12 Cash-Rich Small Cap Stocks To Invest In

In this article, we will take a look at the 12 cash-rich small cap stocks to invest in.

In 2022, standard diversified portfolios suffered through their worst-performing year in a century. Despite the decline in markets this past year, investors are looking to pick up the pieces, and small-cap stocks could be a big part of how they do that. According to Bank of America Corp chief investment strategist Michael Hartnett, the outlook seems favorable for small-cap stocks, as they are generally a smart way to approach economic recovery, and at some stage in 2023, the market will anticipate recovery rather than recession.

According to a report by Wespath, which quotes a research paper by Nobel economics laureate Eugene Fama and co-author Ken French, small- and mid-cap stocks “consistently” outperform large-cap stocks. One popular notion that seems to support this outlook is that small-cap companies tend to participate in less mature, more innovative and faster-growing industries—such as biotech, robotics or specialized software. In contrast, larger-cap equities seem to favor stable, lower-growth industries like healthcare, consumer staples and telecommunications.

Small-cap stocks like Algoma Steel Group Inc. (NASDAQ:ASTL), Merus N.V. (NASDAQ:MRUS), and MagnaChip Semiconductor Corporation (NYSE:MX), among others discussed in detail below, are a few names in the market that have managed to remain steady in a strained economy.

Photo by Adam Nowakowski on Unsplash

Our Methodology

To select the stocks for our list, we first scoured the large universe of small-cap and first screened for names that have a market cap between $300 million and $2 billion, and then focused on their enterprise value (EV). As its name implies, enterprise value is the total value of a company, defined in terms of its financing. It includes both the current share price (market capitalization) and the cost to pay off debt (net debt, or debt minus cash). We only selected those small-cap stocks whose market caps are greater than their enterprise value, as a lower EV to market capitalization ratio indicates that a firm has low debt levels and is, in turn, considered a relatively safer investment.

After applying the first two checks, we got a long list of small-cap stocks. From this list we selected 12 stocks that had the most number of hedge funds having stakes in them. To gauge that metric we used Insider Monkey’s database of 920 hedge funds. The list is ranked in ascending order according to the number of hedge funds having stakes in the companies.

12. ACM Research, Inc. (NASDAQ:ACMR)

Number of Hedge Fund Holders: 14

Founded in 1998 in Silicon Valley, ACM Research, Inc. (NASDAQ:ACMR) is a provider of wet processing technology, systems, and key manufacturing products targeted to a range of semiconductor IC manufacturing and wafer-level packaging applications.

On January 4, Needham analyst Quinn Bolton raised the price target on ACM Research , Inc. (NASDAQ:ACMR) to $12 from $10 and maintained a Buy rating on the shares. The analyst believes that the company’s affirmed 2022 revenue outlook is an “encouraging sign” that no unexpected issues arose in Q4 from U.S. export restrictions. Bolton also adds that ACM’s 2023 guidance suggests that the mature node spending from domestic Chinese manufacturers should remain robust this year.

At the end of the third quarter of 2022, 14 hedge funds in the database of Insider Monkey held stakes worth $44.79 million in ACM Research, Inc. (NASDAQ:ACMR), compared to 8 in the preceding quarter. David Kowitz and Sheldon Kasowitz’s Induz Capital is the company’s leading shareholder as of Q3.

Much like Algoma Steel Group Inc. (NASDAQ:ASTL), Merus N.V. (NASDAQ:MRUS), and MagnaChip Semiconductor Corporation (NYSE:MX), ACM Research, Inc. (NASDAQ:ACMR) is a decent cash-rich small-cap stock, and many investors are interested in it.

In its Q2 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and ACM Research, Inc. (NASDAQ:ACMR) was one of them. Here is what the fund said:

“ACM Research, Inc. (NASDAQ:ACMR) is a semiconductor production equipment company with principal operations in China. In our view, ACM will be a key beneficiary of the rapid fab capacity expansion in China, gain domestic market share as fabs shift to local suppliers for self-sufficiency, and will expand overseas in the longer term.

We believe ACM will successfully expand its product portfolio beyond its industry-leading wafer cleaning tools. ACM’s differentiated technology, reflected in its attractive gross margin profile and orders from tier-1 chipmakers, represents an enduring competitive advantage, in our view. We expect the company to generate strong double-digit earnings growth over the next several years.”

11. Perion Network Ltd. (NASDAQ:PERI)

Number of Hedge Fund Holders: 15

Perion Network Ltd. (NASDAQ:PERI) is an Israel-based technology company that provides digital advertising products and services. The company operates an AI platform using machine learning to bring intelligence to various phases of different campaigns.

