Most kitchens are well-stocked with pantry staples, the foundation of all recipes. But every good chef knows that the best meals feature a variety of flavors, including some spice. Technique is important: Too much or too little of any single ingredient can make a big difference.

The same approach applies to portfolios. Earlier this year, many U.S. investors learned that their mix was off after foreign stocks significantly outpaced U.S. shares … just as the S&P 500 stumbled badly. It quickly became clear that many investors were underexposed to foreign markets and overexposed to the United States.

In a June survey, Schwab Asset Management found that moderate-risk individual investors held just 10% of their portfolios in foreign shares; U.S. stocks, by contrast, made up 61%. In short, investor portfolios weren't diversified.

It was a comeuppance long in the making. For nearly 15 years, U.S. stocks have been the place to be. Why bother to diversify — break up your investments across a variety of stocks, bonds and other assets — when the S&P 500 is beating everything?

"It can be easy to forget the benefits of diversification in a very sharp upward-moving market," says Andrew Altfest, a certified financial planner with Altfest Personal Wealth Management in New York City.

But over time, you'll find that a mix of investments can smooth your returns, strengthen your resolve as an investor, dampen risk in your portfolio and keep you exposed to whichever corner of the market is working at the moment — no crystal ball necessary.

In a truly diversified portfolio, some investments will be in favor while others are on the outs. "You will never own only winners, but you won't get stuck with only the laggards, either," says Jeff DeMaso, editor of The Independent Vanguard Adviser.

A smoother ride

A diversified portfolio can deliver less-volatile returns, which may help you stay the course during turbulent times — and arguably, that's half the battle in achieving your investment goals.

Moderate-allocation funds, also called balanced funds because they stabilize a 60% allocation of assets to stocks with a 40% stake in bonds, have been about one-third less volatile than an all-stock portfolio over the past 10 years.

"When the stock market sells off, investors tend to sell and move into cash. The problem there is, they've divested. So, we always say, stay invested and diversify," says Alessio de Longis, senior portfolio manager and head of asset allocation at Invesco Solutions.

Indeed, diversification isn't a strategy you turn on during rough markets and switch off in roaring bull markets. "It's something you should always have in your portfolio,” says Kristy Akullian, head of iShares investment strategy for the Americas at BlackRock.

Diversification can help ward against risk, too, of which there's no shortage these days. U.S. stocks are trading at high valuations. The economy looks to be slowing. Inflation remains sticky. And uncertainty lingers about the impact of new government policies and geopolitical risks. All of these challenges are chipping away at investor confidence.

Some advisers zero in on risks as a guiding principle for diversifying their clients' portfolios. Worried about a decline in the dollar? Add non-dollar assets — foreign stocks or bonds — to your portfolio. Concerned about an inflationary shock? Fold in a stake in commodities or real estate. A recession? Insert a slug of high-quality bonds or beef up on cash.

"Since I think all of these are potential sources of risk to the stock market, I put a lot of these diversified eggs into my clients' portfolio baskets," says Paul Winter, a certified financial planner at Five Seasons Financial Planning in Salt Lake City, Utah.

Another reason to diversify is that it's impossible to predict which investment will outperform in any given year — so it pays to own a mix of several. "The point of diversification is that you don't know what is going to happen," says Thomas Martin, of Globalt Investments, an Atlanta-based investment firm, but you can be prepared just the same.

The fact is, market leadership can shift dramatically from year to year. Though large-company stocks have topped the charts in many years recently, the winning asset class in any given year is often anybody's guess.

According to the Callan Periodic Table of Investment Returns, a colorful depiction of how asset returns can vary from year to year, small-cap stocks fared best in 2020. In 2018 and 2022, cash prevailed. And emerging markets stocks were the best-performing asset class in 2017; the next calendar year, they were the worst.

While there are rules of thumb to follow, a well-diversified portfolio is "very much an art, not a science," says Winter. For example, you want to own multiple kinds of assets, but that does not mean you own everything in equal measure. "Depending on your overall allocation, you might not need to go super-deep on every category," says Roger Young, a CFP at T. Rowe Price.

The good news: This is a great time to diversify. If, like many American investors, your portfolio is heavily weighted toward U.S. stocks, it's not too late to lighten the load and find opportunities in less-expensive pockets of the market.

"U.S. stocks are near their all-time highs, and that's a lot better time to diversify than, say, back in March 2009," the market's nadir during the Global Financial Crisis, says Winter.

Stocks, bonds and alternative assets are the main elements of a diversified portfolio. But you'll want to make sure you're diversified within those types of investments, too.

In this article, we'll walk you through the ingredients of a good diversification plan, with some timely moves to make now and tips on how to maintain your portfolio. Prices, returns and other data are as of August 31.

Stocks

Stocks can be risky but also rewarding. Over the past 10 years, the S&P 500, which represents more than 80% of the total U.S. stock market, has returned a whopping 15% a year.

But the stock market doesn't move as a monolith — and within your stock holdings, you should assemble a broad mix, considering a number of factors.

Company size

The market can favor companies of a particular size — sometimes for years — depending on economic factors, industry innovations or even just market sentiment.

Over the past decade, thanks to globalization, large companies have ruled, ranking as the top-performing asset class in five of the past 10 years and among the top three performers in eight of the past 10, according to the Callan table.

"The big just got bigger," says Jake Schurmeier, a portfolio manager at Harbor Capital. That makes exchange-traded funds (ETFs) that invest in small and midsize companies, such as the iShares Core S&P Mid-Cap (IJH) and the iShares Core S&P Small-Cap (IJR) — members of the Kip ETF 20, our favorite exchange-traded funds — good diversifiers for the large-cap S&P 500.

Some strategists see an opportunity in midsize-company stocks, especially these days. The middle tier of the U.S. stock market "is uniquely positioned to capitalize on growing demand for American-made goods and infrastructure solutions in a reshoring and energy-independent economic landscape," says Dina Ting, head of global index portfolio management at Franklin Templeton.

Plus, on a price-to-earnings basis, mid-cap stocks now trade at an atypical discount to large caps.

Concentration

Large-company stocks' recent run has included the meteoric rise of tech stocks in general and anything related to artificial intelligence (AI) in particular.

A group that includes Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL), known as the Magnificent Seven, accounts for one-third of the value of the S&P 500 Index. Thus, what might look like a diversified collection of U.S. stocks is in reality an outsize bet on a dazzling few.

A simple way to mitigate such overconcentration is the Invesco S&P 500 Equal Weight ETF (RSP). In this fund, every company gets an equal share of assets. So, while Nvidia accounts for 8% of the traditional market-cap-weighted index, it makes up just 0.24% of the Equal Weight fund.

Investment style

Professional investors typically hew to a certain methodology. These approaches break down into two broad styles: value and growth. Value managers favor stocks that trade at a discount to various metrics; growth managers prefer companies that are growing faster than average.

The two styles wax and wane at different times, and the cycles tend to last for long stretches. Value won the period from the start of 2000 to 2009. But since then, growth has dominated, though it's worth noting that value stocks held up better during the most recent bear market from January to October 2022.

Because it's difficult to predict when one style is going to outperform the other, even in a bear market, it's important to maintain a toehold in both growth and value strategies.

Chances are, however, that you've got plenty of exposure to growth stocks these days. Consider adding a value-driven fund such as Dodge & Cox Stock (DODGX), a mutual fund that has outpaced the S&P 500 over the past five years, or Capital Group Dividend Value (CGDV), an ETF that has beaten the S&P 500 over the past three years.

Both are actively managed, but index-fund lovers could look at the Vanguard S&P 500 Value ETF (VOOV). The ETF holds its own among a peer group of value-oriented large-company stock funds.

Geography

You need both U.S. and non-U.S. stocks in your portfolio, although many years of U.S. out-performance made that idea unpalatable. That changed in 2025: After lagging the U.S. stock market for nine of the past 11 calendar years, the MSCI EAFE Index, a popular international-stock benchmark, is up nearly 23% so far this year, beating the S&P 500 by more than 12 percentage points.

Most strategists agree that U.S. investors need to boost their exposure to international stocks. The timing is good. A weakening dollar tends to magnify gains in foreign shares (because they translate into more dollars stateside). And foreign stocks are still cheap relative to U.S. stocks on a price-to-earnings basis, even after a strong run so far this year.

Foreign stocks include those in both developed and emerging markets. You can zoom in on a region — Europe, Asia, Latin America, say — or a single country, such as Japan, India, Germany or China. And of course, at every level, you can focus on company size or value or growth approaches.

Start with the Vanguard Total International Stock ETF (VXUS). It's an inexpensive way to get instant exposure to nearly every foreign stock in developed and emerging markets. Morningstar analyst Zachary Evens calls it "wall-to-wall foreign-stock exposure." The fund has gained 23% since the start of the year.

Add an emerging-markets index fund. The iShares Core MSCI Emerging Markets ETF (IEMG) tracks an index of 20-odd developing markets. "A weaker dollar is good for EM stocks," says Richard Cook, a portfolio manager of Cook & Bynum fund. A recent rebound in Chinese stocks — 27% of the index — has helped the fund return 18% over the past 12 months.

Baron Emerging Markets (BEXFX) — a member of the Kiplinger 25, our favorite no-load mutual funds — is actively managed, growth focused, and has gained 19% over the same period.

These days, many strategists, including T. Rowe Price's Charles Shriver, see opportunity in small, foreign companies. They typically trade at a premium to their larger brethren, but not now. And "small-cap international stocks will benefit from domestic economic growth in home countries and are less sensitive to tariffs," he says.

We have our eyes on the Avantis International Small Cap Equity ETF (AVDS) and the Dimensional International Small Cap Value ETF (DISV). The Avantis fund invests in a mix of growth and value small companies, with a focus on valuation and profitability. Over the past 12 months, it has gained 23%. The Dimensional exchange-traded fund focuses on bargain-priced small stocks in developed countries and has returned 25% over the past 12 months.

Bonds

Bonds provide ballast to the stock side of any portfolio, generally speaking, because when stocks fall, bond values tend to rise. That didn't happen in 2022, when a precipitous rise in interest rates pushed both stocks and bonds down (bond prices and yields move in opposite directions). The S&P 500 fell 18%, and the Bloomberg U.S. Aggregate Bond index sank 13%.

It was the worst year ever for bonds, but a few fixed-income sectors held up better. Bank-loan funds, for instance, lost 2% on average; short-term bond funds dipped just 5%. Ergo, in 2022, a diversified bond portfolio would have outperformed the Agg index.

Broadly speaking, there are four major bond sectors: government, corporate, securitized debt (bundled IOUs such as mortgages or auto loans, say, that are sold as a single security), and municipal bonds, which pay income that's exempt from federal and sometimes state taxes.

A diversified bond portfolio will include a mix of sectors. The Agg index, for instance, is diversified as far as sectors go: Government bonds make up just less than half of the index, corporate and securitized debt combined are another 50%, and the rest sits in cash and muni IOUs. But there are more layers of bond diversification to consider.

Credit quality

Credit ratings reflect a borrower's financial ability to repay debts. The higher the rating, the more creditworthy the issuer is, and vice versa. That's why investment-grade bonds, rated between triple-A and triple-B, are considered high quality — there's little risk of default. Debt rated between double-B and triple-C is often called junk or high yield — there's a higher risk of default, and therefore yields are higher to attract investors.

Bond portfolios should hold mostly high-quality debt at their core. The Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG) are the biggest index-based high-quality bond ETFs. But we prefer active strategies, such as Baird Aggregate Bond (BAGSX) and Dodge & Cox Income (DODIX). Both mutual funds are members of the Kiplinger 25.

Then consider adding lower-quality debt, which can boost the overall yield of a bond portfolio. In late August, for instance, U.S. high-yield corporate debt yielded 6.7%, and bank loans, issued by companies with low credit ratings, yielded 8.6%.

Our favorite high-yield corporate fund, Vanguard High-Yield Corporate (VWEHX), favors higher-quality, double-B junk bonds. But with economic uncertainty ahead, we're partial these days to short-term high-yield bond funds such as the Pimco 0-5 Year High Yield Corporate Bond Index ETF (HYS). Its short-term focus can help dampen default risk, a concern if the economy slows.

Duration and maturity

Investors often confuse duration, a measure of a bond's sensitivity to interest rate moves, with maturity, the length of time a bond will pay interest before it repays the principal. They're not the same, but they are connected.

Maturity plays a part in the calculation of duration. The longer the maturity, the longer the duration and the more sensitive a security is to interest rate shifts.

The typical long-term government bond fund, for example, has an average maturity of 20 years and a 16-year duration. That implies if rates were to rise by one percentage point, the net asset value of long-term government funds would decline 16%, and vice versa. Short-term government bonds have an average maturity of three years and a duration of 2.6 years.

Generally, low-duration bonds are a defensive bet when interest rates are rising, and high-duration bonds stand to benefit most when rates fall. These days, however, even though cuts in short-term rates are on the docket, a fall in long-term rates isn’t guaranteed, says Akullian, the iShares strategist. That's why she favors intermediate-maturity bonds for now.

The iShares 3-7 Year Treasury Bond ETF (IEI) sports a 4.3-year duration. Since the start of the year, it has returned more than 5%. The actively managed Vanguard Intermediate-Term Bond ETF (BIV) favors bonds with maturities of five to 10 years and has a duration of 6.1 years. Its portfolio holds government and corporate debt of medium maturities. So far this year, it has gained 6.4%.

Finally, the Fidelity Investment Grade Securities ETF (FSEC) holds mostly triple-A-rated securitized debt and has a duration of 5.5 years. Its return so far this year is 5.3%.

Geography

For much of the 2010s, foreign bonds sported negative yields. "That's a hard sell," says Schurmeier, the Harbor Capital portfolio manager. But now, foreign bonds offer positive yields, as well as a potential return boost from a weakening dollar. The Vanguard Total International Bond ETF (BNDX) holds high-quality, foreign corporate and government bonds.

Emerging-markets debt offers fatter yields, but these IOUs tend to be more volatile, too, so buyer beware. Our favorite emerging-markets bond fund, Vanguard Emerging Markets Bond (VEMBX), invests in dollar-denominated debt, which becomes easier for developing countries to repay as the dollar weakens.

Alternatives

This catch-all category includes nontraditional strategies that seek to hedge stock and bond market returns, or at least to generate returns that don't move in lockstep with them.

Alternative strategies might focus on gold, commodities, cryptocurrencies, or the debt or equity of private companies. They might employ techniques to limit losses in a downturn but crimp bull market gains. Others balance bets on undervalued stocks by short-selling overpriced names.

