10 Best Small-Cap Stocks to Buy According to Hedge Funds

Published August 12, 2021 at 10:46 am EDT Updated August 19, 2026 at 5:15 am EDT

In this article, we will take a look at the 10 best small-cap stocks to buy according to hedge funds.

As governments around the world begin to vaccinate millions of people, markets are slowly but surely coming back to normal. Small-cap stocks, which proved their mettle even in the midst of the pandemic, remain on investors’ radar. At the end of June, the Russell 2000 index of small-cap stocks posted its ninth consecutive month of gains, according data from Dow Jones. Since September 2020, the index has gained 49%, while the S&P 500 benchmark of large-cap stocks was up 30% in the same period.

What makes an average investor successful in the long run is their ability to spot great stocks before they become famous and expensive. For example, Facebook, Inc. (NASDAQ: FB), which trades at around $360 today, was trading at $38 in 2012. Similarly, Amazon.com, Inc. (NASDAQ: AMZN), which is trading at $3292 today, was hovering $20 back in 1998.

Our Methodology:

In this article, we will mention 10 notable small-cap stocks based on our data of 866 hedge funds. These are some of the most popular small-cap stocks among the hedge funds tracked by Insider Monkey. We also took into account long-term growth potential, analyst ratings and fundamentals of these stocks. We ranked these stocks based on the number of hedge funds having stakes in them.

Why pay attention to hedge fund sentiment while choosing stocks?

Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

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Best Small-Cap Stocks to Buy According to Hedge Funds

10. Citi Trends, Inc. (NASDAQ: CTRN)

Market Cap: $706.5 million
Number of Hedge Fund Holders: 24

Citi Trends, Inc. (NASDAQ: CTRN) is an American retail company that sells clothes at discounted prices. The company targets the audience specifically from urban areas. Citi Trends, Inc. has over 570 stores located in 33 U.S. states.

In Q1 2021, Citi Trends, Inc. generated revenue of $285.4 million, compared with $116.1 million during the same period last year. The company also reported a 142% year-over-year growth in comparable-store sales. Citi Trends, Inc. raised its guidance for FY21 and expects revenue in the range of $970 million to $990 million.

In May, Craig-Hallum raised its price target on Citi Trends, Inc. to $150, with a ‘Buy’ rating on the shares. The firm appreciated the company’s transformation from a value stock to a growth stock and expects an EPS to grow at a CAGR of 25% in the upcoming years. In the past year, Citi Trends, Inc. has delivered a 292.3% return to shareholders.

As of Q1 2021, 24 hedge funds tracked by Insider Monkey have positions in Citi Trends, Inc., up from 19 in the previous quarter. The total value of these stakes is $170.7 million.

Like Facebook, Inc., Amazon.com, Inc., Hostess Brands, Inc. (NASDAQ: TWNK), Bloomin’ Brands, Inc. (NASDAQ: BLMN) and Cowen Inc. (NASDAQ: COWN), Citi Trends, Inc. is popular among hedge funds.

9. Xenon Pharmaceuticals Inc. (NASDAQ: XENE)

Market Cap: $765 million
Number of Hedge Fund Holders: 27

Xenon Pharmaceuticals Inc. (NASDAQ: XENE) is a Canadian biopharmaceutical company that specializes in therapeutics for patients with neurological disorders. The company pays special focus to channelopathies, a condition caused due to defects in ion channels.

In Q2 2021, Xenon Pharmaceuticals Inc. reported revenue of $2.2 million. The company reported research and development expenses of $18.4 million due to the increased spending on the clinical development of neuro-related drugs. In May, SVB Leerink lifted its price target on Xenon Pharmaceuticals Inc. to $28, with a ‘Buy’ rating on the shares. In the past year, Xenon Pharmaceuticals Inc. gained 66.04% and 26.7% year to date.

The number of hedge funds having stakes in Xenon Pharmaceuticals Inc. in Q1 2021 grew to 27 from 25 in the previous quarter. The total value of these stakes is $385.3 million.

8. Cowen Inc. (NASDAQ: COWN)

Market Cap: $1.1 billion
Number of Hedge Fund Holders: 27

Cowen Inc. is an American investment bank and financial services company. The bank focuses on providing value-added capabilities to clients to help them to outperform. Cowen Inc. was founded in 1918 and is headquartered in New York.

In Q2 2021, Cowen Inc. reported a net income of $50.8 million and an EPS of $1.50, beating the consensus by $0.20. The consolidated revenue stood at $381.5 million. In the second quarter, Cowen Inc. repurchased shares worth $49.9 million and the company’s board announced the quarterly dividend of $0.10 per share. In May, JMP Securities lifted its price target on Cowen Inc. to $60, with a ‘Buy’ rating on the shares. Cowen Inc. gained over 134.2% in the past year and 56.7% year to date.

