On February 5, Simeon Hyman, Global Investment Strategist at ProShares, appeared on a Schwab Network interview to discuss how investors can capitalize on market rotation. He noted that the mega-cap tech stocks are witnessing a sell-off despite strong fundamentals and earnings. The major reason behind the sell-off is largely due to the high bar for these companies based on the AI capital expenditure. Hyman noted that this market rotation presents other attractive opportunities, such as the small caps.
Small caps have been outperforming the S&P 500 on a year-to-date basis. Hyman noted that investing in small-cap ETFs can be a good option for investors seeking exposure to high-quality small-cap stocks. He highlighted that small-cap companies are also backed by strong fundamentals, as evident from the ongoing earnings season. At the time of the interview, almost one-third of the companies had reported earnings, and small-cap earnings were up 25% year-over-year.
With that, let’s take a look at the 12 Best Small-Cap Growth Stocks to Buy According to Hedge Funds.
Stocks
Our Methodology
We used screeners to identify small-cap stocks (market cap between $300 million and $2 billion) that are expected to grow their earnings by at least 25% over the next 5 years, and limited our final selection to companies that have recently reported noteworthy developments likely to impact investor sentiment. These stocks are also popular among analysts and elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
12 Best Small-Cap Growth Stocks to Buy According to Hedge Funds
12. PicS N.V. (NASDAQ:PICS)
PicS N.V. (NASDAQ:PICS) is one of the Best Small-Cap Growth Stocks to Buy According to Hedge Funds. On February 24, Bank of America Securities initiated a Buy rating on PicS N.V. (NASDAQ:PICS) with a price target of $27.
The firm said in a research note that PicS N.V. ranks as the third largest fintech in Brazil in terms of the number of clients. The company shifted to balance sheet risk through underwriting credit cards and payroll loans in 2023. BofA believes that the credit business will be the core driver for the company’s earnings moving forward. The firm expects 117% EPS compound annual growth rate through 2028, and has also improved the return on equity forecast to more than 30%, up from the current 16% LTM level.
Similarly, earlier on February 23, Mizuho Securities and Citi also initiated the stock with a Buy rating and set price targets of $30 and $28, respectively.
PicS N.V. (NASDAQ:PICS) operates as a leading Brazilian fintech company, delivering digital financial services through a mobile app ecosystem for consumers and businesses nationwide.
11. Appian Corporation (NASDAQ:APPN)
Appian Corporation (NASDAQ:APPN) is one of the Best Small-Cap Growth Stocks to Buy According to Hedge Funds. On March 2, Appian Corporation (NASDAQ:APPN) presented at the Morgan Stanley conference, highlighting strategic growth and renewed focus on AI.
At the conference, management highlighted that the company is increasing its focus on mission-critical workflows to automate large enterprises and the public sector in highly regulated verticals, including financial services, government, and life sciences. The company is also leaning into practical AI by embedding AI Skills, DocCenter, Agent Studio, and Composer into process automation.
Management highlighted that they posted GAAP net income of about 1.2 million dollars for the first time in fiscal 2025. Moreover, EBITDA margins also improved from negative 8% to around positive 11%. This was driven by an 18% year-over-year increase in revenue to $576 million for fiscal 2025.
Looking ahead, Appian expects continued growth in revenue, EBITDA, and EPS. This is expected to be driven by management’s increased focus on increasing its customers in the advanced subscription tier.
Appian Corporation (NASDAQ:APPN) develops a low-code automation platform that enables organizations to quickly design, automate, and optimize business processes, cutting costs and enhancing customer experiences.
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