Best Small-Cap Stocks To Buy in 2024

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The stock market got off to a great start in 2024, but some sectors are outperforming others. The S&P 500 index is up 22.12% year to date as of Oct. 9, while the Russell 2000 small-cap index is up 9.36%. According to JPMorgan Chase, in April, while large-cap stocks were trading at a 34% premium to their average price-to-earnings ratio over the past 20 years, the premium for small-cap stocks was just 11%.

This puts small caps at a competitive advantage for long-term investors looking to capitalize on “regression to the mean” — i.e., a return to more typical results. Of course, picking the right stocks is an important part of winning with a small-cap investment strategy. But for astute investors who do their homework — and who can handle the sometimes large volatility in this sector — this could present an opportunity. 

What Are the Best Small-Cap Stocks?

Here’s a quick look at 10 of the best small-cap stocks to buy now.

Methodology

The best small-cap stocks on this list were chosen due to several variables, including:

• Relative performance
• Consensus analyst estimates
• Potential for high growth
• Product lines
• Market trends
• Valuation

1. IRadimed Corp. (IRMD)

IRadimed is a medical devices company with a number of MRI infusion and monitoring products, including for veterinary use. Much larger companies, such as Draeger, manufacture similar devices. However, IRadimed stock has little competition from companies trading on U.S. stock exchanges.

Shares are up 4.04% this year and 18.55% over the past year, and they’ve significantly outperformed the S&P 500 over three and five years.

Of two analysts watching the stock, one rates it a “buy” and one rates it a “hold.” Their price target is $60, which is 21% higher than the current price.

Best For: Investors looking for high growth potential in a stable industry.

2. Dave & Buster’s Entertainment (PLAY)

Dave & Buster’s Entertainment is known for games, wings and fun, both for kids and adults, but it was the wrong business to be in during the pandemic. The company got through that period intact but is now feeling the effects of economic uncertainty and inflation.

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Analysts expect the company to report a decline in earnings this quarter, according to estimates reported by Yahoo Finance, but they predict some recovery in the fourth quarter and 42.80% growth next year.

The stock closed at $31.60 on Oct. 8, but it has a one-year target estimate of $50.14 from 10 analysts. Four rated it a strong buy, and the remaining six rated it a buy.

Best for: Options traders looking for short-term gains by betting for or against the stock, and those willing to hold the stock long-term — one year or more.

3. United States Lime & Minerals (USLM)

United States Lime & Minerals may not be a headline-grabbing name, and technically speaking, it has inched ever-so-slightly beyond “small cap” territory. However, its shareholders are likely content with the stock’s performance and growth potential.

Up over 130% YTD in 2024, the stock has returned 540% over the past five years. As a company providing lime and limestone products to builders in the United States, while America continues to build, build, build — especially if the Fed engineers a soft landing — USLM is likely to benefit.

The stock could benefit from the fact that no analyst formally follows it on Wall Street. If a firm were ever to pick up coverage of the stock — assuming a positive rating — it could shine a light on the company and get more investors interested. Somewhat unusually for a non-financial small-cap stock, shares offer a 0.21% dividend yield.

Best For: Investors looking for an underfollowed, cyclically oriented stock.

4. Aehr Test Systems (AEHR)

If you’re looking for a hot semiconductor stock that isn’t named “Nvidia,” Aehr Test Systems might be up your alley. While not an actual chipmaker, Aehr produces test systems that help foundries produce their products. Specifically, in the words of the company itself, it “is a worldwide provider of test systems for burning-in and testing logic, optical and memory integrated circuits.”

Important to note, however, is that the stock has fallen on hard times recently. Although the stock has impressive five-year annual average returns of over 660% and has had solid gains lately, investors have lost nearly two-thirds of their investment over the past year. Whether this proves to be a turning of the tide for the company or simply an excellent buying opportunity for an undervalued stock is an open question.

The stock is followed by two analysts, only one of whom has weighed in for October, rating it a “buy.” The one-year price target is $25.

Best For: Investors with a bit of a speculative edge.

5. First Bancorp (FBNC)

First Bancorp is a regional banking corporation and the parent company of First Bank. In early 2023, it completed its acquisition of GrandSouth Bank, as the banking landscape continues to consolidate. The company’s one-year average price target estimate is $47.63, compared with its Oct. 8 closing price of $41.07.

Of the seven analysts watching the stock, four rate it a “buy,” one rates it a “strong buy” and two rate it a “hold.” The stock dividend yield is 2.14%.

Best For: Investors with a relatively low tolerance for risk looking for a dividend stock to hold for the long term.

6. CECO Environmental Corp (CECO)

CECO Environmental Holdings is an industrial pollution and treatment control company that provides air quality, water treatment and energy transition solutions for companies in the energy, manufacturing, engineering and construction industries.

CECO is a solid performer, with gains of about 77%, 291% and 307% over one, three and five years, respectively. It’s up an impressive 77.06% so far this year, easily outperforming the S&P 500, which gained 34.43%.

Just one analyst has rated the stock so far in October, giving it a “hold.” All six watching it in August and September rated it a “buy.” Analysts’ average price target is $33.67, with all analysts predicting gains above the Oct. 8 closing price of $27.36.