Perion Network Ltd. (NASDAQ:PERI) announced preliminary results for Q4 2022 with revenue expected to be $205 million, compared to last year’s $158 million. According to the company’s Q3 earnings report, Perion Network Ltd. (NASDAQ:PERI) had a Non-GAAP EPS of $0.61, crossing market estimates by $0.06. It’s revenue for the quarter came in at $158.6 million, a 31.1% increase on a year-over-year basis.

Among the hedge funds being tracked by Insider Monkey, Florida-based firm ARK Investment Management is a leading shareholder in Perion Network Ltd. (NASDAQ:PERI), with 123,205 shares worth more than $2.4 million. Overall, 15 hedge funds reported holding shares in the company at the end of Q3.

10. CarParts.com, Inc. (NASDAQ:PRTS)

Number of Hedge Fund Holders: 22

CarParts.com, Inc. (NASDAQ:PRTS) is an American online provider of aftermarket auto parts, including collision parts, engine parts, and performance parts and accessories.

Earlier this December, Roth Capital analyst Darren Aftahi raised the price target on CarParts.com, Inc. (NASDAQ:PRTS) to $9 from $7.50 and kept a Buy rating on the shares. The analyst called the company a “top pick” in the firm’s coverage universe heading into next year, citing a combination of “cost management and optimization that should enable further margin expansion while maintaining double-digit revenue growth.” Aftahi called the risk/reward favorable, noting that the company is a low-cost supplier in a weaker macro environment.

Among the hedge funds being tracked by Insider Monkey, J. Carlo Cannell’s Cannell Capital is a leading shareholder in CarParts.com, Inc. (NASDAQ:PRTS), with 3.01 million shares worth more than $15.59 million. Overall, 22 hedge funds were bullish on CarParts.com, Inc. (NASDAQ:PRTS) at the end of Q3 2022.

9. Arvinas, Inc. (NASDAQ:ARVN)

Number of Hedge Fund Holders: 22

Arvinas, Inc. (NASDAQ:ARVN) is a clinical-stage biotechnology company that is engaged in the discovery, development, and commercialization of therapies to degrade disease-causing proteins.

On January 12, Capital One analyst Zegbeh Jallah maintained an Overweight rating and $88 price target on Arvinas, Inc. (NASDAQ:ARVN) shares. The analyst believes that the market is assuming that “there is no path forward” for ARV-471 plus palbociclib following Arvinas’ recent announcement of a delayed start of a Phase 3 combo study, but Jallah believes that this might not be the case. Even if this were to be true, the current market cap underestimates the potential of not only ARV-471 as a monotherapy and additional combos, but also the company’s pipeline. The analyst believes the recent pullback is a buying opportunity for investors.

According to Insider Monkey’s data, 22 hedge funds were bullish on Arvinas, Inc. (NASDAQ:ARVN) at the end of the third quarter of 2022, with combined stakes worth $445.8 million, compared to 21 funds in the prior quarter worth $374.5 million. David Witzke and Michael Gregory’s Avidity Partners Management is the biggest position holder in the company, with 4.3 million shares worth $193.2 million.

8. Fate Therapeutics, Inc. (NASDAQ:FATE)

Number of Hedge Fund Holders: 28

Fate Therapeutics, Inc. (NASDAQ:FATE) is a clinical-stage biopharmaceutical company that develops cell therapies for the treatment of cancer and other diseases.

Citi analyst Yigal Nochomovitz lowered the price target on Fate Therapeutics, Inc. (NASDAQ:FATE) to $9 from $80 and maintained a Buy rating on the shares on January 8. With the shares down 60% following Fate’s announced pipeline prioritization and Janssen termination, the analyst believes that the “damage has largely been done and there is an opportunity for value-based, longer-term investors to step in.” Nochomovitz believes biotech “remains in many respects a bargain hunter’s market, and FATE now fits very well into that framework.”

As per Insider Monkey’s database, 28 hedge funds remained bullish on Fate Therapeutics, Inc. (NASDAQ:FATE) at the end of the third quarter. Redmile Group had the biggest stake in the company at the end of the third quarter.

7. SomaLogic, Inc. (NASDAQ:SLGC)

Number of Hedge Fund Holders: 29

SomaLogic, Inc. (NASDAQ:SLGC) is a protein biomarker discovery and clinical diagnostics company that became listed on Nasdaq in September 2021 with a merger with the special-purpose acquisition company CM Life Sciences II, Inc. Earlier this month, SomaLogic, Inc. (NASDAQ:SLGC) stock soared after the company said it expects 2022 preliminary revenue to be at the high end of its forecast of $93 million to $98 million.