"Many alternative strategies weren't even a thing 10 years ago, but they are today," says Winter, the Salt Lake City CFP.

Consider carving out a small slice from the bond side of your portfolio to devote to alternative assets — no more than 5% to 10% of your overall portfolio, says de Longis. One approach to choosing an alternative strategy is to figure out what kind of risk you're trying to hedge against, such as those listed below, and invest accordingly.

Inflation

To hedge inflation, for instance, beyond the protection the stock side of your portfolio may offer, consider commodities. These funds proved their mettle in 2022, returning 16%, on average.

The First Trust Global Tactical Commodity Strategy Fund (FTGC) has outperformed its peers in four of the past five calendar years, with below-average volatility. Neuberger Berman Commodity Strategy ETF (NBCM) boasts above-average returns with below-average volatility, and its expense ratio is below average, too.

Instability

To ward against uncertainty, consider gold. "Gold is a safety net for chaos," says Schurmeier. Trade-war fears have fueled 29% gains in the iShares Gold Trust Micro (IAUM) and the SPDR Gold MiniShares Trust (GLDM, $68, 0.10%) so far this year.

Volatility

To smooth out your returns, consider one of a new breed of ETFs called defined-outcome funds.

One we're eying is the Innovator Defined Wealth Shield ETF (BALT). Using options, the fund provides a 20% buffer on losses in the S&P 500 every three months in exchange for a cap on gains. You can hold the ETF indefinitely. The 20% buffer and cap on gains resets quarterly, in January, April, July and October. The cap set in early July was 2.2% after expenses. Over the past three years, Defined Wealth Shield has returned 7% annualized with less volatility than the Agg index.

Bear in mind that diversified portfolios, in contrast to Tolstoy's happy families, are not all alike. As always, everything depends on your time horizon and your risk tolerance.

"If you're relatively young and are primarily invested in stocks, you might want to make sure your diversification is robust on the stock side, but on the bond side, your small piece in bonds could be a straightforward U.S. investment-grade type of bond fund portfolio," says T. Rowe Price's Young. Similarly, those who are nearing retirement or already retired will want to pay special attention to some inflation hedges.

Over time, your portfolio will need some fine-tuning. Some tweaks are related to age or life stage, says Christine Benz, director of personal finance and retirement planning for Morningstar.

At age 50, for instance, you'll want to de-risk your portfolio a bit around the edges. Tilt toward high-quality, large-company stocks over small-cap fare, for instance. Or favor dividend payers. By your late fifties or early sixties, start shoring up your portfolio with safer assets. On the bond side, for instance, lean into high-quality short and intermediate-term bonds and build up your cash position.

Other adjustments may be tactical, such as investing more in large and midsize companies than in small firms if a recession looms, or favoring short-term bonds over long-maturity debt when interest rates are climbing. Keep the tactical moves to no more than five to 10 percentage points up or down from your overall portfolio targets, says Invesco's de Longis. Any bigger, and you risk derailing your asset-allocation plan.

Finally, review your portfolio asset mix and rebalance, if necessary, once a year. "The more diversified your portfolio, the greater the potential benefits of rebalancing," says Winter. Just don't go overboard. Think of your portfolio like a bar of soap, suggests Benz: "The more you touch it, the smaller it's going to get."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Turbulent markets are hard to stomach, but they offer bargains that can set up your portfolio for better returns over the long run. In the market's recent tumble, small- and mid-cap stocks have been among the hardest hit. Is it time to bargain hunt?

On-again, off-again policies from Washington, the onset of global tariff salvos, and flagging consumer and business confidence have fueled recession fears and rocked the stock market.

From its peak earlier this year, the large-company S&P 500 Index fell 17.5% through April 7 (the date for all returns in this story unless otherwise noted). Shares in small and midsize companies have been hurting more and for far longer.

After peaking in November, small-cap stocks, as measured by the Russell 2000, slipped 25.5%. That's bear-market territory, defined as a drop of 20% or more. The Russell Midcap Index fell 19.4%.

Small- and mid-cap indexes initially bounced higher on news of a delay in the implementation of some of the proposed tariffs, but not quite as high as their large-cap counterparts.

Sustained rebounds in small- and mid-cap stocks have been elusive in recent years. These days, relative to large-company stocks, both midsize and small shares are less expensive than they've been in decades.

Prices can fall further, of course. But at these levels, "if you're wrong, you're falling out the first-floor window and cutting your knees. You're not going to get killed," says Bill Hench, who heads the small-company team at investment firm First Eagle.

Two key stressors for smaller companies – high interest rates and rising inflation – have eased significantly from peak levels, even if progress has stalled recently. And lower corporate tax rates and looser regulations, if those initiatives come to pass, would be a boon to smaller firms.

But ongoing worries abound that a trade war and mass layoffs of federal employees could usher in an economic slowdown and push stock prices even lower.

For that reason, it pays to be selective. For example, a bigger tilt toward midsize companies may offer a good balance between the potential for big returns if the economy grows apace and providing more stability than small caps if the economy falters.

Below, we've highlighted a few mutual funds and exchange-traded funds to get you started.

Tilt toward mid caps

Some strategists favor mid caps over small stocks for now, in part because mid caps have a quality edge.

Midsize firms are more established than small ones, for a start. Typically, mid caps have a product or service that's in demand, as well as a management team that has ably steered the company.

Chances are they're profitable, too: 85% of the companies in the Russell Midcap Index post positive earnings, compared with fewer than 60% of the Russell 2000 firms.

Finally, though ahead of small caps on many measures, midsize firms still have a long runway for growth, says Kirk McDonald, head of SMID cap strategies at Argent Capital Management.

Wells Fargo Investment Institute strategists recently upgraded mid caps to "favorable" from "neutral."

The stock market pullback will be transient, says Sameer Samana, WFII's head of global equities and real assets, who supports an aggressive tilt to midsize firms. In a moderate portfolio, that means a 14% stake in midsize companies, up from 10%, he says.

The firm's year-end target of 4,200 for the Russell Midcap benchmark represents a potential gain of roughly 35% from its closing value on April 7.

Funds we like include DF Dent Midcap Growth (DFDMX), which favors growing companies with sustainable earnings that dominate their business, and Heartland Mid Cap Value (HRMDX), which invests in bargain-priced firms.

Both are members of the Kiplinger 25, the list of our favorite actively managed, no-load mutual funds, and have held up better than the Russell Midcap Index and the typical mid-cap fund since the start of the sell-off.

The downturn "brings a return to paying a reasonable price for things," says Heartland Mid Cap Value's Colin McWey.

He says he is finding opportunities in industrial and tech shares, and he adds that a handful of health care and consumer stocks in the fund, such as Quest Diagnostics (DGX) and Kimberly-Clark (KMB), are starting to "wake up" after lagging last year.

The managers at DF Dent Midcap Growth "prioritize boring," says co-manager Michael Morrill, and that has helped the fund during the sell-off. Top holding Ecolab (ECL), for instance, has held up well since the start of 2025, with a 1.4% decline, while the Russell Midcap Index is down 13.3%.

At FAM Dividend Focus Fund (FAMEX), quality is key: The managers look for companies whose rate of return on invested capital (a profitability measure) is increasing.

Every company in the portfolio pays a dividend, too, though payout growth is the focus, not high yield. The fund's 4.7% three-year annualized return outpaced 89% of its peers and the index.

Top holdings include insurer Arthur J. Gallagher (AJG), up 28% over the past 12 months, and Heico (HEI), an aerospace and defense company, up 25%.

Don’t ignore small caps

A bet on small caps feels contrarian in light of recession worries, because these stocks are particularly sensitive to the economy. What's more, tariffs and immigration reforms could impact small companies more than large and midsize firms, say BofA Global Research analysts.

But prices are so battered that "they present great long-term opportunities," says Megan Horneman, chief investment officer at Verdence Capital Advisors. "If you have a long time horizon, then you should be adding to small caps."

Aim for a 3% allocation to small stocks in your portfolio. To offset risk, seek funds that favor quality traits, value-priced shares and dividends.

T. Rowe Price Small-Cap Value (PRSVX), another Kip 25 fund, has held up better than the Russell 2000 since November. Over the past year, the fund's 8.2% decline is better than the index's loss of 11.1%.

One top performer includes financial firm Columbia Banking System (COLB), up 22% over the past 12 months.

InfraCap Small Cap Income ETF (SCAP) has a short history, but we like the fund's focus on quality.

It invests only in profitable firms that pay dividends and trade at reasonable prices relative to earnings growth.

Nearly 25% of the fund's assets are in preferred stocks, and that boosts the fund's yield to 7%. Over the past 12 months, the fund's 8.4% loss beat the 11.1% decline in the Russell 2000, and it did so with 13% less volatility.

Finally, for a spicier option, consider the Oberweis Micro-Cap (OBMCX). Stocks in this growth fund average $1.6 billion in market value, half the average market cap of firms in the Russell 2000.

Volatility is high, but so are the fund's returns. Over the past three, five and 10 years, the fund has outpaced 98% of all small-cap growth funds.

The managers favor firms that have significantly beaten analysts' earnings expectations and have a fundamental business reason to drive future growth. Top holding biotech firm ADMA Biologics (ADMA) has gained 188% over the past 12 months.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Whether you like it or not, members of Congress are allowed to buy and sell stocks. True, federal law prohibits them from using "nonpublic information derived from their official positions for personal benefit," and they're required to disclose their trades.

That said, it's understandable if folks don't quite trust politicians to be on the up and up when their personal fortunes might appear to be in tension with their duties as elected representatives.

Perhaps this is unfair; even cynical. But to modify a famous quote from Upton Sinclair, it's difficult to get a person to understand something when that person's salary depends upon the person not understanding it.

Take, for instance, the uproar around President Donald Trump, who said shortly before announcing a reversal on reciprocal tariffs that it "is a great time to buy stocks."

The reversal sparked a historic stock market rally and has some high-profile Democrats questioning if anyone in the Trump administration profited off the announcement.

Disclosure rules are supposed to help mitigate this problem. Thanks to these requirements, the public can follow what members of the House and Senate are doing with their investments.

Before we go further, please note that this activity shouldn't be used for trading purposes.

After all, insider buying and selling at publicly traded companies is voluminously disclosed and analyzed, but it doesn't really tell us much. That's because insiders – the executives and board members who know what's going on – can sell for any number of legitimate reasons, from paying tuition to portfolio diversification.

When it comes to stocks, insider buying is actually a more useful piece of information. And even then, it's not exactly a screaming buy signal.

Using insider activity among members of Congress as the basis for some kind of trading system is not a rigorous idea.

With those caveats out of the way, it is indeed interesting to see which stocks, bonds and private investments are most popular with members of the House and Senate. Perhaps more interesting is how certain pols churn their portfolios, which is to be avoided if you're a retail investor.

Have a look at the below table to see which politicians were the most active traders by volume over the past 90 days, according to data from Capitol Trades.

Stocks politicians are buying and selling

Look past the municipal debt and investments in limited liability companies, and you can see that pols are pretty normal when it comes to their buys. Top-rated Dow Jones stocks, mega-cap tech names and reliable and rising dividend-payers routinely make the list of our representatives favorite names.

Both sides of the aisle like many of the hottest stocks, including Apple (AAPL), Amazon.com (AMZN), Oracle (ORCL) and Broadcom (AVGO) these days – but then so does pretty much everyone else.

Interestingly, as much as Representative Ro Khanna (D-Calif.) is associated with tech investing, a number of his most recent biggest buys were stalwart blue chips such as JPMorgan Chase (JPM), the nation's biggest bank by assets, and Warren Buffett's Berkshire Hathaway (BRK.B).

Meanwhile, in addition to buying shares in speculative artificial intelligence (AI) firm BigBear.ai Holdings (BBAI), Representative Lisa McClain (R.-Mich.) also picked up Air Products and Chemicals (APD), which happens to be one the best dividend stocks for reliable dividend growth.

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Small-cap stocks are among the most exciting — and most misunderstood — corners of the market.

Ask your average investors what they think of when they hear "small cap," and you'll get one of two answers: scrappy startups on the verge of breaking out, or risky, thinly traded names they wouldn't even buy with someone else's money.

They wouldn't necessarily be wrong. But that's only part of the story.

Small-cap stocks occupy a distinct space in the market. They're big enough that they're generating significant revenue and getting real analyst coverage. But they're small enough that they're still flying under most radars, so it's possible Wall Street hasn't fully priced in their potential. That goes for the highfliers you'd expect, but also the more grounded, cash-generating businesses that occupy the space.

If you're interested in learning more about identifying investment-worthy small caps, read on. I'll define the group, explain why investors are drawn to smaller companies, then show you how to find the best small-cap stocks on your own.

What are small-cap stocks?

For the newbies out there, the term "cap" refers to a company's market capitalization, which is calculated by multiplying a company's stock price by its number of shares outstanding.

A small-cap stock is any company worth $250 million to $2 billion by market cap.

In a fair and just world, that would be the end of this section. But as I pointed out in my exploration of mid-cap stocks, it's not that simple, life is unfair, and we can't have nice things.

In some cases, the difference is small — a few institutions peg the small-cap range at $300 million to $2 billion. Not much to quibble over there. But then there's the S&P SmallCap 600, whose range includes much bigger companies of between $1.2 billion to $8 billion. And those thresholds have ticked higher over time.

Other definitions are even more fluid, looking at small caps not as some fixed bracket of value, but as a percentage of the overall market. Morningstar, for instance considers small-cap stocks to be any stocks within the bottom 10% of the overall equity market, which over the past few years has put the upper bound in the $10 billion to $15 billion.

And then there's the ubiquitous Russell 2000 Index. This premier small-cap benchmark is made up of 2,000 of the smallest stocks within the Russell 3000 Index, which represents the 3,000 largest securities in the U.S. equity market. Currently, the largest component of the Russell 2000 right now is Bloom Energy (BE), which was around $4.3 billion when it joined the index, but is $90 billion now.*

There's no "correct" small-cap range. But, as we'll get into in a minute, there are certain general tendencies the larger or smaller a stock is.

Lastly, you'll notice most of the above definitions also have a lower bound. Companies smaller than those thresholds are slapped with "microcap" or "nanocap" designations. The Russell Microcap Index is equally maddening, made up of the smallest 1,000 companies in the Russell 2000, and the next smallest eligible 1,000 companies outside the Russell 3000.

Why do investors buy small-cap stocks?

As I mentioned before, small-cap companies aren't a monolith. The size category includes growth and value stocks alike – you could just as easily run across a disruptive technology company as you could a stodgy regulated utility.

But there's a reason small caps are more often associated with growth stocks.

