In this article, we will look at the 11 best micro-cap stocks to invest in. If you want to explore similar stocks, you can also take a look at 5 Best Micro-Cap Stocks To Invest In.
Large-cap and mega-cap stocks have been hammered hard in 2022, amid rampant inflation, rising interest rates, and global supply chain woes. As of October 13, the S&P 500 has lost 23.5% year-to-date, the Nasdaq composite is down 32.75% for the year, and the Dow has tanked about 18% since the beginning of 2022. Investors have become cautious of their trades and holdings and are constantly adjusting their portfolios to suit to the current volatile market environment. Overlooked areas of the stock market, namely small-cap, micro-cap, and nano-cap are being eyed by investors and analysts alike, as they are becoming a more attractive risk/reward investment choice.
BofA Analyst Bullish on Small-Cap Stocks
Head of mid-cap strategy at Bank of America, Jill Carey Hall, recently appeared in an interview on CNBC where she made the case for why she thinks small-cap stocks may fare better than large-cap stocks in the current market environment and moving forward. Jill Carey Hall noted that there are multiple trends that favor the outperformance of small-caps relative to large-caps, one of which is “services holding up better than goods”. Moving forward she sees these trends persisting and creating favorable conditions for the performance of small-caps. Here are some comments from Jill Carey Hall:
“For small-caps, we have been pointing out how cheap they look, now they look even cheaper. As we think about the recession, small-caps are trading at 11x forward earnings. The ISM, the manufacturing index, has been a very correlated indicator with small-caps and a very important one for performance. When you look at what small-caps are pricing in, they are now discounting an ISM level of about 30, so that’s pretty much the lowest the ISM has ever troughed if you look back at the 1970s early 80s recessions. The average for the last four recessions’ ISM trough was more like 39, so we really think the index is pricing in a kind of worst-case scenario at this point in terms of recessionary multiples. And you have seen the index start to outperform even amid the weak market, so really small-caps have been doing well relative to large-caps, you know choppy but we think the outperformance may continue…”
Jill Carey Hall also discussed some small-cap strategies. She noted that investors should “stick with quality” as “quality tends to do well in volatile markets”. If the economy is thrown into a downturn, investors should be “sticking with stocks within small-caps that have earnings rather than no earnings”. Finally, investors should “stick with stocks that have free cash flows” since it is a “value strategy that tends to do well in these types of market environments,” according to the analyst.
Pixabay/Public Domain
Investors are steering away from large-caps such as Meta Platforms, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Netflix, Inc. (NASDAQ:NFLX), triggering major selloffs, and are redirecting their focus toward overlooked areas in the stock market such as small-caps and micro-caps. We have discussed some of the best micro-cap stocks to invest in right now in the article below.
Our Methodology
To determine the best micro-cap stocks to invest in right now, we screened for micro-cap stocks that were profitable, cash-rich, and had near-term and long-term growth catalysts. Further, we narrowed down our selection to stocks that had positive market sentiment. Along with each stock, we have mentioned the hedge fund sentiment, analyst ratings, and top shareholders. We have ranked these stocks according to their popularity among elite hedge funds.
11 Best Micro-Cap Stocks To Invest In
11. Argo Blockchain plc (NASDAQ:ARBK)
Market Cap as of October 13: $98 Million
Number of Hedge Fund Holders: 2
Argo Blockchain plc (NASDAQ:ARBK) is a leading Bitcoin and cryptocurrency mining company that has operations worldwide. The stock is one of the best micro-cap stocks to invest in since the company has a sustainable business model, it conducts mining operations using renewable energy, and has an industry-leading position. Argo Blockchain plc (NASDAQ:ARBK) is trading at a discount to earnings, and as of October 13, has a trailing twelve-month PE ratio of 2.35.
On August 29, Canaccord analyst Joseph Vafi revised his price target on Argo Blockchain plc (NASDAQ:ARBK) to $10 from $13 and reiterated a Buy rating on the shares. The analyst noted that Argo Blockchain plc (NASDAQ:ARBK) is among the leading Bitcoin miners that remain profitable despite recent volatility.
On October 11, Argo Blockchain plc (NASDAQ:ARBK) reported that it had mined 215 Bitcoin and Bitcoin equivalents in September 2022. The company’s current hash rate capacity sits at 2.5 EH/s but it is on track to achieve a total hash rate capacity of 2.9 EH/s after the installation of its Bitmain S19J Pro machines by the end of October 2022.
At the end of Q2 2022, 2 hedge funds were long Argo Blockchain plc (NASDAQ:ARBK) and held stakes worth $279,000 in the company. Of those, Renaissance Technologies was the most prominent shareholder in the company and held stakes worth $241,000.
10. Adams Resources & Energy, Inc. (NYSE:AE)
Market Cap as of October 13: $135 Million
Number of Hedge Fund Holders: 3
Adams Resources & Energy, Inc. (NYSE:AE) is involved in the marketing, storage, and transportation of crude oil and natural gas. On August 24, Adams Resources & Energy, Inc. (NYSE:AE) announced that it will be building a new pipeline that will connect to the Upper Gulf Coast Pipeline System. The pipeline is expected to become functional in the first half of 2023.
As of October 13, Adams Resources & Energy, Inc. (NYSE:AE) has gained 9.32% year to date, is trading at a PE multiple of 10x, and is also offering a forward dividend yield of 3.11%. Adams Resources & Energy, Inc. (NYSE:AE) is one of the best micro-cap stocks to invest in that is undervalued and pays dividends.
