In this article we’ll check out the 10 Best Small-Cap Stocks To Buy Now.
With smaller companies generally being less financially resistant and less able to withstand unforeseen events and operational challenges, it’s not entirely surprising that small-caps haven’t fared all that well during a challenging 2020 that has been dominated by the coronavirus pandemic, at least in comparison to their large-cap rivals.
The small-cap Russell 2000 Index was 1.36% in the red year-to-date through November 6 while the S&P 500 had gained 7.72% during the same period and the Nasdaq had soared by a remarkable 30.83%. However, things began looking up for small-caps on November 9, when Pfizer Inc. (NYSE:PFE) announced extremely promising coronavirus vaccine trial results that showed the treatment has a 90% success rate when it comes to preventing Covid-19 infection.
The Russell 2000 has since jumped by over 5.6%, pushing it into the green for the year and setting small-caps up for a potential longer-term rally over the coming months. With that in mind, we have turned to Ken Fisher’s Fisher Investments for small-cap inspiration. Fisher Investments is one of the largest and most successful money managers in the world, with more than $100 billion in assets under management.
Ken Fisher of Fisher Asset Management
The billionaire investor, author, and longtime Forbes columnist expressed his bullishness on the market ahead of the election, telling Focus Money that neither a Biden nor Trump victory would stop the market’s ongoing growth. While he did state that a Biden presidency would be worse for stocks long-term, he added that the market can nonetheless thrive even under an anti-capitalist President.
Fisher Asset Management recently released its latest 13F filing, unveiling its equity holdings as of September 30. Among those holdings were numerous large positions in small-cap stocks, the top 10 of which we’ve compiled in this article. Fisher’s conviction in these ten stocks, all of which have market caps of under $5 billion, is undeniable, as the investment firm owns a greater than 2.9% stake in each of them.
While Ken Fisher’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, 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 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17. 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 enewsletter below to receive our stories in your inbox.
Without further ado, here are the 10 Best Small-Cap Stocks to Buy Now.
10. Callaway Golf Company (NYSE:ELY)
Our list of the 10 Best Small-Cap Stocks to Buy Now begins with golf club manufacturer Callaway Golf Company (NYSE:ELY), which Fisher Asset Management owned 3.64 million shares of on September 30. Fisher added another 1.3 million shares to the holding in Q3 after opening a new position in the stock during Q2. Hedge fund interest in Callaway Golf has remained within a relatively narrow range over the past four years, with 24 of the hedge funds tracked by Insider Monkey owning shares on June 30.
A surge in golf’s popularity has Callaway poised to recover from the pandemic quicker than expected, with preliminary Q3 guidance suggesting a 12% jump in sales after a greater than 30% sales decline in Q2. The company’s recent acquisition of Topgolf heavily dented ELY shares however, with the $2 billion all-stock price tag diluting shareholder value while the company also assumed over $550 million of debt in the deal.
9. Winnebago Industries, Inc. (NYSE:WGO)
Winnebago Industries, Inc. (NYSE:WGO) is another recent addition to Fisher’s 13F portfolio, also being added during the second quarter. The investment firm now has a 4.2% stake in the company after adding another 361,736 shares to its position in Q3. Fisher wasn’t the only hedge fund to take an interest in Winnebago in Q2, as ownership of the stock jumped by 74% among the hedge funds tracked by Insider Monkey.
Chuck Royce’s Royce Investment Partners also hiked its position in Winnebago by 21% in Q2, with the fund’s Assistant Portfolio Manager Suzanne Franks noting in a Q3 investor letter that RV makers like Winnebago had a big opportunity during the pandemic as travelers increasingly eschewed flying for driving.
8. Chart Industries, Inc. (NASDAQ:GTLS)
Fisher Asset Management owns 1.04 million shares of Chart Industries, Inc. (NASDAQ:GTLS) as of September 30, a company which it’s been an investor of since the second quarter of 2018. 21 other hedge funds tracked by Insider Monkey were long GTLS on June 30, up from just 10 at the end of 2017.
Hedge funds are bullish on the company’s more diversified business operations and expanding geographical footprint. A surge in demand from its biomedical customers brought on by the coronavirus pandemic lead to strong Q2 results, while increased worldwide funding of renewable energy projects will also benefit Chart Industries greatly.
7. Alcoa Corporation (NYSE:AA)
Fisher Asset has owned shares of Alcoa Corporation (NYSE:AA) since the second quarter of 2018, but showed renewed bullish on the company in Q3, nearly doubling the size of its AA holding to 6.7 million shares. In contrast, overall hedge fund sentiment towards Alcoa has been at relatively depressed levels over the past few years, with the stock not being owned by more than 40 of the hedge funds tracked by Insider Monkey since 2017.
Alcoa’s solid Q3 earnings report in which it easily topped estimates as aluminum pricing and demand showed positive signs of rebounding was offset by the company’s tepid forward guidance, which suggested the bounce would be short-lived.
