While factors pushing large-cap growth over small-cap success are complex, recent developments point to an imminent sea change. Specifically, inflation indicators point to slowing trends, which could accelerate rate-cut timelines. If rate cuts happen this year, small-caps are set to boom. The “best in class” small-cap stocks are emerging from the higher interest rate regime stronger than ever, and with just a little push, these seven top small-cap stocks to buy could go stratospheric shortly.
Aehr Test Systems (AEHR)
Semiconductor stocks stayed in the spotlight this year, especially as giants like Nvidia (NASDAQ:NVDA) vied for market dominance and continued marking record profits. But, within the semiconductor battle for supremacy, small-cap stocks like Aehr Test Systems (NASDAQ:AEHR) go unnoticed. But Aehr, specializing in testing equipment for semiconductor devices, stands to benefit regardless of which company emerges as the leader in the semiconductor industry.
Aehr’s testing systems, essential for verifying the reliability and quality of semiconductors, are becoming increasingly vital to semiconductor value chains as components become more sophisticated — and costly. The company boasts a top-tier customer list, including industry heavyweights like Apple (NASDAQ:AAPL) and Texas Instruments (NASDAQ:TXN), underscoring its significance in the sector. Better yet, not only is the small-cap stock effectively agnostic to which semiconductor firm comes out on top, but its wide-ranging testing crosses sectors including 5G, autonomous cars and more.
Top Small-Cap Stocks: Enovix (ENVX)
Ongoing battery developments seem to happen daily, with industry giants like Tesla (NASDAQ:TSLA) pushing to bring next-gen batteries to market. Amidst these developments, Enovix (NASDAQ:ENVX) has been pioneering a quiet revolution in lithium battery technology. The company has innovated lithium-ion batteries by incorporating silicon, achieving a more sustainable, efficient and cost-effective design than traditional batteries — even compared to standard lithium fare.
Enovix is transitioning from a research and development-centric approach to expanding its market presence across various applications, including electric vehicles, wearable technology and cell phones. This recent quarter has been pivotal for the emerging battery manufacturer, marking significant achievements such as integrating its battery technology into an FDA-approved vital sign monitoring device. Additionally, Enovix has commenced supplying customized batteries to the U.S. Army to support the testing of wearables for centralized power sources.
Current revenue figures are modest, and the company is not yet profitable due to high testing and marketing expenses. Still, Enovix’s end-of-year financials were surprisingly strong as sales beat expectations by 110%, and management offered an upbeat outlook. With bullish tailwinds swirling, this battery-based small-cap stock might power your portfolio for years to come.
Hims & Hers Health (HIMS)
The post-pandemic landscape has solidified telehealth as a permanent fixture in the healthcare industry. Both providers and patients increasingly rely on digital platforms for routine medical interactions, including mental health services, with recent reports indicating that a good number of adults have embraced telehealth options. That shift underscores a lasting preference for digital at-home care solutions. Hims & Hers Health (NYSE:HIMS) stands out as a small-cap company poised to benefit significantly from this ongoing trend.
HIMS specializes in telehealth services for particularly private medical concerns, such as sexual health, hair loss and mental health issues. By addressing these sensitive areas, HIMS has successfully established a strong foundation, enabling it to broaden its offerings into telehealth therapy and additional mental health services. That strategy has demonstrated the viability of its business model, positioning the company for further growth.
The future trajectory of HIMS, especially as larger healthcare entities continue to introduce their telehealth services, remains uncertain. However, HIMS has effectively secured a niche market, which, combined with stellar earnings recently, helps ensure its continued relevance and strength in the small-cap sector.
Top Small-Cap Stocks: SoundHound AI (SOUN)
Several months ago, I highlighted SoundHound AI (NASDAQ:SOUN) as a standout among its voice recognition peers, citing its unique market position. The foundational argument for investing in SoundHound remains robust, and recently, the company has started to attract significant investor interest.