The business rule of large numbers dictates that the larger a company gets, the more difficult it becomes to maintain high-percentage growth rates in revenue and net income — two primary drivers of stock prices.

Put simply: It's easier for a $500 million company to double its revenue than it is for a $500 billion company. And potential stock upside follows similar logic.

Small-cap stocks also don't attract as much media attention, and there's less Wall Street coverage of these firms. With fewer eyes watching, mispricings are more likely, and patient investors who do their homework can capitalize on these opportunities.

The tradeoff, of course, is risk. Smaller companies often have fewer revenue streams, thinner margins, less financial cushion and less access to capital than large-cap stocks. A bad quarter, a lost customer, or a macroeconomic headwind won't necessarily cripple, say, a Dow Jones Industrial Average component, but it could very well sink some of the companies in the Russell 2000.

That tends to lead to more volatile stock movement — there's potential for sharp upside, sure, but also the potential for a stock to get kneecapped.

Other factors to keep in mind:

• Small caps may be thinly traded, resulting in wide bid-ask spreads.
• Institutional investors might struggle to build or exit positions without moving the market.
• Also, small caps tend to be more domestically focused compared to large caps. This is great when the U.S. economy is humming. But small caps feel the pinch of a slowdown more acutely than large multinationals that derive revenues from here and abroad.

One last consideration is that the relationship between large- and small-cap stocks tends to ebb and flow over time. Earlier this year, Fidelity Investments (PDF) studied the performance of both segments between 1929 and 2025. It found there were "six periods of relative outperformance for U.S. small caps since 1929 and seven periods of underperformance. These performance cycles have averaged about seven years." (Emphasis mine.)

How to find the best small-cap stocks to buy

As I usually say, I can't predict exactly what you might want out of small-cap stocks, but I can help you start your search with a basic quality screen.

In this case, I'm going to focus on the small-cap segment's strength: growth. To get the following list of the best small-cap stocks to buy, we've looked for firms that …

Are within the S&P 600. Again, these are 600 stocks that were between $1.2 billion and $8 billion at inclusion. (Only one stock on our current best-of list fell outside this range.)

Are expected to grow revenue by at least 20% annually in the next two years. Top-line growth is often the primary concern of smaller companies, especially newer issues that haven't yet reached profitability. This is just a baseline — feel free to adjust your limit higher if you're looking for screaming growth.

Are expected to grow earnings by at least 15% annually over the long term. Many high-growth small caps aren't yet profitable, so if you screen for a percentage growth rate, companies with currently negative earnings simply won't show up. Thus, if you want to find truly explosive small caps, you might want to ignore this criterion. I'm including this criterion with the understanding that my list will likely skew toward larger, more established small caps.

Have at least five covering analysts. We'd like to look at stocks that are on Wall Street analysts' radar, which makes it likelier that there's both more reporting and more insights on these companies. The more research we have at our disposal, the more educated a decision we can make. When screening for larger companies, I typically set the baseline at 10 analysts. But small-cap coverage is usually thinner, so five analysts is a reasonable starting point.

Have a consensus Buy rating. All of the stocks must have an average broker recommendation of 2.5 or less within S&P Global Market Intelligence's ratings scale. S&P Global Market Intelligence converts analysts' ratings into a numerical scale. Anything with a score of 2.5 or less is considered a Buy. Every stock that made the list has a score of 2.0 or less, which means these are higher-conviction Buys and, in some cases, Strong Buys — the best designation.

* This is a fun fluke. For decades, the Russell 2000 operated on an annual reconstitution schedule, and the last time the index reconstituted was June 30, 2025, based on market caps as of April 30, 2025. Bloom Energy was worth about $4.3 billion then. In the 13 months and change since that April data date, Bloom Energy's market cap has rocketed by nearly 2,000%. For what it's worth, FTSE has since announced that the Russell indices will return to semiannual reconstitutions in 2026 — the regular annual adjustment in June, then the first semiannual reconstitution in December.

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Have you ever noticed that equity investors can't have nice things? As miserable as we are when stocks are going down, we're even more unhappy when they're going up.

There's an empirical explanation for this psychological phenomenon. It's called "loss aversion." Humans are at the mercy of all sorts of cognitive biases, and one of the more perverse ones is that we experience far more pain from losing money than we experience pleasure from winning the same sum.

That's why when markets are rising, stocks are said to be climbing a wall of worry. The higher stocks climb, the more investor anxiety mounts. That's loss aversion at work.

Cut to today, with markets at record highs and valuations stretched by just about any metric you care to use, and it's only natural for investors to question if stocks are in a bubble.

Stocks never go up in a straight line, but that's pretty much what the S&P 500 did after bottoming out early last spring. From its April 7, 2025, intraday low to its close on December 31, the benchmark index was up 41.6% on a price basis. Such a torrid run has U.S. equities trading at some of their very priciest levels in history, according to BofA Securities.

As of December 31, on 18 of 20 metrics the S&P 500 was trading at statistically expensive levels, according to a note to clients from Savita Subramanian, head of U.S. equity strategy and U.S. quantitative strategy at BofA Global Research. Four of the metrics — Market Cap to GDP, Price to Book, Price to Operating Cash Flow and Enterprise Value to Sales were at record highs.

Is the stock market in a bubble? Here's how to tell

Happily, valuation is not a timing tool, as strategists take pains to point out. As Subramanian suggests, opportunities remain for investors willing to look for selective sector opportunities

Meanwhile, though questions remain about when and whether the Federal Reserve will cut interest rates amid a backdrop of broadening and accelerating profits, it's not hard to argue for a boom in earnings-per-share and GDP growth.

It's also possible that stocks have structurally re-rated to carrying richer valuations, as Subramanian noted earlier in 2025.

"The S&P 500 has changed significantly from the 80s, 90s and 2000s," explains Subramanian. "Perhaps we should anchor to today's multiples as the new normal rather than expecting mean reversion to a bygone era."

Perhaps most important, bubbles are as much of a psychological phenomenon as a financial one.

There's no substitute for experience on Wall Street, which is why it's always wise to listen to old hands when it comes to divining the market's machinations. Nicholas Colas, co-founder with Jessica Rabe of DataTrek Research, started working full-time on Wall Street in 1986. He lived through the October 1987 stock market crash and has witnessed every boom and bust up close ever since.

Colas has developed a three-point checklist for "spotting unhealthy, runaway markets." Here's a thumbnail version:

The market for initial public offerings gets frothy. Although the number of IPO announcements hit a multiyear high in the third quarter, the market for new issues has been subdued since it peaked in 2021. Higher interest rates and the availability of private-market funding remain headwinds.

"The good news is that history shows a rampant IPO market is a clear sign of a top," Colas notes. "We're nowhere close to that now."

Hallmark mergers and acquisitions (M&A) deals. "Exceptionally bad deals happen at the top, even if at the time they seem quite sensible," Colas writes. "M&A activity is ultimately a function of CEO/board confidence. Just like retail investors chasing hot IPOs at a market peak, senior managers fall prey to the same overconfidence that the good times will last forever."

Happily, M&A activity, while picking up, also remains under control. Through November 30, M&A volume was up 2% year over year in 2025, according to PwC.

A double is a bubble. Colas has a general rule to identify unsustainably high prices in a range of markets. Whenever the S&P 500 doubles in three years or less, stock prices decline shortly thereafter. The same is true about the Nasdaq Composite over any rolling one-year window going back to the early 1970s, notes Colas.

"A double is a sign of speculative excess because macro conditions are never so different that asset prices should rise 100% over a short period of time," Colas says. "Markets are reasonably good discounting mechanisms. When prices double, you know speculation — not fundamentals — are driving those gains."

Even the Nasdaq Composite, which is the frothiest equity market right now, is up "only" 20% over the past year.

Another tech bubble?

The remarkable bull market in equities was given fresh fuel by the Federal Reserve's jumbo interest rate cut in September 2024, but it's uncertain how much more fuel monetary policy can provide from here. Meanwhile, bubble anxiety centers around the AI companies, such as the Magnificent 7, that dominate the S&P 500 and Nasdaq-100.

Naturally, echoes of the bursting of the dot-com bubble are tat the op of anxious investors' minds.

"The introduction of transformative technologies typically attracts growing investor interest as well as significant capital and new competition," writes Peter Oppenheimer, chief global equity strategist and head of macro research Europe at Goldman Sachs. "As enthusiasm builds and stock prices increase, the sum of individual company valuations can overstate the total potential aggregate returns; often a bubble develops and bursts."

Oppenheimer notes the technology sector has generated 32% of the global equity return and 40% of the U.S. equity market return since 2010. This reflects stronger fundamentals rather than irrational exuberance.

"In our view, the technology sector is not in a bubble and is likely to continue to dominate returns," the strategist adds. That said, "concentration risks are high, and investors should look to diversify exposure to improve risk-adjusted returns while also gaining access to potential winners in smaller technology companies and other parts of the market."

Are stocks in a bubble?

None of Colas' time-proven indicators point to a stock market bubble, but a bubble very much remains a possibility in 2026, Colas says. Keep an eye on IPOs, M&A and how fast market levels rise from here.

Also remember that while the explosive growth in all things AI has valuations looking stretched, Goldman Sachs' Oppenheimer notes, "valuations often also understate the opportunities that can accrue in the nontechnology industries that can leverage the technology to generate higher returns."

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We’re well into the new year now, and investors are naturally wondering which investments will prosper in the months ahead. With the Magnificent 7 stocks (that is, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla) making up the bulk of 2023’s market gains, many are expecting broader participation from the rest of the market.

Small-caps in particular seem overdue to outperform. Their rally at the end of the year might seem to be confirmation of that idea, but even with the year-end push, small-cap stocks are trading at a significant discount.

I know it’s tempting to dive in. But investors should always be aware of risk. That’s particularly true if you’re retired or close to retirement. Simply put, you don’t have much time to make up for mistakes. And getting overly excited about small-caps could be a mistake.

Cheap stocks are often cheap for a reason. That certainly appears to be the case with small-cap stocks today.

Larger companies more likely to have lower rates locked in

For starters, there’s debt. Generally, bigger companies have much less debt maturing in the near future. Over the past few years, the majority of U.S. homeowners locked in low-rate mortgages. They will enjoy the benefits of that decision for years to come. It’s the same with large companies that have locked in long-term debt at favorable rates.

Smaller companies, on the other hand, don’t have the same access to bond markets for raising long-term debt. They generally use bank lines of credit and shorter-term sources of liquidity. That means their debt is being repriced at substantially higher interest rates, which is a headwind to profits.

                                            Average Interest Rate Paid on Debt

As shown in the chart above, the interest cost over the past year for large-cap companies (S&P 500) is notably lower than for small-cap companies in the S&P 600 and Russell 2000. For weaker companies, higher rates could mean the difference between being profitable or in the red, especially in a recession.

Many smaller companies are unprofitable

Speaking of in the red, did you know that 40% of companies in the small-cap Russell 2000 index are unprofitable today? And that’s with a pretty strong economy. For now. Consumer credit card delinquencies and auto loan defaults are spiking. Bankruptcies are on the rise, as are delinquent commercial real estate loans. These are certainly signs that we may be in for more challenging times, if not an outright recession.

Higher rates plus a slowing economy could mean a spike in bankruptcies in the small-cap universe. But there’s good news: There are some great small-cap stocks out there! Not every small-cap company is drowning in debt, and in some niche areas, smaller companies can be industry leaders. They’re often overlooked — especially in an environment like today when the biggest stocks are getting all the attention.

If you are a roll-up-your-sleeves investor (or have a financial adviser who is), you may be able to find some wonderful businesses at attractive prices. However, if you or your adviser are the type to buy mutual funds and ETFs that own hundreds of positions, be careful. If those funds are broadly invested across the small-cap universe, you may be exposed to a collection of unprofitable and highly levered companies. If we head into slower economic times, what looks cheap today may cost you dearly.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Wall Street's top strategists collectively forecast another year of gains for the S&P 500, albeit a much more muted one. That's to be expected after the benchmark index gained more than fifth on a price basis in 2023.

Wall Street's average target on the index gives the S&P 500 implied upside of about 5% from current levels. At the high end, Capital Economics forecasts the benchmark index to hit 5,500 by the end of 2024, giving the S&P 500 implied price upside of about 15% next year. At the low end, JPMorgan Chase expects the index to retreat 12% to 4,200 in 2024. 

Passive investors will go along for the ride no matter where it takes them. Stock pickers, on the other hand, seek to beat their benchmarks, and that's where Wall Street's S&P 500 stocks with the most upside come in. 

Analysts base their Buy, Hold or Sell recommendations on how they expect a stock to perform relative to the S&P 500 over the next 12 months or so. To do so, they plug numbers into discounted cash flow models. These models spit out price targets, which tell them where the stock should be trading in a year. The difference between the stock's current price and its target is called its implied, or potential, upside. Analysts' average price targets tell you how the Street collectively expects a stock to perform.

While you can hardly base a stock-picking strategy on the sole criterion of price targets, it can be helpful to know which S&P 500 stocks are expected to deliver the biggest returns in the year ahead. To that end, we used S&P Global Market Intelligence to screen the S&P 500 for the index members with the highest implied upside for 2024 and beyond. 

Have a look at the table below to see the 10 S&P 500 stocks analysts expect to put up the biggest price gains in 2024. (Price targets and other data are as of December 22.)

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Small-company stocks are often the canaries in the market’s coal mine. Typically defined as stocks with a market value of less than $10 billion, their prices usually peak and then decline before large-company stock prices do in anticipation of a top in the economic cycle or a rise in interest rates. Similarly, “they tend to outperform early, when it seems like the worst is behind us,” says Sam Stovall, chief investment strategist at CFRA Research.

Lately, the canaries have been quite chirpy. Over the past six months, the Russell 2000, an index of small-cap stocks, gained a robust 9.1%. It led the S&P 500 index for part of that stretch, a good sign, given that the Russell has lagged the big-company benchmark in seven of the past 10 calendar years. (Returns and data are through March 31, unless otherwise noted.)

No one knows, of course, whether that trend will continue. Uncertainty reigns about when the Federal Reserve will pause its cycle of interest rate hikes and what kind of recession, if any, the economy may experience. But you have plenty of other reasons to give small-company stocks a look now.

For starters, they’re cheaper than they’ve been in decades. Compared with the S&P 500, the S&P SmallCap 600 index currently trades at a 36% discount, in terms of price-earnings multiples based on estimated earnings for the year ahead. That P/E is also a 22% discount to small caps’ average P/E since 2005. Large caps, by contrast, trade at a 16% premium to their average P/E since 2005.

