CDE) doesn’t seem a natural candidate for small-cap stocks to buy. As a precious metals mining firm, Coeur must contend with public enemy number one (at least from its perspective): the Federal Reserve and its hawkish monetary policy. Unsurprisingly based on this context, CDE gave up 38% of its market value, a staggering loss.

At the same time, I like to think that the fear trade – basically the rotation toward safe-haven assets during periods of uncertainty or tumult – may benefit CDE. That’s not just wishful thinking. According to Fintel’s screener for options flow – which exclusively filters for big block trades likely made by institutions – money has flowed into the Jan 19 ’24 2.50 Call.

In addition, big block trades have also moved into the Mar 15 ’24 3.00 Call. To be 100% clear, the options print doesn’t guarantee anything. However, a solid chance exists that smart money anticipates a rise above $2.50. Notably, analysts peg CDE as a strong buy that can eventually hit $3.83 a pop, implying almost 82% upside.

Planet Labs (PL)

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One of the intriguing small-cap stocks to buy levered to the burgeoning space economy, Planet Labs (NYSE:PL) specializes in imaging. Specifically, it takes high-resolution photographs of the Earth daily to monitor changes and pinpoint trends. Naturally, the company offers significant scientific appeal. As well, it commands applications that delve into more controversial air.

Perhaps most notably, the New York Times (NYSE:NYT) used the service to uncover how illicit oil shipments made their way into North Korea. Therefore, Planet Labs offers potential defense applications in addition to its core imaging services. However, the main concern is that the market hasn’t rewarded the company for its relevance. Since the January opener, shares slipped more than 42%.

For full disclosure, Planet Labs is an aspirational entity, with investors having to contend with poor metrics like negative long-term revenue growth. On the plus side, though, the company has a strong cash-to-debt balance. Interestingly, analysts rate PL a unanimous strong buy with a $5.48 target, implying almost 112% growth.

Small-Cap Stocks to Buy: VAALCO Energy (EGY)

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Headquartered in Houston, Texas, VAALCO Energy (NYSE:EGY) represents a hydrocarbon exploration company. On the surface, EGY should be soaring based on cynical geopolitical factors. With oil-producing nations agreeing to extend production cuts to the end of the year, basic supply-demand dynamics bodes well. Unfortunately, the market hasn’t exactly responded in kind.

Since the start of the year, EGY slipped more than 8%. In the past 365 days, VAALCO gave up almost 33% of its equity value. That just doesn’t seem congruent with present realities. At the same time, a little patience may go a long way.

Since May of this year, money has flowed into bullishly leaning derivative transactions; namely, the writing of thousands of contracts of the Oct 20 ’23 5.00 Put and acquisitions of Jan 19 ’24 6.00 Calls. Theoretically, this setup implies a floor at $5 and an upside above $6. Sure enough, analysts – who peg EGY as a strong buy – forecast $8.30, implying nearly 113% upside potential.

Evolus (EOLS)

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Based in Newport Beach, California, Evolus (NASDAQ:EOLS) bills itself as a modern medical spa. While the concept sounds quirky or esoteric, it just might be odd enough to succeed. For one thing, there are plenty of rich folks in Newport Beach. Apparently, you’re looking at a median home price in this neighborhood of about $3.7 million. Believe me, these folks can afford medical spas.

In addition, society has become obsessed with youth and good looks. Of course, that’s always been the case with youth culture. But with the advent of social media and non-stop 24/7 content streaming, the superficial element has never been more important. Therefore, Evolus is at least relevant to contemporary standards.

I’m not going to sit here and say that Evolus offers sterling financials because it doesn’t. However, the company also sports a three-year revenue growth rate of 28.9%, above 88.55% of its peers. Lastly, analysts rate EOLS as a strong buy with a $20.57 target, implying over 139% upside potential.

Geron (GERN)

OLK Stock. Modern Medical Research Laboratory: Two Scientists Wearing Face Masks use Microscope, Analyse Sample in Petri Dish, Talk. Advanced Scientific Lab for Medicine, Biotechnology. Blue Color. KZR stock. RSLS stock

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Based in Foster City, California, Geron (NASDAQ:GERN) is a biotechnology firm that specializes in developing and commercializing therapeutic products for cancer that inhibit telomerase. This exciting arena of scientific research also extends into a better understanding of the aging process. In theory, GERN commands significant upside potential. But as is the case with other small-cap stocks to buy, the trick is convincing other investors to buy in.

So far, GERN hasn’t been particularly successful. Since the January opener, GERN slipped 23%. And in the trailing one-year period, it gave up more than 18% of its equity value. Nevertheless, for those who believe in the underlying research, Geron can possibly go places.

Mainly, the smart money has flowed into two derivative contracts: the writing of Oct 20 ’23 2.00 Puts and the acquisition of Jan 19 ’24 3.00 Calls. Potentially, this framework loosely suggests that a floor may materialize at $2 and that upside can extend beyond $3.

Conspicuously, analysts peg GERN as a unanimous strong buy with a $4.80 target, implying over 159% growth.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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