At the end of the second quarter of 2022, 3 hedge funds held stakes in Adams Resources & Energy, Inc. (NYSE:AE). The total value of these stakes amounted to $9.47 million. As of June 30, Renaissance Technologies is the most prominent investor in Adams Resources & Energy, Inc. (NYSE:AE) and has stakes worth $8.12 million in the company.
While Adams Resources & Energy, Inc. (NYSE:AE) is gaining in 2022, some of the most mature businesses such as Meta Platforms, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Netflix, Inc. (NASDAQ:NFLX) are losing major chunks of their market caps and, as of October 13, have shed more than 30% of their values year to date.
9. CBAK Energy Technology, Inc. (NASDAQ:CBAT)
Market Cap as of October 13: $102 Million
Number of Hedge Fund Holders: 6
CBAK Energy Technology, Inc. (NASDAQ:CBAT) is a leading developer and manufacturer of lithium batteries. On August 15, CBAK Energy Technology, Inc. (NASDAQ:CBAT) reported earnings for the second quarter of 2022. The company reported a revenue of $56.35 million, up 857% year over year. On September 22, the company announced that it has secured a $28 million order for lithium-ion batteries from a major European manufacturer of HVAC systems.
CBAK Energy Technology, Inc. (NASDAQ:CBAT) is cash-rich and is currently trading at bargain levels. As of October 13, the stock has a trailing twelve-month PE ratio of 3.35 and has free cash flows of over $3 million. The stock is one of the best micro-cap stocks to invest in right now.
At the close of Q2 2022, 6 hedge funds were bullish on CBAK Energy Technology, Inc. (NASDAQ:CBAT) and held stakes worth $1.42 million in the company.
8. PHX Minerals Inc. (NYSE:PHX)
Market Cap as of October 13: $133 Million
Number of Hedge Fund Holders: 8
PHX Minerals Inc. (NYSE:PHX) is a natural gas and oil mineral company that produces and distributes natural gas, crude oil, and natural gas liquids. As of October 13, the stock has gained 64.76% year to date and is offering a forward dividend yield of 2.25%. The company has a trailing twelve-month operating margin of 17.29% and is one of the best profitable micro-cap stocks to invest in.
PHX Minerals Inc. (NYSE:PHX) has come to the attention of Wall Street analysts. On October 3, Northland analyst Donovan Schafer took coverage of PHX Minerals Inc. (NYSE:PHX) with an Outperform rating and a $6 price target. The stock has an average price target of $6.35, which implies an upside of 70% from current levels.
At the close of the second quarter of 2022, 8 hedge funds were long PHX Minerals Inc. (NYSE:PHX) and held stakes worth $6.32 million in the company. This is compared to 8 positions in the previous quarter with stakes worth $3.86 million.
7. Xos, Inc. (NASDAQ:XOS)
Market Cap as of October 13: $173 Million
Number of Hedge Fund Holders: 9
Xos, Inc. (NASDAQ:XOS) is a manufacturer of battery-electric commercial vehicles. On September 29, Xos Inc. (NASDAQ:XOS) announced that it has successfully delivered 13 battery-electric vehicles to four FedEx Corporation (NYSE:FDX) Ground Operators. On October 5, Xos, Inc. (NASDAQ:XOS) announced that the company delivered 88 vehicles to customers in the third quarter of 2022, up 21% quarter-over-quarter from 73 vehicles in the second quarter of 2022. Xos, Inc. (NASDAQ:XOS) is one of the best micro-cap stocks to invest in and is trading at a PE multiple of 11x, as of October 13.
Analysts are bullish on Xos, Inc. (NASDAQ:XOS). As of August 12, DA Davidson analyst Michael Shlisky has a $5 price target and a Buy rating on Xos, Inc. (NASDAQ:XOS). On October 6, Northland analyst Donovan Schafer reiterated his Outperform rating and $3 price target on Xos, Inc. (NASDAQ:XOS).
At the end of the second quarter of 2022, 9 hedge funds held stakes in Xos, Inc. (NASDAQ:XOS). The total value of these stakes amounted to $1.41 million. As of June 30, Alyeska Investment Group is the largest shareholder in Xos, Inc. (NASDAQ:XOS) and has stakes worth $0.5 million in the company.
6. AXT, Inc. (NASDAQ:AXTI)
Market Cap as of October 13: $203 Million
Number of Hedge Fund Holders: 9
AXT, Inc. (NASDAQ:AXTI) develops and manufactures semiconductor equipment that is used in data centers, 5G communications, fiber optic lasers and detectors, and terrestrial solar cells, among other key end-markets. The stock is currently trading at discount levels and the company is profitable. As of October 13, AXT, Inc. (NASDAQ:AXTI) is trading at a PE multiple of 13x and has a trailing twelve-month operating margin of 9.52%. AXT, Inc. (NASDAQ:AXTI) is ranked high among the best micro-cap stocks to buy now.
This August, B. Riley analyst Dave Kang adjusted his price target on AXT, Inc. (NASDAQ:AXTI) to $6.50 from $8 and maintained a Neutral rating on the shares. On October 4, Northland analyst Gus Richard revised his price target on AXT, Inc. (NASDAQ:AXTI) to $10 from $12 and reiterated an Outperform rating on the shares.
At the close of the second quarter of 2022, 9 hedge funds were bullish on AXT, Inc. (NASDAQ:AXTI) and held stakes worth $9.45 million in the company. Of those, Royce & Associates is the most prominent investor in AXT, Inc. (NASDAQ:AXTI) and has a stake of $6.26 million in the company.
Growth stocks are getting hammered in 2022, and some of the biggest losers include Meta Platforms, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Netflix, Inc. (NASDAQ:NFLX).
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Disclosure: None. 11 Best Micro-Cap Stocks To Invest In is originally published on Insider Monkey.