Analysts have a brighter outlook for small-cap earnings growth than for the rest of the market, too. Although small- company stocks’ earnings growth is “due to underwhelm” this year, says Stovall, it is forecast to exceed that of large-size firms next year. Analysts expect small companies’ earnings to climb by 19% in 2024; mid caps’ earnings should rise by 14%. Large-company stocks’ earnings growth is likely to trail in 2024, with a predicted jump of 12.5%.

And a wobbly economy means now is a prime time to buy stakes in small companies, say some experts. History shows that small-cap stocks rally before an economic rebound is clearly under way. Thus, the current uncertain economic environment makes for a “highly opportune time” to invest in small caps for the long run, according to a recent report from the small-company stock specialists at investment firm Royce & Associates.

Focus on quality

High-quality stocks — firms that generate steady cash flow and boast a clean balance sheet and rising earnings, for instance — can provide some resilience in a rocky market. Says Sebastien Page, head of T. Rowe Price’s asset allocation steering committee: “There are opportunities in small caps, if you look at the quality segment, to lean in and play offense.”

Buying shares in individual stocks is one way to go. But there are caveats: Small-company stocks tend to be more volatile than large stocks. A diversified portfolio of hundreds of small-cap stocks can smooth out the ride some, but that’s hard to build on your own.

With that in mind, we found seven funds with a quality tilt that make it easy to boost your exposure to small-company stocks. Though stock prices may get worse this year before they get better, “they can turn around quickly, too,” says Phillip Cook, a comanager of SouthernSun Small Cap fund. “If you don’t get your ducks in a row now, you won’t benefit.”

Avantis U.S. Small Cap Value ETF. Only highly profitable small companies trading at a bargain price are considered for this low- cost, actively managed exchange-traded fund, run by four managers. Profitability and a low price, says chief investment officer Philip McInnis, are “good proxies” for expected return rates. “If a company is cheap with high profits,” adds comanager Mitchell Firestein, “it’s going to generate a higher expected return.”

Ryder System, best known for rental trucks, sits at the top of the portfolio, which means the managers consider it the most attractive stock based on the fund’s two main criteria: a low price-to-book-value ratio and solid profitability. (Book value is assets minus liabilities.) “I think about the ideal stock the way Warren Buffett does,” says Firestein. “We want to buy wonderful companies at fair prices, not fair companies at wonderful prices.”

The process has delivered solid results since the ETF launched in September 2019, returning 13.6% annualized. That walloped the two major small-company benchmarks, the S&P SmallCap 600 and the Russell 2000.

Dimensional U.S. Small Cap Value ETF. At Dimensional Fund Advisors, the investment firm better known for its DFA mutual funds, any company in the bottom 10% of the U.S. stock market is considered small. Within that universe, the managers ferret out the firms that are profitable and that trade at a low price-to-book-value ratio — a “fairly sticky measure that moves, but gradually,” says Joe Hohn, a senior portfolio manager. That’s in contrast he says, to P/Es, which can be volatile.

The process yields a portfolio of 900-odd stocks, with no single stock accounting for more than 1% of assets. “Diversification is the only free lunch you’ve got” in the investing world, says Hohn, and a portfolio of hundreds of stocks shields the fund from some risk. Dimensional funds are often considered “index-enhanced” funds but, Hohn says, “we are active managers.”

The low-cost ETF has a short track record — it just celebrated its one-year anniversary. Over that period, its 9.0% return beat 92% of its peers (funds that invest in small-company stocks trading at a value). But the ETF uses the same strategy as the decades-old mutual fund DFA U.S. Small Cap Value, available only through certain advisers. Over the past 10 years, the mutual fund’s 8.5% annualized return ranks among the top 27% of its peers. Though short-term returns may vary between the mutual fund and the ETF, over the long term, Hohn says, the two funds should have similar results.

iShares Core S&P Small-Cap ETF. This fund, a member of our Kiplinger ETF 20 list of favorite ETFs (and our favorite small- cap ETF), tracks the S&P SmallCap 600 index. That’s our preferred benchmark of small-company stocks, too, in part because it skews toward higher-quality firms — companies must have posted profits for at least the past 12 months to be considered for inclusion in the index. The Russell 2000 does not have any earnings criteria (only size matters), and that, in part, hurt its performance in 2022. The SmallCap 600’s profit tilt may have made a difference over the long haul, too. Over the past decade, the ETF’s 9.8% annualized return beat the Russell 2000 by an average of 1.8 percentage points per year. The fund’s low, 0.06% expense ratio is a draw, too.

Mesirow Small Company. At Mesirow, profits matter — or profitability expected within the next 12 to 18 months. Price matters, too. Plus, prospective stocks must have catalysts to power earnings and cash flow growth over the next year or so. “We marry those considerations with top-down trends and themes,” such as the growing popularity of electric vehicles, says Leo Harmon, co-lead manager of the fund with Kathryn Vorisek and two comanagers. The combination of a promising stock and a favorable trend is like finding “a good house in a good neighborhood,” he says.

Fund holdings include Gentherm, which makes climate-control systems for cars and electric vehicles (think heated seats and the like). Another favorite, Astec Industries, designs and makes equipment and components for road building and will benefit from the Bipartisan Infrastructure Law enacted in 2021.

Though Mesirow, a Chicago-based investment firm, has been around for decades, the fund is just four years old. Its 25.7% three-year annualized return beat 90% of its peers (small blend funds, which hold stocks with a mix of growth and value traits). Prior to managing this fund, Vorisek and Harmon ran small-cap strategies at Fiduciary Management Associates, a fund firm that Mesirow acquired in 2016.

Oberweis Micro-Cap and Oberweis Small-Cap Opportunities. These growth funds debuted in the mid 1990s but shifted strategy in 2015, when Kenneth Farsalas became lead manager. He ditched the funds’ focus on stocks with fast-growing sales and earnings to concentrate on a behavioral finance quirk called post-earnings announcement drift, he says. “Investors tend to underreact to earnings surprises, specifically when those surprises are caused by big changes in the company.”

Farsalas, along with two analysts and two traders, exploits the trend by closing in on firms that have reported earnings that beat analysts’ expectations and buys stakes only in those with a solid catalyst to propel earnings further — a new product, new executives shaking things up, or new regulations that favor its business. Their interest is piqued “if there’s a positive fundamental change and we think the business is cheap” based on a variety of price multiples relative to the firm’s history and to competitors, he says. But if the surprise was driven by a lower tax rate, say, or a one-time sale of an asset, they generally pass.

A current favorite in the Small-Cap Opportunities fund is semiconductor-equipment company Aehr Test Systems. Farsalas says its sector is poised to turn around. The firm makes systems used to test newly manufactured semiconductors and will be “a direct beneficiary of the electric-vehicle boom,” he says, because it is the leader in testing silicon carbide chips for EVs.

The funds’ investment approach results in what Farsalas calls “aggressive” portfolios. Volatility is above average at both funds, but so are the long-term results. Micro-Cap has returned 16.9% annualized since Farsalas took over. It tends to be even more volatile than its small-cap fund sibling, so keep any exposure to a small percentage of your total stock holdings. Small-Cap Opportunities has gained 13.7% annualized since Farsalas took over. The S&P SmallCap 600 index rose 8.3% annualized over the same period; the Russell 2000, 6.4%.

Farsalas says his focus on profits helped both funds hold up better than the Russell 2000 index in 2022 because the fund doesn’t hold shares in non-earning firms, such as burgeoning biotech companies. It avoids real estate investment trusts and utilities, too. “It’s an urban legend that small- and micro-cap companies aren’t high quality. Plenty of small- and micro-cap companies have real earnings, generate real cash flow and have good balance sheets,” he says.

Pacer U.S. Small Cap Cash Cows 100 ETF. This fund’s objective is to invest in the most-profitable small companies. To do so, it holds the 100 firms in the S&P SmallCap 600 index with the highest free-cash-flow yield — the ratio of free cash flow (cash left after expenses and investments to run or expand the business) to a firm’s enterprise value (basically, the price you’d pay to buy the company today, taking into account its cash on hand and debt). The index-based ETF is rebalanced quarterly.

A focus on free-cash-flow yield, as opposed to the price-to-book-value ratio (a traditional value measure), allows the fund to include firms that are low on real assets but loaded with intangible assets — ones you “can’t see, touch, feel or put a price tag on,” such as health care companies with drug patents, says Sean O’Hara, president of Pacer ETFs Distributors.

The ETF didn’t have a great 2022; it lagged 88% of its peers (small value funds). But its three- and five-year records are smashing, and since the start of 2023, it has outpaced 94% of similar funds, with a 6.5% return. Top holdings include Encore Wire, a maker of electrical building wire and cable, and Asbury Automotive Group, a car-dealership company.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

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Among the lowest-priced investing options this fall are small cap stocks – often defined as companies whose total market capitalization (stock price times number of shares) runs from $300 million to $2 billion.

The Russell 2000, an index that tracks the 2,000 smallest public companies, was trading at a price-to-earnings ratio, based on estimated earnings, ranging from 15 to 20 this summer, the lowest range in more than a decade. That discount is one big reason Ed Clissold, Chief U.S. Strategist for Ned Davis Research, turned bullish on small caps this summer. “Small-caps could be in the early stages of a multi-year run of outperformance,” he says.

History is certainly encouraging. The sector strongly outperformed the last time small cap stock prices were so low – in the run up to the 2001 recession. If you bought a fund tracking the Russell 2000 index around the March 2001 start of that recession, by March of 2005 you’d have gained a cumulative total return of 42%. The large cap Russell 1000 index had only started recouping its losses by then and was up just 6%.

There are plenty of other reasons to take a flyer on small caps. Clissold believes they will disproportionately benefit from trends such as deglobalization and a strengthening dollar because small caps tend to be more U.S. focused. And several academic researchers have found that over the very long run, small cap stocks tend to gain more than those of large companies.

All this might make savvy investors suspicious: If that’s all true, why are small caps so unloved now?

Four big reasons: Small caps are more volatile than large companies, and many investors can’t stomach their swings. Secondly, since the companies tend to have a comparatively small number of tradeable shares, it can be difficult for fund managers to buy or sell large stakes without causing prices to move. Their size also makes them more vulnerable to economic downturns, so they tend to fall farther faster during the early parts of recessions. Finally, small caps just couldn’t keep up with skyrocketing growth-oriented tech stocks such as Amazon.com, Tesla and Alphabet. Hence, the broad small cap indexes have generally lagged large cap benchmarks since about 2008.

Given the risks, especially heading into a possible recession, it pays to be picky. A great way to dip your toe into this sector is T. Rowe Price’s Small Cap Value fund, one of the Kiplinger 25, the list of our favorite no-load mutual funds. This 34-year old fund has a long track record of outperforming its benchmark, and has beaten similar funds in eight of the past 10 years, and so far this year, according to investment research firm Morningstar

Lead fund manager David Wagner says he looks for bargains that also have strong earnings outlooks. The fund owns about 300 companies in the Russell 2000, and is currently light on risky, expensive tech companies and heavy on industrial, energy, materials and financial firms. “Higher interest rates are positive for banks since they can earn a higher return,” says Wagner. And deglobalization and international conflicts can create opportunities for domestic industrial and energy companies.

Wagner says that while the outlook for the next several months is cloudy, he’s confident about the medium-term. “This is a great time to buy small caps… It is foolish to try to time it perfectly. If you wait for the recession to be in the rear-view mirror, it might be too late.”

In the latest Kiplinger's Personal Finance Magazine, our editors offer advice on how to spend, save and invest $1,000. Get other smart tips:

• Use fractional shares to buy small amounts of pricey stocks
• Open an account with a low-cost roboadviser
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Equity markets have trended upward historically, even though there have been long stretches of flat returns.

After the Great Depression in the 1930s, markets moved sideways for years. The same thing happened from 1999 to 2009 after the dot-com bubble burst and the 2008 financial crisis.

Even with these periods, it's widely accepted that stocks rise over time. In short, when it comes to bull markets vs bear markets, the bulls win.

Market leadership is less predictable. The market is not a single homogenous entity, although people often refer to it that way. Some investing styles lead for long stretches, such as value vs growth.

Certain sectors, such as technology, have repeatedly outperformed others such as energy. Even countries can rotate in and out of leadership, with U.S. stocks beating European stocks for much of the past decade.

Another clear area of divergence is size. Large-cap stocks, especially the blue chips that dominate index benchmarks the S&P 500 and Nasdaq-100, have outperformed small caps in the last decade.

Small-cap stocks are generally companies with a market capitalization of around $2 billion or less. Their lag has been a source of frustration for institutional investors and asset allocators because long-standing research pointed to the opposite result.

Much of that research traces back to Eugene Fama and Kenneth French, whose three-factor model expanded on the basic capital asset pricing model (CAPM). One of the key factors — size — proposes that smaller companies should earn higher average returns than larger ones over long periods.

Despite the recent period of small-cap underperformance, many ETFs still aim to capture this potential premium, giving contrarian investors an opportunity to outperform the market.

What is the small-cap size premium?

The size premium comes from decades of financial research that attempted to explain which quantitative factors drive stock outperformance. Early work relied on CAPM, which suggested that a stock’s returns should be explained mainly by its sensitivity to overall market movements.

In practice, this left many questions unanswered. CAPM didn’t fully explain why certain groups of stocks consistently outperformed others, and its ability to describe real-world returns fell short.

For everyday investors, the issue was that actual market behavior didn’t line up with what the model predicted, which led Eugene Fama and Kenneth French to expand the research. They used a statistical technique that grouped and compared large sets of historical stock data to see which characteristics appeared to influence returns.

Through this work, they identified two additional factors that seemed to matter beyond what CAPM captured. One of those was size.

In their framework, the size factor is expressed as "Small Minus Big," often abbreviated as SmB. It measures the difference in returns between portfolios of small companies and portfolios of large companies. If small companies outperform large companies, the SmB factor delivers a positive result. This became known as the size premium.

Fama and French also proposed reasons why this premium might exist. Smaller companies tend to be riskier, could have less access to capital and often operate with more uncertainty. Investors might demand higher long-term returns as compensation.

They also argued that smaller companies can grow faster because they start from a smaller base, which can lift long-term returns.

The research didn't stop there. The size factor has been refined many times, and one of the most important updates came in September 2018, when Cliff Asness and his colleagues at AQR Capital published a paper titled Size matters, if you control your junk.

Their argument was that much of the apparent disappearance of the size premium came from one issue: Many small-cap stocks were junk companies with highly leveraged balance sheets and poor profitability. Once they adjusted the data to exclude these weaker companies, the size premium reappeared in a more consistent way.