On January 9, SomaLogic, Inc. (NASDAQ:SLGC) signed an agreement with Group 42 Healthcare to use SomaLogic as its sole proteomics provider for a world-class research and healthcare initiative, thus expanding the company’s reach in international markets. The agreement spans the United Arab Emirates, Kingdom of Saudi Arabia, and the broader MENA region and follows a comprehensive review of proteomics providers.

A total of 29 hedge funds tracked by Insider Monkey had stakes in SomaLogic, Inc. (NASDAQ:SLGC) as of the end of the third quarter. The total value of these stakes was $145 million. Eli Casdin’s Casdin Capital was the company’s leading shareholder as of Q3 2022, with a stake worth $36.55 million.

6. Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT)

Number of Hedge Fund Holders: 29

Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is an emerging, clinical-stage biotechnology company focused on developing first-in-class gene therapy treatment options for rare, undertreated diseases. The company is also expected to acquire Renovacor by the end of Q1, 2023, thus adding additional AAV gene therapies in its pipeline, in particular an AAV targeting BAG3-associated dilated cardiomyopathy. According to the 10-Q SEC Filing, Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) had cash, cash equivalents and investments of $306.5 million as of September 30, 2022.

William Blair analyst Raju Prasad stated on December 12 that Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) announced updates from the company’s end-of-Phase 1 meeting with the FDA regarding RP-A501, its Danon disease program. According to the analyst, the discussions with the FDA were largely in agreement and seemingly aligned with the agency’s expectations. Prasad believes the FDA discussion commentary signals positive outlook on upcoming design submission of the pivotal trial in Danon disease, and maintained an Outperform rating on the shares of the company.

Lee Ainslie’s Maverick Capital was the company’s biggest shareholder as of Q3 2022, with shares worth approximately $40.4 million. Overall, Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) was held by 29 hedge funds at the end of Q3 2022, with a cumulative stake worth over $231.8 million.

Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), similar to Algoma Steel Group Inc. (NASDAQ:ASTL), Merus N.V. (NASDAQ:MRUS), and MagnaChip Semiconductor Corporation (NYSE:MX), ranks among the small-cap stocks that investors are eyeing today.

5. Cogent Biosciences, Inc. (NASDAQ:COGT)

Number of Hedge Fund Holders: 29 

Cogent Biosciences, Inc. (NASDAQ:COGT) is a biotechnology company focused on developing novel precision therapies to treat a broad range of patients with unmet medical needs.

Needham analyst Ami Fadia initiated coverage of Cogent Biosciences with a Buy rating and $24 price target on December 14. According to the analyst, there is opportunity in systemic mastocytosis for a drug with an improved profile in both AdvSM and non-AdvSM. The analyst thinks bezu can have a differentiated profile versus existing treatments in SM with its superior selectivity against off-target kinases and minimal brain penetration, and in AdvSM, bezu can have similar efficacy with better safety than Blueprint’s (BPMC) Ayvakit.

29 of the 920 elite funds tracked by Insider Monkey reported holding stakes in Cogent Biosciences, Inc. (NASDAQ:COGT), with aggregate stakes worth approximately $474.8 million.

4. Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX)

Number of Hedge Fund Holders: 30

Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) is a publicly traded American company that provides physician practices, hospitals, and other healthcare providers with practice management and electronic health record technology. The company expects its fiscal year 2023 revenue to be between $640 million and $660 million, while its non-GAAP earnings per share is expected between around $0.90 and $1.00.

Earlier this December, Argus analyst David Coleman upgraded Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) to Buy from Hold with a $26 price target. According to the analyst, Allscripts’ cloud-based solutions have helped to meet the changing needs of patients and healthcare providers during the pandemic, and its increasing margins should continue to benefit from its fast-growing Veradigm business. He also believes that the company’s shares appear to be “attractively valued” at current prices.

According to Insider Monkey’s data, 30 hedge funds were long Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) at the end of Q3 2022, and Ken Fisher’s Fisher Asset Management held a prominent stake in the company, comprising 5.38 million shares worth approximately $82 million.

3. Magnachip Semiconductor Corporation (NSYE:MX)

Number of Hedge Fund Holders: 31

MagnaChip Semiconductor Corporation (NYSE:MX) is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications. The company’s EPS estimate for the entirety of 2022 was positive and analysts expect it to remain positive (and significantly higher at $0.36) for the entirety of 2023 as well.

