In this article, we will look at the 5 best micro-cap stocks to invest in. If you want to explore similar stocks, you can read 11 Best Micro-Cap Stocks To Invest In.
5. Alto Ingredients, Inc. (NASDAQ:ALTO)
Market Cap as of October 13: $286 Million
Number of Hedge Fund Holders: 11
Alto Ingredients, Inc. (NASDAQ:ALTO) produces and distributes specialty alcohols and ingredients. The company’s products are used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants, alcoholic beverages, commercial animal feed, and pet food products among other products. The stock is trading at a PE multiple of 5x, as of October 13, and has free cash flows of $21.5 million. Alto Ingredients, Inc. (NASDAQ:ALTO) is one of the best micro-cap stocks to invest in now. On September 12, Alto Ingredients, Inc. (NASDAQ:ALTO) announced a share buyback program of $50 million with initial purchase authorization of $10 million.
Over the past three months, Alto Ingredients, Inc. (NASDAQ:ALTO) has received 1 Buy rating and 1 Hold rating from Wall Street analysts. The stock has an average price target of $16, which represents an upside of 313% from current levels.
At the end of Q2 2022, 11 hedge funds were eager on Alto Ingredients, Inc. (NASDAQ:ALTO) and held stakes worth $16.8 million in the company.
4. Evolution Petroleum Corporation (NYSE:EPM)
Market Cap as of October 13: $262 Million
Number of Hedge Fund Holders: 13
Evolution Petroleum Corporation (NYSE:EPM) operates as an energy company and is involved in the production and exploration of onshore oil and gas properties. Wall Street is bullish on Evolution Petroleum Corporation (NYSE:EPM). This July, Northland analyst Donovan Schafer took coverage of Evolution Petroleum Corporation (NYSE:EPM) with an Outperform rating and an $8.60 price target.
On September 13, Evolution Petroleum Corporation (NYSE:EPM) announced market-beating earnings for the fiscal fourth quarter of 2022. The company reported earnings per share of $0.44 and beat Wall Street consensus by $0.03. The company generated a revenue of $42 million, up 206.65% year over year, and outperformed expectations by $3.88 million. As of October 13, the stock has surged 47% year to date. Evolution Petroleum Corporation (NYSE:EPM) is one of the best micro-cap stocks to buy now.
At the close of Q2 2022, 13 hedge funds were long Evolution Petroleum Corporation (NYSE:EPM) and held stakes worth $18.6 million in the company. As of June 30, Renaissance Technologies is the top shareholder in Evolution Petroleum Corporation (NYSE:EPM) and has stakes worth $11.24 million in the company.
Here is what Steel City Capital had to say about Evolution Petroleum Corporation (NYSE:EPM) in its first-quarter 2022 investor letter:
“Evolution Petroleum Corporation (NYSE: EPM): EPM is a small oil & gas company that owns a portfolio of diversified oil, natural gas, and NGL producing properties. EPM is atypical in the sense that it specifically focuses on non-operating working & revenue interests of producing assets that are in the twilight years of their lives. These assets require fairly minimal capital and have steady, predictable production profiles. Historically, EPM was a less attractive single-asset business, owning only a 23.9%/26.2% working/revenue interest in Denbury’s Delhi field, which is predominantly an oil asset. In recent years, however, management has meaningfully diversified, adding a total of four additional production assets to its portfolio. Pro-forma for its most recent acquisitions, EPM’s production mix is 43% oil, 40% natural gas, and 17% NGL. One of the more important factors that attracted me to EPM was management’s philosophy to operate an unhedged book1 . I subscribe to the school of thought that 1) years of underinvestment in upstream projects has resulted in a structural supply deficit that should be supportive of pricing for some time and 2) commodity exposure is an important hedge against rising inflation. Shares trade at an EV/EBITDA multiple in the mid-2x range and offer a mid-single-digit dividend yield.”
3. Whole Earth Brands, Inc. (NASDAQ:FREE)
Market Cap as of October 13: $142 Million
Number of Hedge Fund Holders: 16
Whole Earth Brands, Inc. (NASDAQ:FREE) is a leading global food company. The company has two divisions: Branded CPG and Flavors & Ingredients. Whole Earth Brands, Inc. (NASDAQ:FREE) is ranked high among the best micro-cap stocks to invest in and is currently trading at bargain levels. As of October 13, the stock has a trailing twelve-month PE ratio of 11.6 and an operating margin of 5%.
Over the past three months, Whole Earth Brands, Inc. (NASDAQ:FREE) has received 4 Buy ratings from Wall Street analysts and has a consensus Strong Buy rating. The stock’s average price target sits at $12 and implies an upside of 245% from current levels.