The takeaway is that factor research has evolved for decades, and the size premium is not a simple rule. ETF managers targeting the size factor use many approaches ranging from specialized index construction to fully proprietary active strategies. The way each fund defines and captures the size premium varies, and these differences can affect both risk and performance.

How we chose the best small-cap ETFs

Given the specialization within the small-cap space, we adjusted our usual ETF selection criteria. For this ranking, we included actively managed ETFs. The S&P Indices vs Active (SPIVA) study shows a challenging long-term record for small-cap active managers.

In the past 15-year period, 89.9% of small-cap active funds underperformed the S&P SmallCap 600 Index. The short-term numbers are more forgiving. Over the past five years, 62.7% underperformed, and in the past three years, that figure fell to 42.2%.

A newer generation of small-cap ETFs is also far cheaper than older small-cap mutual funds. Since high fees contributed to much of the historical underperformance, that drag is less severe today. Because of these lower fees, we evaluated passive and active ETFs on equal footing.

Fees were the first screen. Passive small-cap ETFs tracking an index were limited to a maximum expense ratio of 0.20%. Active small-cap ETFs were capped at 0.30%. On a $10,000 investment, these limits translate to $20 and $30 a year in fee drag, respectively. Several active funds fall within this range, making them realistic options.

We then applied filters for fund stability and trading efficiency. A minimum of $1 billion in assets under management (AUM) ensured we focused on well-established ETFs with low closure risk.

We also required a 30-day median bid-ask spread of 0.25% or less, which accounts for naturally lower liquidity in small caps while helping minimize slippage for investors.

To sharpen the comparison, we used a factor regression tool from Portfolio Visualizer to measure each ETF's loading on the size factor. These comparisons are based on monthly returns over a 36-month rolling window. The goal was to see how much true small-cap exposure each ETF provides rather than assuming all funds labeled small cap behave the same way.

• Expense ratio: 0.05%
• Assets under management: $65.9 billion
• SmB loading: 0.55
• 30-day median bid-ask spread: 0.06%

Fee-conscious investors looking for broad small-cap exposure might find the Vanguard Small-Cap Value ETF (VBR) appealing. True to Vanguard's style, the 0.05% expense ratio is among the lowest in the category.

VBR tracks the CRSP US Small Cap Value Index, a benchmark with more than 830 stocks. It has a 21.6% allocation to industrials and a 8.4% allocation to financials. Regional banks in particular make up a meaningful slice of the financials weighting.

The size loading of 0.53 is solid but not perfect, because VBR's benchmark is broad enough that some mid-cap names appear in the portfolio, which is evident from its median market cap of $9.1 billion. The figure sits in the midcap range.

Even so, as a single-ticker solution, VBR is suitable for beginner investors who want a measured and less volatile entry into small caps.

Learn more about VBR at the Vanguard provider site.

• Expense ratio: 0.19%
• Assets under management: $78.4 billion
• SmB loading: 0.89
• 30-day median bid-ask spread: 0.00%

The iShares Russell 2000 ETF (IWM) is one of the most popular small-cap ETFs by sheer size, driven largely by the brand recognition of the Russell 2000 Index.

This benchmark is the classic “buy the haystack” approach. It doesn’t apply filters for profitability, balance-sheet quality or other fundamental traits. If a company is investable, liquid enough and falls within the Russell methodology, it's included.

The 0.19% expense ratio makes it less appealing for long-term buy-and-hold investors compared with cheaper peers, but IWM remains one of the top trading vehicles in the small-cap category.

It trades at extremely high volume and has a tight spread. IWM is also one of the few ETFs with daily expiring options contracts, which adds to its popularity among active traders.

Learn more about IWM at the iShares provider site.

• Expense ratio: 0.03%
• Assets under management: $15.3 billion
• SmB loading: 0.86
• 30-day median bid-ask spread: 0.02%

The Russell 2000 Index used by IWM fits the junk issue described by Cliff Asness. Its broad and relatively permissive rules allow many weaker companies to enter the index.

The State Street SPDR Portfolio S&P 600 Small Cap ETF (SPSM), which tracks the S&P SmallCap 600 Index, offers a more selective alternative.

To be eligible for the S&P 600, a company must meet stricter criteria, including a history of positive earnings.

Another difference is index maintenance. The Russell 2000 is reconstituted once a year, which can create front-running as traders anticipate changes. The S&P 600 uses a committee-based process that makes additions and removals throughout the year, reducing predictable trading patterns.

Learn more about SPSM at the SPDR provider site.

• Expense ratio: 0.26%
• Assets under management: $14 billion
• SmB loading: 0.73
• 30-day median bid-ask spread: 0.04%

Dimensional Fund Advisors was started with direct involvement from Eugene Fama and Kenneth French, and much of its investment culture reflects its factor-based research. The Dimensional US Small Cap ETF (DFAS), an actively managed small-cap ETF, is the group's flagship.

While the exact methodology isn’t disclosed in detail, Dimensional is known for controlling for profitability and other quality measures internally.

Since the mutual fund variant launched in December 1998, the strategy has outperformed the Russell 2000 Index with an annualized total return of 9.31% versus 8.49%.

Unlike many active funds, turnover is low at roughly 6% a year. That helps reduce trading frictions and allows strong performers to compound.

Learn more about DFAS at the Dimensional provider site.

• Expense ratio: 0.25%
• Assets under management: $2.7 billion
• SMB loading: 1.01
• 30-day median bid-ask spread: 0.16%

Avantis Investors was founded by former Dimensional employees who set out to build a modern factor ETF lineup while Dimensional was still focused on mutual funds. The Avantis U.S. Small Cap Equity ETF (AVSC) is their direct competitor to DFAS.

In addition to profitability screens, the Avantis process incorporates momentum as part of its entry and trading framework to avoid buying against prevailing trends. However, active management does not guarantee outperformance.

In the most recent one-year and three-year periods, AVSC has outperformed the Russell 2000 Index.

Still, liquidity is an issue. The 0.25% spread barely meets our cutoff and makes AVSC one of the less liquid ETFs in this list, although this could improve as the fund grows.

Learn more about AVSC at the Avantis provider site.

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Now is proving to be a “super-exciting time to be investing in small companies,” says Shadman Riaz, a comanager of Fidelity Stock Selector Small Cap (symbol FDSCX). A growing economy and higher interest rates make a good environment for small-capitalization stocks. What’s more, a rush of initial public offerings means there are more under-the-radar companies on the market—and thanks in part to the popularity of indexing, fewer analysts who research them, says Riaz. All told, “there’s an opportunity for active managers to outperform,” he says.

Stock Selector Small Cap has a unique setup. Five managers run the fund, but the portfolio is divided into three different sleeves, managed separately. Two parts hold a diversified mix of stocks across many sectors. One of those favors growing, high-quality firms; the other tilts toward so-called cyclical, or economy-sensitive, value-oriented opportunities. The third sleeve focuses only on health care stocks.

The managers collaborate, but they don’t work by consensus. “We make individual decisions,” says Riaz. However, they all look for businesses with a compet­itive edge, run by smart executives, that trade at a discount to the managers’ estimate of fair value.

No matter where they fit in the overall portfolio, stocks in the fund typically meet one of three sets of criteria. Some companies are steady businesses with strong competitive niches, pristine balance sheets and reasonable valuations. Business services provider ExlService Holdings is “growing at a good clip and has good cash flow,” says Riaz. Others are innovative companies with in-demand products. SiTime, for example, makes timing devices embedded in gadgets such as earbuds and smartphones to help them sync quickly. The third group includes out-of-favor cyclicals. Oil refinery HollyFrontier, for instance, has been trading at a low price relative to book value (assets minus liabilities), says Riaz.

The portfolio structure has delivered good results. Over the past three years, the fund’s 18.6% annualized return outpaced 97% of its small-blend peers (funds that invest in small companies with either a growth or value tilt).

A little over a year ago, I said that small-company stocks offered good value – they weren't dead, as many believed.

Sure enough, they woke with a start. In less than six months – from Sept. 24, 2020, to March 15, 2021 – the small-capitalization S&P 600 Index rose an incredible 69%, more than triple the gain of the large-cap S&P 500.

Afterward, however, small caps reverted to the pattern that has prevailed since 2014. Their prices plateaued over the next six months, while large-company shares kept up a briskly consistent ascension. It's not that small caps have done poorly over the past decade. Their returns are well into the double digits and are higher than historical averages. The problem is that in this bull market the little companies have trailed the big ones so badly that it makes you wonder whether the gap is permanent.

Consider the Russell 2000, a popular small-cap index. Over the past five years, the large-cap Russell 1000 has beaten the Russell 2000 by an annual average of four percentage points and over the past 10 years by 2.6 points. These are serious differences – especially because, historically, small caps have solidly outperformed large caps.

To compensate for their greater risk, small caps have historically scored higher returns. Except that lately – despite that amazing six-month spurt – they haven't. Since 2014, Vanguard Russell 1000 (VONE), an exchange-traded fund linked to the large-cap index, has beaten the Vanguard Russell 2000 (VTWO), an ETF that tracks its small-cap analog index, in seven of eight calendar years, including so far in 2021. (Stocks and funds I like are in bold.)

Has something profound and lasting happened to small caps, or is this period an anomaly that might be in the process of reverting to the mean?

The case for large caps begins with investors' enormous enthusiasm for both S&P 500 Index funds and the stocks with trillion-dollar market values that dominate those funds. Another change that favors large caps is that as technology allows business to become more global, giant companies have a huge advantage, both in efficient supply chains and in marketing brands known throughout the world. Also, in this low-interest-rate environment, large firms can gain easier access to cheap money, so they can grow even larger.

This case makes sense, but I view investments through a dif­ferent prism. In markets, investors shun groups of stocks until those shares become irresistible. Then they jump in, and prices rise. That was the phenomenon that powered small caps from September 2020 through March 2021, which proved that these stocks can still attract investors.

Big Bargains

Small caps are offering undeniable value. According to Morningstar, the average price-earnings ratio for the Russell 2000 stocks that make up Vanguard's ETF is just 16, compared with 22 for the stocks in the Vanguard Russell 1000 ETF. The average price-to-book value for the small-cap ETF is 2.2, compared with 4.0 for the large-cap fund. The Russell 2000 ETF (IWM) has lower valuations despite having higher long-term earnings growth.

Small caps have other attractions, too. The S&P 500 has become almost an internet specialty fund, with the information technology and communication services sectors together accounting for 39% of the total index. Those high-tech sectors amount to only 16% of the small-cap S&P 600. The small-cap indexes have the long-term advantage of being broadly diversified.

Tech stocks, furthermore, are not the only ones that are soaring.

Take Crocs (CROX), a Colorado-based maker of clunky though trendy slip-on clogs. Recently, under imaginative management, the company has grown impressively, its shoes becoming especially popular with teenagers. When COVID hit, investors feared the worst, and the stock lost half of its value. But since March 2020, the share price has risen by a factor of nine. (Take that, Apple!) Despite its spectacular rise, Crocs still carries a reasonable P/E of 20, based on the consensus of analysts' estimates of earnings for the year ahead.

Crocs has increased in value so much that, at nearly $9 billion, its capitalization no longer qualifies as small. The generally accepted limit for a small-cap stock is $2 billion, but that's an old number and probably too low; I would update it to about $4 billion.

Under the Radar

Because they are followed by fewer financial analysts, small-cap stocks can escape notice and become underpriced. That may be the case with Calavo Growers (CVGW), a marketer and distributer of avocados. Calavo's stock, which is covered by only five analysts and has a market cap of about $700 million, is down by more than half from its 2018 high and carries a dividend yield of 3.0%, considerably more than a 10-year Treasury bond.

With a fleet of 247 aircraft, Bristow Group (VTOL) serves offshore energy companies and provides search and rescue work around the world. Although shares have doubled since the summer of 2020 as oil prices have risen, the stock, with a market cap of $966 million, trades far below its record high.

Some of the best small-cap funds are closed to new investors. Access is limited to my 2020 pick, Wasatch Ultra Growth, which has returned 43% in the past 12 months. You can still purchase shares directly from the fund company, though, or crib from its list of holdings, including Vintage Wine Estates (VWE), a Sonoma-based owner of more than 30 upscale wine brands. The stock went public in April 2020 and is tracked by just five analysts.

Many small-cap funds are mid-cap funds in disguise. The average holding of Artisan Small-Cap, for example, has a market cap of $7 billion. That compares with $2.3 billion for SPDR Port­folio S&P 600 Small Cap (SPSM), and $1.8 billion for another ETF I like, WisdomTree U.S. SmallCap Dividend (DES). One of Artisan's holdings is Ingersoll Rand (IR), with a market cap of $22 billion. C'mon. Although there's a place for large- and mid-cap stocks in any portfolio, right now, small is beautiful.

Some good, true small-cap managed funds are open to all. An investment of $10,000 in Buffalo Small Cap (BUFSX) 10 years ago would be worth roughly $49,000 today. Its number-one asset is Everi Holdings (EVRI), a gaming technology company with a P/E of 21. AB Small Cap Growth (QUASX), founded in 1969, has notched an annualized return of 27% over the past five years. (You can purchase the fund with no sales charge at some brokers.) Holdings include John Bean Technologies (JBT), which makes food-processing equipment, and Trupanion (TRUP), which provides medical insurance for pets.

Few investing joys beat buying shares of a small company and eventually seeing them soar. It’s not just the money but the thrill of discovering stocks, in this mega-cap era, that most folks find just too small to notice.

Shares of small companies have been through a roller-coaster ride in 2021, but an opportunity might be presenting itself soon – especially in small-cap value stocks.

Small caps ripped higher early on this year as investors expected a rebound in the U.S. economy and were willing to take on risk during the early phase of an economic cycle. But the COVID-19 delta variant has investors worried that the recovery will stall. The result? The small-cap Russell 2000 is up 8% year-to-date – less than half the 17% gains of the S&P 500 in that same time frame.

But zooming in, small-cap value stocks have outperformed their growth counterparts this year. The iShares Russell 2000 Value ETF (IWN) is up 20% so far in 2021. By comparison, the iShares Russell 2000 Growth ETF (IWO) is roughly flat on a year-to-date basis.

Naturally, continued delta variant worries would weigh broadly on small caps, and particularly on value plays in cyclical sectors such as energy, industrials and financials. But Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, doesn't seem too worried about the longer-term performance of small caps.

"From our view, this cyclical and small-cap underperformance is a temporary stumble," he says. "Continue to lean into the recovery."

Translation: don't give up on small-cap stocks just yet. If nothing else, the recent pullback allows investors to initiate positions in what has historically been one of the best-performing asset classes at more attractive prices. And if you really want to "lean into the recovery," value plays remain the more direct choice.