As of Q1 2021, 27 hedge funds tracked by Insider Monkey have positions in Cowen Inc., as compared with 25 in the previous quarter. Fisher Asset Management is the company’s leading shareholder, with shares worth $5.79 million.

Like Hostess Brands, Inc., Aclaris Therapeutics, Inc. (NASDAQ: ACRS), Bloomin’ Brands, Inc., Turning Point Brands, Inc. (NYSE: TPB), and Clear Channel Outdoor Holdings, Inc. (NYSE: CCO), Cowen Inc. is one of the best small-cap stocks to buy according to hedge funds.

7. Tenneco Inc. (NYSE: TEN)

Market Cap: $1.41 billion
Number of Hedge Fund Holders: 28

Tenneco Inc. (NYSE: TEN) is an American company that designs and manufactures automotive products for aftermarket customers. The company has operations in over 270 sites located worldwide. Tenneco Inc. brings technology solutions to enhance advancements in global mobility.

In Q2 2021, Tenneco Inc. reported revenue of $4.6 billion, up 74% year-over-year. The net income for the quarter was recorded at $69 million, with an EPS of $0.84. For FY21, Tenneco Inc. expects revenue of between $18.3 billion-$18.6 billion. In June, Wells Fargo showed confidence in the company’s future earnings and also indicated a significant upside. The firm lifted its price target on Tenneco Inc. to $25, with an ‘Overweight’ rating on the shares. In the past year, Tenneco Inc. has soared by 90.1%.

The number of hedge funds having stakes in Tenneco Inc. as of Q1’2021 grew to 28 from 25 in the previous quarter. The total value of these stakes is $196.4 million. Icahn Capital LP is the company’s leading shareholder with 9.5 million shares, worth $102.8 million.

Like Facebook, Inc., Amazon.com, Inc., Hostess Brands, Inc., Bloomin’ Brands, Inc. and Cowen Inc., Tenneco Inc. is popular among hedge funds.

6. Dine Brands Global, Inc. (NYSE: DIN)

Market Cap: $1.3 billion
Number of Hedge Fund Holders: 28

Dine Brands Global, Inc. (NYSE: DIN) is an American food and dining company that franchises two of the most famous brands, IHOP and Applebee’s International, Inc. Dine Brands Global, Inc. has over 3,500 restaurants in more than 16 countries.

Dine Brands Global, Inc. reported solid earnings in Q2 2021. The company generated $233.6 million in revenue, up from $109.7 million during the same period last year. The EPS of $1.94 beat the consensus by $0.27. Franchise revenue accounted for $177 million of the gross revenue.

Recently, Deutsche Bank upgraded Dine Brands Global, Inc. to ‘Buy’ with a $93 price target. The bank appreciated the company’s strong earnings and expects a recovery in dine-in sales. Since the beginning of the year, Dine Brands Global, Inc. has delivered a 33% return to shareholders and has gained 44.9% in the past year.

As of Q1 2021, 28 hedge funds have positions in Dine Brands Global, Inc., up from 26 in the previous quarter. The total value of these stakes is $248.9 million.

Like Facebook, Inc., Amazon.com, Inc., Hostess Brands, Inc., Bloomin’ Brands, Inc. and Cowen Inc., Dine Brands Global, Inc. is popular among hedge funds.

5. Clear Channel Outdoor Holdings, Inc. (NYSE: CCO)

Market Cap: $1.17 billion
Number of Hedge Fund Holders: 29

Clear Channel Outdoor Holdings, Inc. is an American outdoor advertising company. It helps advertisers to create inspiring campaigns using traditional and digital displays. The company has over 450,000 displays in 31 countries. Clear Channel Outdoor Holdings, Inc. has operations in 44 of the top 50 markets in the U.S.

In Q2 2021, Clear Channel Outdoor Holdings, Inc. reported revenue of $531 million, up 68.6% from the prior-year quarter. America remained the biggest market for the company, accounting for $271.6 million of the gross revenue. Clear Channel Outdoor Holdings, Inc. also reported 73.8% year-over-year growth in digital earnings.

In July, Morgan Stanley raised its price target on Clear Channel Outdoor Holdings, Inc. to $3.15, with an ‘Equal Weight’ rating on the shares. In the past 12 months, Clear Channel Outdoor Holdings, Inc. has delivered a 130.5% return to shareholders.

As of Q1 2021, 29 hedge funds tracked by Insider Monkey have positions in Clear Channel Outdoor Holdings, Inc., worth $193.9 million.

4. Aclaris Therapeutics, Inc. (NASDAQ: ACRS)

Market Cap: $897 million
Number of Hedge Fund Holders: 30

Aclaris Therapeutics, Inc. is a biopharmaceutical company. The company develops molecule therapies that help patients with immune-inflammatory conditions. Aclaris Therapeutics, Inc. was founded in 2012 and is headquartered in Pennsylvania, U.S.