At the end of the second quarter of 2022, 16 hedge funds held stakes in Whole Earth Brands, Inc. (NASDAQ:FREE). The total value of these stakes amounted to $58.9 million. As of June 30, Rubric Capital Management is the largest shareholder in Whole Earth Brands, Inc. (NASDAQ:FREE) and has stakes worth $22.2 million in the company.
Here is what Laughing Water Capital had to say about Whole Earth Brands, Inc. (NASDAQ:FREE) in its second-quarter 2022 investor letter:
“Whole Earth, our alternative sweeteners business, currently trades around 6-7x my estimate of normalized FCF, versus packaged food peers at more than 20x. To be fair, the company has somewhat painted themselves into a corner as they have been pitching themselves as an M&A growth story, but after ~doubling revenue over the last 2 years, at present the balance sheet is full, and they do not have the equity cost of capital needed to continue to pursue M&A with equity.
Thus, the revenue growth story is on hold (although their category should grow faster than other packaged foods), which combined with some inflationary pressures has led to shares being punished. From my perspective, a stalled growth story is not great, but it is better than a continued growth story that is based on value destroying dilutive equity transactions: management deserves some credit for being disciplined. Further, debt paydown is a totally reasonable strategy to build equity value. The company is presently rebuilding the balance sheet, which at some point will likely be fire power for future M&A.
Putting the balance sheet aside, perhaps the most notable recent development is Martin Franklin bought ~14% of the equity during the quarter. No one is infallible, but at the very least it is curious to note that the last time Martin Franklin and FREE’s Chairman Irwin Simon worked together it was at Jarden Corporation, where Franklin compounded capital at 30% a year for 15 years before selling the business.
Again, there is no guarantee here that history will rhyme, but a low starting valuation is a prerequisite for that sort of compounding, so we are starting from a good place. How cheap does a stock have to be to partner with people that have an incredible history of buying and building businesses? Should we wait for 4x or 5x normalized FCF? Or should we plow ahead at 6-7x and just acknowledge that the road forward will have plenty of speed bumps?”
2. Information Services Group, Inc. (NASDAQ:III)
Market Cap as of October 13: $231 Million
Number of Hedge Fund Holders: 16
Information Services Group, Inc. (NASDAQ:III) is a technology company that provides automation, cloud, and data analytics among other services. Information Services Group, Inc. (NASDAQ:III) is undervalued, profitable, and cash-rich. As of October 13, the stock is trading at a PE multiple of 14.2 and is offering a forward dividend yield of 3.29%. The company has a trailing twelve-month operating margin of 10.4% and has free cash flows of over $22.48 million. Information Services Group, Inc. (NASDAQ:III) is one of the best micro-cap stocks to buy now.
This August, Barrington analyst Vincent Colicchio revised his price target on Information Services Group, Inc. (NASDAQ:III) to $9 from $11 and maintained an Outperform rating on the shares.
On September 19, Information Services Group, Inc. (NASDAQ:III) announced a strategic collaboration with cyberconIQ to develop cybersecurity solutions for vulnerabilities created by poor user practices.
At the close of the second quarter of 2022, 16 hedge funds were long Information Services Group, Inc. (NASDAQ:III) and held stakes worth $58.18 million in the company. As of June 30, Private Capital Management is the leading shareholder in Information Services Group, Inc. (NASDAQ:III) and has stakes worth $27.85 million in the company.
1. Selecta Biosciences, Inc. (NASDAQ:SELB)
Market Cap as of October 13: $249 Million
Number of Hedge Fund Holders: 16
Selecta Biosciences, Inc. (NASDAQ:SELB) is a clinical-stage biopharmaceutical company that is involved in the research and development of nanoparticle immunomodulatory drugs for the treatment of human illnesses. Selecta Biosciences, Inc. (NASDAQ:SELB) is currently trading at a discount to earnings and is one of the best micro-cap stocks to invest in. As of October 13, Selecta Biosciences, Inc. (NASDAQ:SELB) has a trailing twelve-month PE ratio of 11.29 and an operating margin of 20.95%.
Over the past three months, 5 Wall Street analysts have given Buy ratings on Selecta Biosciences, Inc. (NASDAQ:SELB) and the stock has a consensus Strong Buy rating. Selecta Biosciences, Inc. (NASDAQ:SELB) has an average price target of $6.75, which implies an upside of 330% from current levels.
At the end of Q2 2022, 16 hedge funds disclosed ownership of stakes in Selecta Biosciences, Inc. (NASDAQ:SELB). The collective stakes of these hedge funds amounted to $30.34 million. This is compared to 10 positions in the preceding quarter with stakes worth $13.90 million. The hedge fund sentiment for the stock is positive. As of June 30, Mangrove Partners is the most prominent investor in Selecta Biosciences, Inc. (NASDAQ:SELB) and has stakes worth $9.5 million in the company.
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