With that in mind, here are 10 great small-cap value stocks to buy. These picks represent diverse industries, ranging from online gaming to infrastructure, auto parts to health and wellness. And each of these small-cap value stocks has benefited from a rebounding U.S. economy in 2021 – and could have more room to run.

Data is as of Aug. 18. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

• Market value: $646.6 million
• Industry: Specialty chemicals
• Dividend yield: N/A

Investors looking for a play on infrastructure spending should consider Koppers (KOP, $30.30), which makes treated wood products and chemical preservatives used in railroad bridges and crossings, utility poles, and residential home construction.

KOP is the largest supplier of crossties to Class I railroads in the U.S. and the second-largest supplier of utility poles. The company also holds top market shares in wood preservation chemicals, coatings and fire retardants. It has a global footprint, with 43 locations across North and South America, Europe, Asia and Australia.

Koppers continues to solidify its position as the market leader in wood treatment and protection chemicals via acquisitions and capacity expansion. Although this has swelled its debt, KOP has begun to address high leverage by divesting non-core assets and cutting expenses. The company plans to trim $30 million from debt this year and reduce its net leverage ratio to 3.1x. With no significant debt maturities before 2024, the firm has breathing room to pay down debt.

The company's adjusted earnings per share (EPS) rose 11% in the June quarter as a result of the impact of a strong home improvement market, partially offset by higher lumber prices. The company is guiding for adjusted EPS of $4.35 to $4.60 this year, up roughly 9% at the midpoint from earnings of $4.12 per share last year.

This is one of the cheaper small-cap value stocks, too, trading at a 7.1 times price multiple to forward earnings.

KOP is also well-liked by Wall Street pros. Of the five analysts covering the stock tracked by S&P Global Market Intelligence, three have it at Strong Buy, one says Buy and one deems it a Hold. Plus, the consensus price target of $43.40 represents expected upside of 43.2% over the next 12 months or so.

• Market value: $1.8 billion
• Industry: Residential construction
• Dividend yield: N/A

M/I Homes (MHO, $62.118) is one of the country's biggest producers of single-family homes, arriving in 13th place on Builder's list of top 100 homebuilders. The company serves 15 markets across 10 states and has a particularly strong footprint in some faster-growing areas, including Texas, Florida and the Carolinas. MHO's customer niche is first-time and move-up buyers seeking affordable home designs.

The company has experienced phenomenal success with its Smart Series-designed homes for first-time buyers. This concept was introduced five years ago in Tampa, Florida, and has expanded to 62 Smart Series home communities across 13 markets, with more planned during 2021. Smart Series homes accounted for 39% of MHO's June quarter sales.

Robust new home sales, spurred by continued low interest rates, have led to a surge in homebuilding. M/I Homes delivered 4,277 homes in the first six months of 2021, 39% growth in sales and 116% EPS gains. Explosive growth in contract backlog, which rose 49% to 5,488 homes in the six months ended June 30, bodes well for the company's future results.

M/I Homes controls and/or owns enough vacant land to support its building plans for the next five years. The housing stock also has great liquidity to fund growth, based on the $372 million in cash it had at the end of June, net homebuilding debt at just 16% of capitalization and no major debt maturities before 2025.

Despite a housing market boom and the company's record $2.5 billion in backlog sales, shares of this small-cap value stock are priced at only 4.2 times forward earnings.

• Market value: $761.1 million
• Industry: Education and training services
• Dividend yield: N/A

Perdoceo Education (PRDO, $10.86) provides onsite and online post-secondary education to non-traditional adult students through two accredited institutions – Colorado Technical University and American InterContinental University. The company offers a variety of degree options, including associate, bachelor's, master's and doctoral, with programs in business, nursing, computer science, information technology and criminal justice, among others.

This education services provider is benefiting from rising demand for post-secondary education, growing acceptance of online learning platforms, employer preference for hiring skilled professionals and increasing participation by non-traditional and adult students.

PRDO's recent investments in technology initiatives such as its Intellipath personalized learning technology are paying off by boosting student retention rates and enrollments. Total enrollments were at 43,100 students at the end of June, up 7.5% from the year prior. Adjusted EPS improved 5% in the first six months of 2021 and Perdoceo is guiding for 2021 adjusted EPS of $1.58 to $1.64 for fiscal 2021, which would represent a 3.2% improvement at the midpoint from 2020.

To accelerate its top-line growth, Perdoceo recently acquired DigitalCrafts, which specializes in training for web development, web design and cybersecurity. A liquid balance sheet showing minimal long-term debt and $480.7 million of cash and equivalents provides this company with plenty of expansion capital.

PRDO shares are modestly valued at a 6.7 times price multiple to forward EPS and a 6.3 times price multiple to cash flow.

As far as analysts go, the three covering PRDO that are tracked by S&P Global Market Intelligence rate it a Buy or Strong Buy, with an average target price of $22 – more than double its current price. In other words, the pros think this is one of the best small-cap value stocks out there.

• Market value: $1.3 billion
• Industry: Engineering and construction
• Dividend yield: 1.0%

Another potential play on infrastructure spending is Primoris Services (PRIM, $24.87). This company provides engineering and construction services across the U.S. and Canada to major public utilities, petrochemical and energy companies and municipal governments. PRIM operates across three business segments – utilities (48% of revenues), energy/renewables (38% of revenues) and pipeline (14% of revenues).

Recent investments in its utilities and energy/renewables businesses, including the acquisition of telecom services platform Future Infrastructure, paid dividends for the company during the June quarter, with both of these business segments achieving 20%+ year-over-year sales growth. Although revenues from the pipeline segment declined due to the closeout of projects in 2020, gross margins improved. The company is guiding for 2021 EPS ranging from $2.30 to $2.50, which is up 11% at the midpoint from last year.

Looking ahead, Primoris should benefit from its transition to higher growth and margin markets like renewables, where the company is experiencing secular tailwinds and rising backlog. Primoris estimates a $225 billion market opportunity in renewables, which currently represents $350 million of the company's $2.9 billion backlog.

Primoris has been a reliable grower, delivering 13% annual revenue growth and 15.5% yearly adjusted EPS growth over three years. The company also pays a 6-cent per share quarterly dividend, currently yielding 1.0%.

PRIM stock trades at a modest 10.5 times price multiple to forward earnings.

As far as small-cap value stocks go, analysts are bullish toward this one. UBS analyst Steve Fisher initiated coverage on PRIM with a Buy rating in July. He likes the company's new business mix deemphasizing oil and gas. Morgan Stanley analyst Matthew Sharpe also recently commenced coverage, rating shares Overweight (the equivalent of a Buy), highlighting PRIM's durable portfolio and tailwinds driving future revenue growth .

• Market value: $939.3 million
• Industry: Auto parts
• Dividend yield: 2.4%

Standard Motor Products (SMP, $43.85) is a leading manufacturer, distributor and marketer of replacement parts for cars and heavy-duty trucks. Its products are sold across North and South America, Europe and Asia under well-known brands that include Standard, BWD, TechSmart, Intermotor, Hayden, ACI and Four Seasons.

The company operates in two business segments – engine management, which specializes in ignition and emission parts, and temperature control, which focuses on parts for air conditioning and heating systems, engine cooling, power windows and washer systems.

New business wins and two recent acquisitions fueled 38% year-over-year sales growth and 142% adjusted EPS gains for Standard Motor Products during the June quarter. The bottom line came in at $1.26 per share, well above the 60 cents per share analysts were expecting. While some of this strong growth reflects easy comparisons to last year's COVID-impacted June quarter, these results also compare well to 2019 pre-COVID financial performance.

SMP expanded its footprint in the OEM (original equipment manufacturer) market for heavy duty and commercial vehicle parts by acquiring two businesses – power management devices maker Trombetta and Stoneridge's (SRI) soot sensor division. The purchases together add $75 million to annualized sales and critical mass to become a major supplier in this OEM space. In addition, these transactions help prepare Standard Motor Products for the market's gradual shift to electric vehicles (EVs).

As far as analyst ratings go, two of the pros covering SMP that are tracked by S&P Global Market Intelligence rate the stock a Strong Buy, while the other one calls it a Buy. Plus, shares are trading at a deep discount to their $54.67 consensus price target.

When it comes to small-cap value stocks, this one is worth keeping on your radar.

• Market value: $1.3 billion
• Industry: Drug manufacturer
• Dividend yield: N/A

Supernus Pharmaceuticals (SUPN, $24.02), formerly known as Shire Laboratories, develops and commercializes products for the treatment of central nervous system (CNS) disorders. The healthcare company's portfolio includes approved treatments for epilepsy, migraine and attention-deficit hyperactivity disorder (ADHD). Supernus is also developing product candidates for Parkinson's disease, epilepsy, depression and rare CNS diseases.

Supernus secured Food and Drug Administration (FDA) approval for Qelbree, its novel nonstimulant treatment for ADHD, in April. ADHD is one of the most common neurodevelopmental disorders diagnosed in childhood and it often lasts into adulthood.

The Centers for Disease Control and Prevention (CDC) estimates that approximately 6.1 million children (9.4%) in the U.S. have been diagnosed with ADHD, and the prevalence of ADHD in adults domestically could range between 4% and 5%. Unlike other drugs in this space, Qelbree is neither a stimulant nor a controlled substance.

SUPN has an FDA application pending for SPN-830, a subcutaneous injection pump to treat patients with Parkinson's disease, a neurodegenerative disorder that affects roughly 1 million Americans. The mainstay treatment for Parkinson's is levodopa, but the effect of this drug is short-lived. SPN-830 provides continuous treatment for the ill-effects of the disease.

June quarter revenues for Supernus rose 12% from the year prior, mainly due to a full quarter of sales for Apokyn, a treatment acquired last year for advanced Parkinson's disease and a small contribution from Qelbree. EPS was 34% lower at 43 cents as a result of expenses related to Qelbree's May launch and the commercialization of Apokyn and other acquired products.

Supernus is guiding for 2021 sales to arrive at $550 million to $580 million – up 8.7% at the midpoint from 2020 revenues – and operating earnings between $70 million and $90 million, down from 2020 due to product launch costs.

Analysts are upbeat toward this small-cap value stock. According to S&P Global Market Intelligence, two pros deem SUPN worthy of a Strong Buy rating, one says Buy and one calls it a Hold. The average price target of $35.00 represents expected upside of 45.7% over the next 12 months or so. And Jeffries analyst David Steinberg (Buy) believes SUPN could gain 20% market share in ADHD with Qelbree, and forecasts peak sales for the product above $600 million.

• Market value: $695.1 million
• Industry: Engineering and construction
• Dividend yield: N/A

Another solid infrastructure play is Tutor Perini (TPC, $13.61), which provides general contracting, design and construction services to public and private clients worldwide. Engineering News-Record ranks this company as the nation's largest contractor in the transportation market and one of the top domestic contractors overall.

TPC's largest business segment – civil – accounts for 42% of revenues. The civil segment specializes in bridges and tunnels, highways, mass transit and wastewater treatment, and could benefit significantly from the Biden administration's proposed infrastructure spending bill. Tutor Perini's two remaining businesses, building and special contracting, represent 35% and 23% of revenues, respectively.

Most of the company's civil engineering projects are large scale and complex, ranging in value from $100 million to $1.0 billion. In bidding for new contracts, Tutor Perini counts its proven technical experience, abilities to bond in support of very large projects and sizable equipment fleet as major competitive advantages.

The company ended the June quarter with $7.5 billion of backlog, including $5.8 billion of projects for state and local governments. This huge backlog should provide high revenue visibility over the next several years.

While June quarter revenues were down slightly from last year at $1.2 billion, EPS improved 65% due to a continued shift towards higher margin projects in the civil segment.

The shares are attractively priced as far as small-cap value stocks go, trading at just 6.5 times forward earnings.

Looking at analyst ratings on S&P Global Market Intelligence, two pros rate TPC stock a Strong Buy, while one calls it a Hold.

• Market value: $1.1 billion
• Industry: Packaging and containers
• Dividend yield: N/A

Food containers made by Tupperware Brands (TUP, $22.10) are a staple in most U.S. homes, and the company also distributes its products in over 80 countries through its extensive network of independent sales reps. However, Tupperware has struggled in recent years due to declining revenues, an eroding network of sales associates and a debt-laden balance sheet.

Under new management, the consumer discretionary name began implementing a turnaround plan last year designed to trim costs, build new digital distribution channels, launch new products in the beauty and personal care space and better motivate its sales agents.

These strategies began delivering results almost immediately, helping Tupperware increase gross savings by $193 million last year and fueling 2021 sales growth. During this year's June quarter, Tupperware recorded its fourth consecutive quarter of double-digit sales growth. June quarter sales rose 17% from the year prior and adjusted EPS grew 13% to 95 cents.

TUP has used its rising free cash flow and proceeds from the sale of non-core assets to reduce debt and ended the June quarter with its ratio of debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) at 2.05, down from 4.91 in Q2 2020. Tupperware's board of directors also just approved a $250 million share repurchase plan.

Citigroup analyst Wendy Nicholson recently upgraded TUP to Buy from Hold, citing the company's attractive valuation and her growing optimism that the turnaround plan is gaining traction.

Among small-cap value stocks, Wall Street pros are projecting major growth for this one. While Tupperware doesn't provide guidance, consensus analyst estimates look for EPS to be up 33% this year and 12% next year.

TUP shares have an attractive valuation, too, trading at 6.9 times forward earnings.

• Market value: $465.6 million
• Industry: Consumer electronics
• Dividend yield: N/A

Turtle Beach (HEAR, $25.70) is a top player in the $8.5 billion gaming accessory market. The company sells console gaming headsets, keyboards, mice and other gaming accessories. The global gaming market is experiencing explosive growth, expected to swell from $176 billion this year to more than $200 billion by 2024.

Turtle Beach boasts the number one gaming headset for Nintendo (NTDOY), Microsoft's (MSFT) Xbox and Sony's (SONY) Playstation systems and holds revenue share bigger than the next four largest competitors combined. The company's Roccat product line is expanding on a global basis, and sales tripled in the first half of this year. Another growth catalyst comes from the company's January acquisition of Neat Microphones, which is launching a new product line in 2021.

For this year, Turtle Beach is targeting revenue growth of 7%. The company recently increased guidance for 2021 adjusted EPS by 3.3% to $1.55.

Given its robust growth, this is one small-cap value stock that's in high demand. Activist investor Donerail Group, which owns a 3.1% stake in HEAR, reportedly offered to buy out the company earlier this year, said people familiar with the matter. Subsequent reports indicated Turtle Beach declined the offer.

