In this article, we will look at the Top 11 Small Cap Stocks to Buy with Biggest Upside Potential.

On April 24, Jill Carey Hall, BofA Securities head of U.S. small/mid-cap strategy, appeared on ‘Closing Bell’ to talk about the impact of tariffs on small caps. She also discussed the outlook for the category, saying that the earnings backdrop is essential. When we look back a year ago, investors were excited about small caps, as the earnings were recovering and the market was coming out of the 2023 earnings recession. Everyone expected that these stocks would see double-digit earnings growth by mid-last year, outpacing large caps. That got pushed out for over a year, and now the sector has sold off a lot.

While we have gotten some potential good news on tariffs, there is still a lot of uncertainty, and we are in a backdrop where earnings revisions have still been negative. She opined that she would feel more comfortable if we were in a backdrop where there was confidence in earnings recovery because last earnings season, the commentary was a lot more negative from small-cap companies than large-cap companies. So far, this earnings season is still early for small caps, but guidance in both large and small has been weak.

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What Should You Invest in This Year?

Hall said that the sector would see a much better picture if earnings revisions turned around with higher confidence, and not only the tariffs were better than expected but also the economic backdrop was better. However, we are also in a place where economists think the Fed will stay on hold this year, and the Russell has been very sensitive to Fed expectations. Her outlook for small caps thus points towards a more credit-sensitive environment highly tethered to Fed expectations, with no anticipation of a rate cut this year. She also highlighted that looking at corporate commentary as small-cap reporting kicks off is important.

Not all small caps are created equal, even when some people consider them to be so. Hall opined that this is definitely a year where you want to be selective in small caps, focusing on stocks with strong margins amid tariff uncertainty. She favored high-quality domestic stocks, steering clear of tariff and refinancing risks and focusing on stocks with positive revisions in this broad backdrop of negative revisions. There are groups of stocks that are more sensitive to tariffs, just as there are groups that are more global and domestic. Similarly, some groups are more levered with higher refinancing risks within small caps if the rate stays higher and credit spreads stay elevated.

Therefore, she reasoned that she would stick with higher-quality stocks that are more profitable and have strong operating margins. Stocks with these characteristics have been some of the top performers within the industry amid tariff risks. From a sector perspective, if investors want to be more defensive, utilities screen well across the work, both in small and large caps.

There will thus be opportunities in the segment, according to Hall, but one needs to be selective. She also expressed positive sentiments for mid-caps, which have been one of the best performers in the sector this year. They have seen much better revision trends, cleaner balance sheets, and fewer risks from potential earnings hits from tariffs than small caps because the latter have thinner margins and could see a greater hit.

With these trends in mind, let’s examine the top 11 small-cap stocks to buy with the biggest upside potential.

Our Methodology

We sifted through stock screeners, financial media reports, and ETFs to compile a list of 30 small cap stocks and chose the top 11 with the biggest analyst upside potential as of May 2, 2025. We also included the number of hedge fund holders as of Q4 2024, which we sourced from Insider Monkey’s database. The list is presented in ascending order of stocks’ upside potential.

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 363.5% since May 2014, beating its benchmark by 208 percentage points (see more details here).

Top 11 Small Cap Stocks to Buy with Biggest Upside Potential

11. Centessa Pharmaceuticals plc (NASDAQ:CNTA)

Market Cap: $1.79 billion

Analyst Upside: 129.76%

Number of Hedge Fund Holders: 36

Centessa Pharmaceuticals plc (NASDAQ:CNTA) is a clinical-stage pharmaceutical company headquartered in the UK. Its portfolio includes preclinical to phase three uncorrelated programs covering diseases with highly unmet needs in immunology, hematology, oncology, neuroscience, and rare diseases.

On April 8, Leerink Partners analyst David Risinger reiterated their bullish stance on Centessa Pharmaceuticals plc (NASDAQ:CNTA) and gave it a buy rating based on the promising developments of its ORX750 compound. The analyst reasoned that the company’s recent presentation on ORX750’s compelling efficacy profile at the American Academy of Neurology Annual Meeting reflected significant improvements in alertness and sleep latency in a proof-of-concept study, which suggests that the compound could take the lead as the potentially best-in-class orexin receptor 2 agonist. This could allow it to outperform its competitors, bringing a positive light to the company’s operations.

The analyst also opined that the compound’s safety profile remains favorable, bolstering its potential as a leading therapeutic option, as there are no reported adverse events. Centessa Pharmaceuticals plc’s (NASDAQ:CNTA) upcoming Phase 2a trial results for various sleep disorders further support the positive outlook, as they could shed more light on ORX750’s safety and efficacy.

10. Shenandoah Telecommunications Company (NASDAQ:SHEN)

Market Cap: $630.31 million

Analyst Upside: 133.39%

Number of Hedge Fund Holders: 14

Shenandoah Telecommunications Company (NASDAQ:SHEN) provides regulated and unregulated telecommunication services to end-user customers and other telecommunication providers. Its services include broadband Internet, voice, video, high-speed Ethernet, managed network services, and dark fiber leasing. It has an elaborate regional network comprising more than 16,800 route miles of fiber.

Analyst Hamed Khorsand from BWS Financial revisited Shenandoah Telecommunications Company (NASDAQ:SHEN) on May 1, giving it a Buy rating and setting a $26.00 price target. The analyst said that the company holds potential for financial improvement and growth, as it has undergone consistent expansion in its Glo Fiber customer base. Subscriber numbers for the service reached around 71,000 and are anticipated to exceed 75,500 by the end of fiscal Q2. This positive growth trajectory highlights the potential for future growth and a solid market presence, ranking it tenth on our list of the best small-cap stocks to buy with the highest upside potential.

Khorsand also said that Shenandoah Telecommunications Company (NASDAQ:SHEN) is on the path to generating free cash flow with continuous network expansion, with homes passed reaching 600,000 and penetration rate surpassing 20% in Glo Fiber areas. Although the company has exposure to debt because of network expansion, its adjusted EBITDA is growing faster than expected, which reflects operational efficiency and financial resilience. These factors thus support the analyst’s buy rating.