In 2020, Aclaris Therapeutics, Inc. generated revenue of $6.4 million, up from $4.2 million in 2019. In the second quarter of 2021, the company beat revenue by $0.07 million at $1.82 million. Aclaris Therapeutics, Inc. reported a $1.4 million growth in research and development due to the company’s investment in the development of clinical-stage drugs. In July, Jefferies initiated its coverage on Aclaris Therapeutics, Inc. with a ‘Buy’ rating and a price target of $32. Since the beginning of the year, Aclaris Therapeutics, Inc. has delivered a return of 125.8%.

As of Q1 2021, 30 hedge funds tracked by Insider Monkey have positions in Aclaris Therapeutics, Inc., up from 23 in the previous quarter. The total value of these stakes is over $655 million.

3. Bloomin’ Brands, Inc. (NASDAQ: BLMN)

Market Cap: $2.31 billion
Number of Hedge Fund Holders: 32

Bloomin’ Brands, Inc. is an American restaurant holding company, with headquarters in Florida, U.S. The company owns and operates over 1,400 restaurants in 47 states. Some of the famous casual dining chains owned by Bloomin’ Brands, Inc. include Outback Steakhouse and Carrabba’s Italian Grill.

In Q2 2021, Bloomin’ Brands, Inc. reported an EPS of $0.81, beating the consensus by $0.08. The consolidated revenue for the quarter stood at $1.08 billion, presenting an 86.7% year-over-year growth. Moreover, Bloomin’ Brands, Inc. also reported a 65.8% growth in comparable restaurant sales. Recently, Credit Suisse upgraded Bloomin’ Brands, Inc. to ‘Outperform’ with a $33 price target. The firm appreciated the company’s in-restaurant sales growth.

As of Q1 2021, 32 hedge funds have positions in Bloomin’ Brands, Inc., worth $498.2 million. The number is up from 24 funds in the previous quarter.

2. Turning Point Brands, Inc. (NYSE: TPB)

Market Cap: $925.3 million
Number of Hedge Fund Holders: 33

Turning Point Brands, Inc. is an American tobacco company founded in 2004. The company manufactures, markets, and distributes smoking accessories and consumables through its brands Zig-Zag and Stoker’s. The products of Turning Point Brands, Inc. are available at over 210,000 retail stores in America.

Turning Point Brands, Inc. reported stronger earnings in Q2 2021. The company reported a net income of $15.4 million, up 49.2% from the prior-year quarter. The EPS stood at $0.84, beating the market estimate by $0.19. Turning Point Brands, Inc. generated revenue of $122.6, presenting 16.8% year-over-year growth. For FY21, the company expects net sales in between $447 million to $462 million. In July, the company’s earnings were lauded by B. Riley as the firm lifted its price target on Turning Point Brands, Inc. to $65, with a ‘Buy’ rating on the shares. Turning Point Brands, Inc. gained 63.1% in the past year.

Hedge funds are investing in Turning Point Brands, Inc., as in Q1 2021, 33 funds have positions in the company, compared with 27 in the previous quarter.

Maran Capital Management recently published its second-quarter 2021 investor letter and mentioned Turning Point Brands, Inc. in it. Here is what the firm has to say:

“We continue to hold core positions in previously disclosed companies (including) Turning Point Brands (TPB). Turning Point Brands remains cheap given its organic growth profile, low capital intensity, and large collection of small, asymmetric bets in vaping and active ingredients. TPB’s Zig Zag brand is among the most well-positioned brands in the US as cannabis legalization marches forward, jurisdiction by jurisdiction.”

1. Hostess Brands, Inc. (NASDAQ: TWNK)

Market Cap: $2.01 billion
Number of Hedge Fund Holders: 34

Hostess Brands, Inc. is a leading American packaged food company. It mainly manufactures, sells, and markets snacks and bakery products in North America. Hostess Brands, Inc. owns some of the most famous bakeries in the U.S., namely Voortman Cookies, Superior Cake Products, Inc., etc.

In Q2 2021, Hostess Brands, Inc. reported a net income of $32.2 million, up 10.3% from the prior-year quarter. The EPS of $0.23 beat the market consensus by $0.01. Net revenue also increased by 13.5% year-over-year at $291.5 million. For FY21, Hostess Brands, Inc. expects revenue growth between 7.5%-9.0%.

In May, Stephens initiated its coverage on Hostess Brands, Inc. with an ‘Overweight’ rating and an $18 price target. In the past year, Hostess Brands, Inc. has delivered a return of 23.5%.

As of Q1 2021, 34 hedge funds tracked by Insider Monkey have positions in Hostess Brands, Inc., up from 26 in the previous quarter. The total value of these stakes is $338.2 million. Segantii Capital is the company’s leading shareholder with 1.2 million shares, worth $19.4 million.

You can also take a look at 15 Best Small-Cap Healthcare Stocks to Buy and 10 Best Small Cap Stocks to Buy in 2021

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