All five of the analysts covering HEAR that are tracked by S&P Global Market Intelligence rate the stock a Buy or Strong Buy. Plus, the average target price of $39.83 suggests implied upside of 55% over the next 12 months or so.

• Market value: $1.9 billion
• Industry: Household and personal products
• Dividend yield: N/A

USANA Health Sciences (USNA, $94.42) develops, manufactures and markets nutritional and personal care products that promote long-term health. Sales are made direct through a worldwide network of independent agents. The company markets more than 60 products, has sales in 24 countries and serves approximately 652,000 active customers.

Over 49% of the company's sales are made in China. The rest of Asia contributes 34% of revenues, and Europe and the Americas together represent the remaining 17%. USNA plans to grow by investing in digital marketing, launching additional products and expanding internationally and via acquisitions.

The early 2021 launch of the company's new Active Nutrition product line, which includes new products for weight management, digestive help, energy and hydration, helped USNA achieve 30% year-over-year sales gains, 9% active customer growth and 42% EPS improvement during the June quarter.

The company warned of tougher COVID-19-related comparisons in the second half of 2021. However, it's still guiding for 2021 sales growth of 11.5% at the midpoint of its $1.24 billion to $1.28 billion guidance, while EPS is expected to arrive between $6.15 and $6.50 – up 8% at the midpoint.

When it comes to valuation, this is another one of the small-cap value stocks that is reasonably priced. USNA shares are trading at a modest 14.3 times forward earnings.

John W. Rogers Jr. is chairman, co-CEO and chief investment officer of Ariel Investments, which he founded in 1983. He is the lead manager of Ariel Fund (ARGFX) and comanager of Ariel Appreciation Fund. Read on as we ask Rogers about value, small companies and risks facing the market.

You're a celebrated value investor. How do you define value? We think of it as buying stocks that are selling at a discount to their private-market value. For us, an undervalued security is selling at more than a 40% discount to what we think the value of the company is.

Value investing struggled for a long time but came back in a big way after last year's bear market, and your funds have done very well. What accounts for value's comeback? We've been out in the wilderness for far too long. The valuation discrepancies between growth-oriented and value stocks were at historic highs, and that gap can't persist for the long term.

The second thing is that as inflation has started to come back, people understand it will cause higher interest rates. As interest rates rise, the future earnings of growth stocks become worth less and less.

Value stocks are often generating their cash in the here and now, and also are often cyclical, meaning that as the economy comes roaring back, value stocks are going to be able to generate a lot of earnings. And those earnings will be much more valuable in a higher-interest-rate environment than the earnings of growth stocks that will be coming years and years in the future.

How long does this new value cycle have to run? It's just getting going. I'd say we're in only the second inning of a nine-inning game. I think the wind will be at our backs for at least a three- to four-year horizon. Our stocks are just so, so cheap relative to the broader market right now. It'll take a long time for that gap to close.

Where can investors find value in the market today? What have you been buying recently? We have a couple of sectors we think are very cheap.

Our favorite over the past several years has been fee-generating financial services companies. Lazard (LAZ) is the largest position in Ariel Fund. Lazard gets paid for advice on mergers and acquisitions and financial transactions. It also has a large global investment management division that's extraordinarily successful and a business that helps companies through restructuring.

A second favorite of ours is KKR & Co. (KKR), one of the preeminent private-equity firms in the world.

As the economic recovery strengthens, we have some names that are primed to benefit from pent-up demand from the COVID crisis.

Our favorite there is Madison Square Garden Entertainment (MSGE). Not only does it own the world's most famous arena, it also owns the land around the arena – very valuable midtown New York real estate. We think that as inflation comes back, real estate values will come back. And of course, as the economy comes back and COVID ends, people will be back in the Garden watching concerts and games.

The company also has an exciting project in Las Vegas called the Sphere, an innovative venue with a new way of thinking about how to entertain people. The company hopes to be able to franchise it around the world. Analysts are skeptical, but we believe the Sphere is going to be terrific.

Another favorite of ours has been doing well throughout the COVID crisis but will also do well in the recovery: Mattel (MAT).

It has iconic brands we all know – Hot Wheels, Barbie, American Girl. Kids have been stuck at home, needing things to play with, and the company has learned through this period how to benefit by selling their products over the internet. The best is still to come because Mattel has all these great brands and intellectual property that can be put into movies and other exciting opportunities down the line.

Small-company stocks have had a good run. Do you think there's more to come? I do. We've been fishing in this pond of small and mid-cap value for 38 years now. Research analysts have neglected a lot of these smaller companies, especially if they are not part of the major indexes – we talk about them being "orphaned" companies. There are a lot of opportunities to find bargains in these smaller, undervalued parts of the marketplace.

One of our favorites is Kennametal (KMT), which makes metal-cutting tools. We think it'll be a beneficiary of infrastructure spending.

Small media companies have also been neglected. Our favorite is Tegna (TGNA).

It owns television stations throughout the U.S. It's dependent on advertising, so it's kind of a perfect world right now as more people are trying to promote their products as the economy comes back. At the same time, with all the controversy in our country now, advertising from political campaigns and single-issue campaigns has been an enormous tailwind for the television industry.

What risks do you see building in the market today? One of our board members is Chris Kennedy. His grandfather was Joe Kennedy, who famously said that right before the Depression when he was getting stock tips from the shoeshine boy, he knew it was time to get out of the market.

When you had that much euphoria and that much enthusiasm and everyone thought you could get rich quick, that was the time for caution.

Today, everywhere I go, people want to talk about cryptocurrencies. I haven’t seen anything like it since the internet bubble – and this might even be worse. I'd tell people right now to be careful about chasing the "hot dot" of the moment.

I would just be very cautious and remember that the best way to invest is to think long term and to invest in great businesses you can own for a long time. That’s why our logo is the turtle, and we say slow and steady wins the race. Patience wins.

What else are you worried about? Another risk is the one caused by people falling in love with the FANG stocks. As we know, Facebook (FB), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOGL), Google’s parent company, have become so well known and such extraordinary winners; they’ve boomed. They also dominate the S&P 500. But they’re not going to have the same type of performance over the next 10 years that they’ve had over the past 10 years.

None of the largest companies 20 years ago are still at the top today. It’s just amazing how what seems like a true winner for the long term ultimately gets tripped up along the way. So, I worry for investors. I’d tell them, Don’t chase the FANG stocks, and be cautious around the S&P 500.

Do you expect more market turbulence, or a significant correction, between now and the end of the year? We think we'll be reminded of what happened when the internet bubble burst around the turn of the century. We believe the S&P 500 will have a very difficult time in the second half of the year, as higher interest rates make these fast-growing companies appear more expensive.

At the same time, value-oriented, smaller companies will do fine. They’re not expensive. They have more cyclicality associated with them, so they’ll benefit from this extraordinarily strong economic recovery. You’re basically going to have a tale of two cities, with large-cap growth struggling and smaller, value-oriented indexes doing exceedingly well.

One final stock goes along with a lot of the themes we talked about.

Indexes have been booming forever, and everyone believes that indexing is the wave of the future. One of our favorite companies now is Affiliated Managers Group (AMG), which takes the contrary perspective. It's a well-diversified conglomerate of money managers. We think if active management starts to outperform in this environment, people will start to pull away from indexing and come back to active managers. Affiliated Managers will benefit from that phenomenon.

A cyberthreat environment that was only getting more complex has been made even more dangerous with the proliferation of artificial intelligence (AI). According to feedback from more than 3,500 cybersecurity and business leaders for IBM's Cost of a Data Breach Report 2025, the average cost of a data breach has reached $4.4 million.

It's a pretty safe bet that a world made even more dangerous by a hot war in the Middle East that threatens to escalate beyond the region and onto other fronts, cybersecurity costs will continue to increase.

"Threat actors are using AI to increase the success of their campaigns," says Nathaniel Jones, vice president of security and AI strategy at Darktrace. "Large language models (LLMs) make it easier to conduct research on targets, tailor phishing emails even more granularly and craft emails with more accurate spelling and grammar in a variety of languages."

And demand for cybersecurity solutions will likely remain robust. Grand View Research estimates the global cybersecurity market will reach $663.2 billion by 2033, growing at a compound annual rate of 11.9%.

How can investors play this secular trend? Here are six of the best cybersecurity stocks to buy as growth in the industry ramps up.

Data is as of March 24. Analysts' annual long-term earnings-per-share (EPS) growth estimate represents the estimated average rate of earnings growth for the next three to five years and is courtesy of S&P Global Market Intelligence.

• Market value: $7.0 billion
• Analysts' consensus annual EPS growth estimate: 349.0%

SailPoint (SAIL) develops identity security solutions for enterprises. The SailPoint cybersecurity solution provides customers with extensive visibility across an organization.

It manages employees and non-employees, like contractors and partners, as well as machine entities, such as application-level accounts, Internet of Things (IoT) devices and even AI agents. There are also tools to create, control and automate policies.

Identity has become a growing target of cybersecurity threads. According to a survey from the Identity Defined Security Alliance, about 90% of the respondents said they suffered a breach.

SailPoint has shown that its solutions can make a difference, and it continues to gain traction with large customers. The company reported annual recurring revenue (ARR) of $1.12 billion for fiscal Q4 2026, up 28% on a year-over-year basis.

SailPoint completed its initial public offering last February, raising $1.38 billion. Its post-IPO performance has been lackluster, with the stock down more than 45%. Yet price action does provide an attractive entry point for investors seeking the best cybersecurity stocks.

• Market value: $3.3 billion
• Analysts' consensus annual EPS growth estimate: 7.7%

Founded in 1999, Qualys (QLYS) is one of the pioneering developers of software-as-a-service (SaaS) for cybersecurity. Its initial focus was on vulnerability management and providing automated scans of local area networks (LANs).

At the time, it was a controversial strategy. The standard approach to cybersecurity was to use hardware systems — such as firewalls — for on-premise environments.

But leadership at Qualys was convinced the SaaS approach was superior, creating advantages on cost efficiency, scale, real-time monitoring and collaboration.

Over the years, the strategy proved to be spot-on. Qualys also would go on to build a comprehensive suite of capabilities, including identity management, remediation, compliance assessments and analysis of large IT security data. Despite all these efforts, Qualys has seen a deceleration in growth. But there is a potential catalyst to get things back on track.

In late 2024, Qualys launched TotalAI, which is focused on addressing the cybersecurity threats of generative AI. TotalAI handles the Open Web Application Security Project (OWASP) Top 10 most critical risks for LLMs, such as prompt injections, model theft and the disclosure of sensitive information. TotalAI could help accelerate growth for Qualys.

According to a survey, about 70% of enterprises plan to use LLMs in production within the next year, and 40% say that AI model risk is a notable concern. So Qualys is well-positioned among the best cybersecurity stocks.

• Market value: $4.4 billion
• Analysts' consensus annual EPS growth estimate: 0.3%

Tomer Weingarten cofounded SentinelOne (S) in 2013 because he believed cybersecurity solutions were becoming obsolete. They were mostly based on the brute force of pattern matching. Weingarten imagined a much better approach using AI. It would be more adaptable, and it could learn in real time.

The first few years proved to be challenging. His AI-first vision mostly fell on deaf ears. But, as AI started to gain momentum — accelerated by breakthroughs in deep learning — Weingarten's startup started to get more attention.

Customers wanted better approaches and saw SentinelOne as something to take a bet on. Its longtime focus on endpoint protection, detection and response helps it fend off a variety of threats like malware and ransomware. These solutions would ultimately become part of SentinelOne's comprehensive Singularity platform.

In April 2024, SentinelOne launched Purple AI, which leverages LLMs so users can write natural language queries. In practice, it means a security analyst can use the system without having to understand query languages.

So far, the customer response has been quite positive. The company reported full-year revenue growth of 20% for fiscal 2026. And it forecast revenue growth of 20% for fiscal 2027.

SentinelOne has announced several partnerships to distribute Purple AI, including one with Lenovo, the world's largest PC manufacturer. The company plans to bundle Singularity and Purple AI on new enterprise PC shipments.

"Purple," Weingarten has said, "is one of the fastest-growing solutions in SentinelOne's history and will continue to drive meaningful growth into the future."

• Market value: $2.2 billion
• Analysts' consensus annual EPS growth estimate: 13.5%

In 1998, when Renaud Deraison was only 17 years old, he created an open software project called Nessus. It was a full-blown vulnerability scanner.

From the start, Nessus saw a large number of downloads. Four years later, Deraison would cofound Tenable (TENB) with Nessus at the heart of the business.

He's continued to build on that solid foundation. Tenable has entered other categories like cloud-native application protection platform (CNAPP) solutions and cloud infrastructure entitlement management (CIEM).

Ultimately, the company's product focus would converge on exposure management and developing systems that take a proactive approach to cybersecurity by providing comprehensive visibility into potential vulnerabilities.

Tenable's acquisition of Vulcan Cyber is a key strategic investment in exposure management. The combination will allow for consolidating data into a single hub, which will be a part of the Tenable One platform. Ultimately, it will boost visibility on potential threats and enable the more effective use of AI.

Tenable's top line has looked a little lackluster lately. But bolstering exposure management applications should provide a revenue boost.

And the company enjoys strong customer loyalty and market penetration. More than half of its customers are Fortune 500 companies, and the remainder includes Global 200 enterprises and major government agencies.

Solid long-term fundamentals and continuing investments in scalable operations should support long-term growth and make Tenable one of the best cybersecurity stocks to buy.

• Market value: $128.3 billion
• Analysts' consensus annual EPS growth estimate: -0.3%

In early 2024, Palo Alto Networks (PANW) CEO Nikesh Arora, introduced his "platformization" strategy.

"Platformization" was based on Arora's belief that customers had to manage too many point solutions. His breakthrough idea was that companies wanted to consolidate on fewer vendors.

Fewer vendors would allow for improved integration, more cohesive user interfaces and lower costs.

Wall Street was skeptical of Arora's plan, mostly due to his willingness to give away some of his solutions in the bundle. Would there be enough to make up for the shortfall?

It appears these worries were overblown. Platformization has driven larger deals with customers. Palo Alto Networks recently said that contracts worth more than $5 million and more than $10 million both grew by about 50% year over year.

This has made a difference for total revenue, which increased by 15% during its fiscal 2026 second quarter to $2.6 billion.

Palo Alto has completed roughly 1,550 platformizations among its top customers. And there's much more runway left for growth, as the sweet spot for this tech stock's strategy is about 5,000 customers. And that makes PANW one of the best cybersecurity stocks to buy.