6. Yelp Inc (NYSE:YELP)
Closing out the first-half of the 10 Best Small-Cap Stocks To Buy Now is Yelp Inc (NYSE:YELP), which Fisher Asset Management owns a 5.5% stake in as of September 30 after adding another 636,874 YELP shares to its holding during Q3. Yelp was also one of Cerebellum Capital’s Most Intriguing Q3 Stock Picks, with the fund taking a new position in the company, which should see traffic on its platform boosted significantly in the event of a vaccine as restaurants in particular reopen to the masses.
Despite going through what Yelp CEO Jeremy Stoppelman called “one of the most challenging periods in our history”, the company remains in a solid, debt-free financial position and should have much better days ahead in 2021 and beyond.
- Synaptics Incorporated (NASDAQ:SYNA)
The back-half of our list of the 10 Best Small-Cap Stocks To Buy Now begins with Synaptics Incorporated (NASDAQ:SYNA), a company that operates in the PC, mobile, and IoT spaces. Synaptics has been a turnaround play over the past few years and found a believer in billionaire Ken Fisher’s Fisher Asset Management, which opened a stake in SYNA in Q2 2018 and which owned 1.28 million shares at the end of September 2020. Other hedge funds tracked by Insider Monkey are also becoming more bullish, with ownership of the stock among that select group of funds more than doubling over the last year.
Synaptics still has an uphill climb ahead of it however. With the global PC and mobile markets expected to be mostly stagnant in the years to come, the company will be relying heavily on its IoT segment to deliver some badly needed growth. Revenue has fallen over each of the last three years, sliding from $1.72 billion in 2017 to just $1.33 billion in 2020. On the bright side, the company has boosted its gross profit margin by 13 percentage points over the past two years.
- KB Home (NYSE:KBH)
Fisher Asset Management owned 2.72 million shares of KB Home (NYSE:KBH) on September 30 after selling off less than 45,000 shares of the homebuilder during Q3. Fisher Asset held the most valuable position in the stock on June 30 among the funds tracked by Insider Monkey, 23 of whom were KBH shareholders, and that position jumped to over $104 million in value following a strong Q3 for the stock.
New home sales and orders have been surprisingly strong in 2020, jumping by 17% year-over-year. Furthermore, August’s seasonally-adjusted annual rate of new home sales topped 1 million for the first time in 14 years, before sliding back to 959,000 in September. The pandemic has in fact been a boon for the housing market, spurring added mobility in the marketplace through growing demand for houses with home offices and gyms.
In its Q3 investor letter, Keeley Asset Management said that it expects KB Home’s near-term demand to remain strong thanks to record-low mortgage rates and aging Millennials entering prime home-buying age.
- Cleveland-Cliffs Inc (NYSE:CLF)
Fisher Asset Management was one of the 25 hedge funds tracked by Insider Monkey that owned shares of Cleveland-Cliffs Inc (NYSE:CLF) at the end of Q2. Fisher made another large investment in CLF shares during the third quarter, adding over 4.56 million shares to its position and giving it a 4.35% stake in the mining company. That buying spree paid off handsomely for Fisher in October, as CLF shares jumped by nearly 30% following the company’s acquisition of steelmaker ArcelorMittal (NYSE:MT)’s U.S assets. In tandem with its purchase of AK Steel in March, Cleveland-Cliffs has become the largest steelmaker in the U.S, with investors excited about what the company is capable of now with its added scale.
- Stamps.com Inc. (NASDAQ:STMP)
Stamps.com Inc. (NASDAQ:STMP) lands in second spot, with Fisher Asset Management owning just over 609,000 shares of the online postage and shipping services provider, trimming its stake by 11% during the third quarter. The hedge fund sentiment towards Stamps.com Inc. (NASDAQ:STMP) began rebounding late last year after more than half of the stock’s hedge fund shareholders sold out of it between Q3 2018 and Q3 2019. Ownership of STMP has jumped by 50% this year among the hedge funds tracked by Insider Monkey.
Unfortunately for shareholders, as Stamps.com was one of the rare pandemic winners, it was likewise one of the big losers following Pfizer Inc. (NYSE:PFE)’s positive vaccine results, with shares sliding by about 10%. Stamps.com’s Q2 sales surged by 42% as pandemic-displaced companies and workers turned to online selling in droves. With a promising Covid vaccine on the horizon, investors are worried that Stamps could soon lose a sizable chunk of that new business.
- Meritage Homes Corp (NYSE:MTH)
Meritage Homes tops our ranking of the 5 Best Small-Cap Stocks To Buy Now. Fisher Asset Management has been a long-term shareholder of Meritage Homes Corp (NYSE:MTH), owning shares of the entry-level homebuilder since 2013. The firm’s enthusiasm for Meritage Homes hasn’t waned in the slightest since then, as its 1.37 million shares and 3.65% stake in the company ranked it as Fisher’s top small-cap stock pick as of September 30.
Other hedge funds tracked by Insider Monkey haven’t been overly enthusiastic about MTH historically, but ownership of the stock did nearly double in Q3 2019, a quarter during which Meritage reported a 22% jump in Q2 orders. The company did even better this year, with June orders surging by 66% year-over-year and Q3 orders rising by 71% amid the aforementioned boom in the housing market.
If you’re interested in adding some compelling tech stocks to your portfolio, don’t miss our article on the top 10 cloud computing stocks to buy.