During the third quarter, Magnachip Semiconductor Corporation (NSYE:MX)’s adjusted EPS came in at $0.02, beating estimates by $0.08. For the fourth quarter, Magnachip Semiconductor Corporation (NSYE:MX) said it expects revenue to come in between $57 million to $62 million, versus the consensus estimate of $78.77 million.

At the end of Q3, 31 hedge funds in Insider Monkey’s database had a position in Magnachip Semiconductor Corporation (NYSE:MX). This is compared to 27 funds in the preceding quarter.

Here is what Altron Capital Management has to say about Magnachip Semiconductor Corporation (NYSE:MX) in its Q4 2021 investor letter:

“MagnaChip Semiconductor Corp. (NYSE:MX). While the previous buyout offer from Wise Road Capital did not go through as many expected, the company is still in talks with other potential buyers. Furthermore, the company announced a USD 75 million share buyback, which represents a significant percentage of the company’s shares. While we do not generally enter positions with the anticipation of a buyout, it is the case that a MagnaChip acquisition will be the most likely outcome.”

2. Merus N.V. (NASDAQ:MRUS)

Number of Hedge Fund Holders: 31

Merus N.V. (NASDAQ:MRUS) operates as a clinical-stage immuno-oncology company that focuses on developing bispecific antibody therapeutics alongside therapeutics to treat and cure cancer patients.

On January 4, EF Hutton analyst Tony Butler initiated coverage of Merus N.V. (NASDAQ:MRUS) with a Buy rating and $35 price target. According to the analyst, the company’s bispecific anticancer antibodies arising from its Biclonics platform are selected because of the functional ability of the antibody to eradicate tumor cells. To date, four antibodies borne from the Merus platform have elicited anticancer responses in a number of indications.

As of the end of the third quarter, 31 hedge funds tracked by Insider Monkey reported having stakes in Merus N.V. (NASDAQ:MRUS). The total value of these stakes was $346 million. Mark Lampert’s Biotechnology Value Fund / BVF Inc, which had a $69 million stake in Merus N.V. (NASDAQ:MRUS) at the end of September, was the company’s biggest shareholder.

1. Algoma Steel Group Inc. (NASDAQ:ASTL)

Number of Hedge Fund Holders: 39

Algoma Steel Group Inc. (NASDAQ:ASTL) is a fully integrated steel producer based in Sault Ste. Marie, Ontario, Canada, that manufactures and sells hot and cold rolled steel products including sheet and plate for the transportation industry. On November 29, Algoma Steel Group Inc. (NASDAQ:ASTL) declared a $0.05 per share quarterly dividend, in line with previous. The dividend was paid on December 30, to shareholders of record on November 30.

On January 18, Stifel analyst Ian Gillies upgraded Algoma Steel Group Inc. (NASDAQ:ASTL) to Buy from Hold with a price target of $15.00, up from $10.75. The upgrade is based on a near-term improvement in financial performance through an increase in volumes and higher unit pricing and the long-term value creation potential from the transition to an electric arc furnace which will better align the company’s cost structure and allow for higher production.

According to Insider Monkey’s Q3 database, 39 hedge funds were long Algoma Steel Group Inc. (NASDAQ:ASTL), compared to 45 funds in the prior quarter. Jon Bauer’s Contrarian Capital is the largest stakeholder of the company, with 7.50 million shares worth $48.30 million.

Here is what Nordstern Capital has to say about Algoma Steel Group Inc. (NASDAQ:ASTL) in its Q3 2022 investor letter:

“The world is short on raw materials and energy. Nordstern Capital has increased its exposure to raw materials and energy. Recession fears may temporarily suppress demand and prices. The fundamental issue, however, is a sustainable lack of supply, caused by decade-long underinvestment. The shortages cannot be resolved in the short to medium term.

Currently suppressed stock prices offer a wonderful opportunity for our commodity businesses to buy back their own shares. For instance, Algoma Steel Group (NASDAQ:ASTL) reduced its diluted share count this year from 177 million to 111 million. Nonetheless, ASTL’s share price has come down 50%, because US HRC steel prices per ton declined in the past year from $2,000 to currently $713. Today, ASTL has $500m in net cash and a market capitalization of about $700m. The company is profitable even in the current recessionary environment. The CFO expects annual mid-cycle free cash flow generation greater than the current ASTL enterprise value. This is one illustrative example. ASTL is not alone. Many present-day commodity businesses are cash and earnings rich and can use weak stock prices for aggressive buybacks.”

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Disclosure. None. 12 Cash-Rich Small Cap Stocks To Invest In is originally published on Insider Monkey.