The optimistic view on SOUN revolves around its potential for considerable growth within the somewhat overlooked voice recognition sector. With the market for voice recognition technology broadening — exemplified by SoundHound’s contributions to improving fast food operations — companies like SOUN show their market reach is only limited by their ability to tailor their technology to diverse applications.
Recently, Nvidia vouched for SoundHound’s burgeoning potential by announcing a multi-million-dollar investment in the company, which notably boosted SoundHound’s stock value. Nvidia, with a history of wisely investing in promising AI ventures like Recursion Pharmaceuticals (NASDAQ:RXRX), previously participated in a $75 million funding round for SoundHound in 2017. The long-term interest from Nvidia, a titan in the AI space, points to a bright future for SoundHound when backed by continuous support from one of the industry’s leaders.
Aspen Aerogels (ASPN)
As the Inflation Reduction Act incentivizes tax credits for energy-efficient home insulation, Aspen Aerogels (NYSE:ASPN) is capturing attention for its sustainability contributions on a much grander industrial scale. The company specializes in producing aerogel-based insulation materials for high-temperature environments such as oil refineries and power plants, positioning Aspen as an essential player in sustainable efforts for high-risk, high-heat industrial settings. Despite its significance, this small-cap stock often flies under the radar of many retail investors — even as institutional analysts collectively call it a Buy.
Aspen remains unprofitable for now, but its fourth-quarter report showed a massive drop in losses, marking just $0.5 million lost compared to more than $9 million at the same time last year. Likewise, though net income was negative, the company saw revenue increase for four consecutive quarters, with the most recent hitting all-time sales highs. As Aspen Aerogels expands its market presence and enhances its profit margins, investor interest is expected to surge in 2024, spotlighting this small-cap stock among many sustainable solution competitors.
Top Small-Cap Stocks: Jumia Technologies (JMIA)
Africa’s eCommerce sector is experiencing rapid growth and Jumia Technologies (NYSE:JMIA) stands out as a small-cap stock well-positioned to tap into a burgeoning $30 billion market. Often referred to as the “Amazon (NASDAQ:AMZN) of Africa,” Jumia once drew considerable investor interest, propelling its share price to over $60 in 2021. Today, however, the stock trades at just under $7, a significant decline from its peak. Despite this downturn and the initial overestimation of its market potential, Jumia retains a promising outlook for growth.
Macroeconomic challenges are easing, which should rejuvenate the global eCommerce sector. Emerging markets like Africa are poised for particularly strong growth due to their heightened sensitivity to such economic fluctuations. Recent developments support this prediction, as Jumia’s latest earnings report reveals its smallest loss since debuting on the stock market in 2019. Having weathered a financial downturn, Jumia emerges as one of the continent’s few enterprises with its unique positioning, offering a distinctive small-cap investment opportunity that leverages international market potential.
Lithium Americas (LAAC)
Lithium Americas (NYSE:LAAC), a small-cap mining stock, suffered due to the slow lithium market. However, this trend has the potential to reverse in 2024, potentially causing this Argentinian-focused mining stock to soar. The global demand for lithium, extending beyond just the electric vehicle market, is expected to increase by over 30% annually through 2030. Despite this promising outlook, many lithium producers faced challenges in 2023, with sluggish demand and significant oversupply driving spot prices lower. However, with demand rapidly increasing, projections indicate a possible significant undersupply within a year, which would, in turn, raise spot prices to the advantage of LAAC.
As one investment analyst put it, “Lithium and critical minerals are, in the 21st century, what coal was in the 19th century and what oil was in the 20th century.” LAAC, with its stock price below $10, is poised to capitalize on this expanding energy segment. Trading significantly below its book value and at a lower price-to-forward earnings ratio than in recent years, LAAC represents both a compelling value investment and a small-cap stock with significant growth prospects.
On the date of publication, Jeremy Flint held no positions (directly or indirectly) in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.