Best for: Those looking for a relatively low-volatility investment with a proven track record.

7. Mayville Engineering Co. (MEC)

Mayville Engineering provides manufacturing solutions for original equipment manufacturers in agriculture, construction, military and other end markets. Unlike most small-cap companies, Mayville trades on the New York Stock Exchange.

Despite its small size, the company has produced outsize gains for investors, outpacing the performance of several similar companies, and over the past year, the S&P 500 as well.

Even after missing earnings estimates for four consecutive quarters, four of five analysts watching the stock rate it a “buy” or “strong buy,” and the remaining analyst rates it a “hold.” The price target is $23.67, 17% above the current price.

Best For: Investors looking to bank on a traditional manufacturing stock.

8. SoundHound AI Inc. (SOUN)

SoundHound has provided off-the-chart returns in 2024, rewarding investors with a gain of over 130% as of Oct. 8. Five out of seven analysts rated the stock a “strong buy” or “buy” last month, and the remaining two rated it a “hold.” Their one-year price target averages $7.79. This still gives the stock plenty of room to run, suggesting a potential 12-month gain of over 68%. 

The stock of voice AI and speech recognition soared by over 7% on May 10, with more than 88 million shares traded, when it reported quarterly results above expectations and also announced a new AI-related partnership with search provider Perplexity.

The company’s CEO Keyvan Mohajer referenced the strong results and future outlook in the earnings call, noting that “Voice AI is fast becoming a must-have tool for customer service, and that’s reflected in the demand we’re seeing for subscriptions.”

Best For: Investors looking for a growing AI company that’s still a bit under the radar.

9. Sana Biotechnology (SANA)

Sana is a biotech company that uses “engineered cells as medicines,” but it’s not for the risk-averse. The company lost over $150 million in the first and second quarters of 2024, and its future performance will be heavily dependent on the outcome of various clinical trials it is currently engaged in. This means that the stock will generally be highly volatile. Shares traded below $3 in Oct. 2023, for example, and later more than tripled. Shares are down about 2% so far this year.

Analysts see a bright future for the stock. Of the seven who follow the company, five have a “buy” or “strong buy” rating, and two rate it a “hold.” Price targets are bullish, ranging from a low of $11 to a high of $15 over the next 12 months. The average price target is $13.60, indicating potential gains of over 240%.

Best For: Investors willing to gamble a bit with a speculative biotech stock.

10. ACM Research (ACMR)

ACM Research is a profitable high-tech stock that posted impressive revenue and earnings gains in Q1 and Q2 2024, although the stock didn’t react positively. The company offers a wide variety of tech-related products and services, ranging from single wafer cleaning to furnaces to advanced packaging. An increase in profit margin suggests that further earnings gains may be possible for ACM Research.

Analysts see plenty of upside ahead, with an average 12-month price target of $32.86. Six of seven analysts watching the stock last month rated it a “buy,” and the seventh analyst rated it a “strong buy.” Just two analysts have weighed in so far in October, and they rate it a “buy.”

Best for: Small-cap investors preferring a profitable company that still has exposure to some of the more aggressive areas of the market.

What Is a Small-Cap Stock?

The term “small-cap” is short for small capitalization. A company’s market capitalization is its worth in terms of what investors will pay for it. Market capitalization is the price per share times the number of shares outstanding, and small-cap companies have a market capitalization between $300 million and $2 billion.

Several indices follow small-cap stocks, but the benchmark is the Russell 2000. Since this index always includes 2,000 companies, the valuations may sometimes fall outside the definition of small-cap. The index includes the companies ranked from number 1,001 to number 3,000 among the 4,000 largest publicly traded companies.

Generally, small-cap stocks are riskier than large- and mega-cap blue-chip stocks because they are still trying to prove themselves as viable companies. Many are unprofitable but may show immense future potential. If they execute their plans, big gains can be in store for their stocks. But if they fail, they may perpetually trade at low prices.

Note that not all small-cap stocks fall into the category of “aggressive” or “risky.” Many smaller banks, for example, are profitable and well-run, but as they only serve small areas, their market cap remains low. Others may be newer companies that simply need time to cross the $2 billion market cap threshold that will move them into the mid-cap segment.

What Are Examples of Small-Cap Stocks?

Small-cap stocks are usually young companies. After all, the goal of a small-cap company is to someday become a large-cap company. So, many small-cap stocks may be companies you’ve never heard of. But keep in mind that Apple, Google and Microsoft were once small-cap companies, too.

Here are some small-cap companies you have probably heard of:

• Green Dot (GDOT), a provider of reloadable prepaid debit cards
• Big Lots (BIG), general merchandise retailer

The Bottom Line

Small-cap stocks generally offer higher levels of both risk and reward than the market as a whole. As they generally have less analyst coverage than larger, more active stocks, it requires more due diligence work on the part of the individual investor to make sure they select the right investment for their financial objectives and risk tolerance.

Karen Doyle and Daria Uhlig contributed to the reporting for this article.

Data was compiled on October 9, 2024, and is subject to change. Unless otherwise indicated, Information on analyst ratings was sourced from Yahoo Finance.

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