• Market value: $15.5 billion
• Analysts' consensus annual EPS growth estimate: 8.7%

In 1993, Gil Shwed, Marius Nacht and Shlomo Kramer cofounded Check Point Software Technologies (CHKP). It was the perfect time to start a cybersecurity company: the dawn of the internet revolution.

The company capitalized by building pioneering firewall systems for network security. Check Point has continued to focus on innovation and now has several cybersecurity platforms.

They include Quantum Network Security (firewalls and security gateways), CloudGuard Cloud Security (protection across cloud systems), Harmony Endpoint Security (security for devices) and Infinity Unified Management (a centralized security system).

Despite its evolving solutions, Check Point has seen somewhat sluggish growth over the past couple of years. Sales grew by 6.3% to $2.73 billion in 2025.

But management has been making major changes. A key part of the update is, of course, AI. And Check Point has seen traction with its Infinity AI Copilot.

Based on generative AI, Innfinity AI helps automate complex security tasks and allows for proactive threat detection. And tests indicate it can reduce by up to 90% the time needed to perform common tasks.

Check Point has also been using generative AI to streamline its own operations, including product design and customer experience. Just as the internet was a catalyst for growth in the company's early days, generative AI may provide a boost for CHKP in the current era.

And that's why it's one of the best cybersecurity stocks to buy.

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The stock market closed out an up-and-down week with another very clear separation of the haves and have-lesses.

Big Tech ruled the day thanks to a trio of mega-cap earnings pops. Apple (AAPL, +10.5%) shot to new all-time highs after its Thursday evening report, where it said quarterly sales jumped 11% year-over-year and announced a 4-for-1 stock split effective in August. It did say, however, that it thinks iPhone supply will be delayed a few weeks this fall.

Amazon.com (AMZN, +3.7%) crushed revenue and profit expectations alike, and its grocery sales tripled year-over-year. Several analysts responded by revising their price targets higher, including Canaccord Genuity's Maria Ripps and Michael Graham. The pair see AMZN shares hitting $3,800 over the next 12 months, up from $3,300 previously.

"With consumer shopping behavior shifting online at an accelerating pace, structural competitive advantages around fulfillment and scale, and a reasonable ~2x multiple on eCommerce GMV driving most of our valuation, we still find AMZN stock very compelling and think much of this strength will persist beyond the current pandemic," they write.

Facebook (FB, +8.2%), meanwhile, reported Q2 revenues that improved by double digits. Also, active user figures grew more than expected, and average revenue per user was better than the Street forecast.

Other areas of the market didn't look so strong. Chevron (CVX, -2.7%) and Exxon Mobil (XOM, +0.5%) both reported quarterly losses, and the Dow finished with a muted 0.4% gain to 26,428 after being in the red much of the day. The S&P 500 was a little better at +0.8% to 3,271, and the small-cap Russell 2000 dropped by 1% to 1,480.

But the tech-laden Nasdaq cruised 1.5% higher to 10,745, where it's flirting yet again with new all-time highs.

Winners and Losers Are Separating Again

"The stock market isn't the economy," you've likely heard in recent months. It's certainly true, but the market is indeed starting to show signs of more accurately reflecting what's going on in the economy, as tech companies positively impacted by COVID-19 continue to climb higher while more economically sensitive stocks sag.

"There's people going on about the bubble in big tech, but my own personal take on that, which was only reinforced by last night (when Apple, Amazon and Facebook reported), is that it's not a bubble in big tech," says Will Rhind, founder and CEO of ETF provider GraniteShares. "It's a bubble in the rest of the market that arguably has been propped up way beyond fundamentals due to the financial intervention of the central banks."

"But these companies at the top, you can argue about whether they should be at the valuations that they are, but these are companies that are making incredible sums of money and been incredible beneficiaries of the coronavirus. I think there's been a dislocation that's happened between the virtual economy, where these companies thrive in, versus the real physical economy, where you have airlines, hotels, things that have been decimated."

If the U.S. recovery is indeed hobbled by extended Washington bickering over a new stimulus package and coronavirus flare-ups, among other headwinds, investors might need to tweak their portfolios to suit.

For instance, more people are clearly favoring gold, which rose another 1% to new highs at $1,985.90 per ounce Friday and extended the 2020 rally in gold-focused funds. Assets under management in larger physical gold funds, such as the SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), have swelled by more than 70% in 2020, according to Ycharts data. Smaller funds, such as the GraniteShares Gold Trust (BAR) and Aberdeen Standard Physical Gold Shares ETF (SGOL), have more than doubled their AUM.

It also might be time to shake loose weaker positions that could sink in a broad-market selloff, such as these 14 vulnerable-looking stocks.

Another way to look for red flags? Short interest. By looking at how heavily Wall Street is betting against a stock, you can get an idea of just how negative the prospects might be for those shares going forward.

The bears don't always get it right, of course, and sometimes their targets are "squeezed" higher on good news, making heavily shorted stocks a playground for opportunistic traders. But if you're looking to play it safe, consider steering clear of these 18 stocks, which are among the most heavily shorted on Wall Street.

Kyle Woodley was long AMZN, BAR and FB as of this writing.

Some days it feels like there is simply too much news. That clearly was the case on what was a very mixed Thursday for stocks as investors were bombarded with economic and political headlines alike.

The stop-and-watch headline was the Commerce Department's announcement that America's GDP declined 32.9% on an annualized basis during the second quarter – the worst such drop in U.S. history.

"The outcome was broadly in line with our official forecast (-35.0%) and our Q2 GDP tracking estimate (-34.0%)," write Barclays analysts. "As we had noted during the Q1 GDP release, the downturn in activity at the time was just the tip of the iceberg. With the pandemic intensifying in April, prompting the stay-at-home orders, closure of nonessential businesses and a rise in unemployment, a more severe disruption to activity and employment in Q2 was widely expected.

"With the Q2 GDP report broadly in line with our expectations, our outlook for growth in Q3 remains unchanged. We expect growth to rebound in the third quarter (at a 25% quarter-over-quarter seasonally adjusted annual rate), led by an increase in personal consumption spending."

More surprising was that jobless-benefits claims rose last week, to 1.43 million from 1.42 million the week before – a number that itself was revised higher. That weighed on West Texas Intermediate oil prices, which dipped below the $40-per-barrel mark for the first time in weeks. That in turn slammed oil giants Exxon Mobil (XOM, -4.7%) and Chevron (CVX, -4.1%).

President Donald Trump's tweet floating the idea of delaying Nov. 3 presidential elections, a power held only by Congress, threw stocks for a quick loop, too. Meanwhile, Congress remained at a standstill on a second economic package, even as a $600-per-week enhancement of federal unemployment insurance is set to expire Friday, putting millions of Americans at financial risk.

The Dow Jones Industrial Average closed with a 0.9% decline to 26,313, the S&P 500 dropped 0.4% to 3,246, and the small-cap Russell 2000 fell 0.4%, too, to 1,495. The tech-heavy Nasdaq Composite, however, actually managed a 0.4% gain to 10,587.

Immediately after hours, investors were treated to a host of Big Tech earnings, including from Apple (AAPL), Facebook (FB) and Amazon.com (AMZN).

Welcome to Wall Street, Newcomers

It's a wild time for new investors, isn't it?

E*Trade has added more than 650,000 new accounts through the end of the second quarter, Schwab added more than a half-million accounts in Q2 alone, and the Robinhood app has recorded millions of signups in 2020.

Some joined using their COVID rescue-package checks from earlier in the year, and we could see another wave of new activity thanks to similar handouts expected from the next round of stimulus, whenever it's finally agreed upon.

But while many of these fresh-faced investors enjoyed the market's rapid recovery off the March lows, they now face the uncertainty of a presidential election, deteriorating U.S.-Chinese relations, a recession and a pandemic. It's not the easiest time to still be developing your sea legs. COVID-19 alone presents a horde of question marks.

"Although the reopening is going better than expected and is clearly having positive economic effects, we also certainly face risks. The biggest is that as the local outbreaks have turned into local shutdowns, this has had negative economic effects, which is slowing the recovery," says Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, a Registered Investment Adviser-independent broker/dealer with $200 billion in assets under management.

"Another potential risk is that, even as case growth moderates, consumers may be slower to return and spending growth will improve more slowly than we have seen so far in the recovery. While the slowdown so far has been limited, despite the outbreaks, a deeper drop remains a risk. That said, spending remains strong so far and has come back after some weakness. So, the hard data remains positive."

If you happen to be one of the newer investors facing this environment (or know someone who is), and you're trying to figure out the core of your portfolio, there are a host of low-cost but high-quality ways to start building.

We routinely update our Kip 25 mutual funds and Kip 20 ETF lists to present a wealth of options to investors of all ages and experience levels who want access to every corner of the market.

For true beginners, however, you can keep it simple with just a handful of basic funds. These seven options, which provide you with exposure to hundreds if not thousands of stocks, have no required investment minimums and boast some of the cheapest fees in their categories.

Kyle Woodley was long AMZN and FB as of this writing.

Investors turned to Washington on Wednesday, where the Federal Reserve made its latest policy statement, and where Big Tech chiefs gathered to face Congress in a historic antitrust hearing. It also saw Eastman Kodak (KODK) continue its sudden sizzling run.

The House Judiciary Antitrust Subcommittee questioned Amazon.com's (AMZN, +1.1%) Jeff Bezos, Apple's (AAPL, +1.9%) Tim Cook, Facebook's (FB, +1.4%) Mark Zuckerberg and Alphabet's (GOOGL, +1.3%) Sundar Pichai on Wednesday, but the hearing did little to shake confidence in their respective shares.

Likewise, America's central bank did little to rock the apple cart, stating it would keep interest rates near zero to support the economy, though Fed Chair Jerome Powell acknowledged "the pace of the recovery looks like it has slowed since mid-June."

"The key to near-term monetary policy will be all about the Fed’s dual mandate, but with one side of the mandate being the primary target (employment) and the other governing how far the central bank is willing to go (inflation)," says Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income. "The fact is that the Fed likely has an impressively long runway yet, as it could be a very long time before we regain full employment, which didn’t even appear to be inflation-accelerating at a 3.5% unemployment rate."

The major indices finished broadly higher, with the Dow Jones Industrial Average up 0.6% to 26,539, the S&P 500 up 1.2% to 3,258, and the tech-heavy Nasdaq Composite closing 1.4% higher to 10,542.

Wall Street's Hottest Growth Story: Kodak?

But Wednesday's major index leader was the the small-cap Russell 2000, which sprinted ahead by 2.1% to 1,500. That was in part thanks to Wednesday's biggest story: the continuing surge of photography (er, pharma?) stock Eastman Kodak.

KODK shares, which more than tripled Tuesday after the company announced it received a $765 million Defense Production Act loan to open pharmaceutical production factories in America, shot another 318% higher Wednesday, tripping well more than a dozen circuit-breakers during the day.

The once-great photography firm, worth less than $100 million by market value to start the week, now is worth roughly $1.5 billion.

Most investors weren't quick enough to jump on KODK's flash success, of course, but that doesn't mean you still can't tap red-hot growth – if you're willing to wait for more than a couple days for these opportunities to ripen, anyway.

Investors who prefer to stay diversified while chasing growth can do so in traditional growth funds, or even look overseas with these 10 emerging-markets ETFs.

If you're looking to take a shot with individual funds, however, sometimes it's best to look where everyone isn't (yet.) The tech sector, for instance, is filled with stocks that sit in the shadow of the Apples and Microsofts of the world but have explosive growth potential nonetheless.

Actually, tech isn't alone in that respect. Here, we look at 19 stocks that probably aren't on your radar … but are doing more and more to deserve your attention.

Investors wondering about ways to re-risk portfolios after the COVID-19 pandemic should consider increasing allocations to U.S. small-cap value stocks. Following years of underperformance and a collapse in valuations in March, these equities appear poised for a long-awaited, sustained rebound.

Proponents of value investing have been predicting a great rotation from growth to value stocks for years. So, why should investors believe it now?

Because this is not my personal opinion, but rather a conclusion drawn from a thorough analysis of prior disruptions dating back to 1937 in which the spread between dividend yields on small-cap value (as measured by the Russell 2000 Value Index) and large-cap stocks (as measured by the S&P 500 Index) widened significantly.

Small-Cap Value: A Look Back

In each prior case, small-cap value subsequently outperformed large caps, often for several years and by a wide margin. In mid-March, the spread between the Russell 2000 Value Index and the S&P 500 Index was the widest it had been since the 2008 Global Financial Crisis (GFC). Historically, this has suggested an attractive entry point into small-cap value.

In "normal" times, small- and large-cap stocks tend to perform similarly, with a relatively high correlation (0.8 on average) between the Russell 2000 and the S&P 500 indices. However, at critical moments in market history, those indexes have diverged, with the underperformance of small caps creating a significant gap between them. Often during selloffs, small-cap value stocks are hit hardest, creating an even wider dividend-yield spread over large caps.

The most recent such event was the GFC.

During the market selloff in January 2008, the dividend-yield spread between the Russell 2000 Value Index and the S&P 500, which has historically averaged about 0.19%, spiked to 1.05%. Over the next five years, Russell 2000 Value outperformed the S&P 500 by a cumulative 50.4%.

That pattern of small-cap value being hardest hit is repeating itself today.

Thanks to a large portion of Americans going into lockdown, small businesses are suffering much worse than larger firms that have more resources to endure revenue losses and adjust to the dislocation. As a result, in March 2020, the spread between the Russell 2000 Value dividend yield and the S&P 500 dividend yield soared to a new high of 1.34%.

Based on the experience of 2008 and other historic market events, spreads of this magnitude represent a powerful signal that small-cap value stocks have the ability to outperform during the coming recovery.

The Current Opportunity

Of course, it's always possible that things are different this time.

There are certainly important differences between the markets' reactions to the COVID-19 pandemic and the GFC. Most notably, the 2008 equity selloff struck indiscriminately across industries. In the current crisis, the impact has been uneven. In large-cap stocks, for example, some industries such as airlines, entertainment and leisure are bearing the brunt, while industries such as technology are maintaining and even seeing higher valuations.

Given these differences, it makes sense that the subsequent recoveries could diverge as well, at least for large caps.

In small-cap value stocks, however, the COVID-19 selloff has been violent and across the board, with virtually no differentiation across sectors. In this way, the situation today mirrors that of the GFC almost perfectly. As a result, it's reasonable to conclude that the recovery will also resemble that of the prior crisis and small-cap value could again outperform.

The opportunity in small-cap value stocks relative to large caps comes as investors have flocked to large-cap growth stocks, largely as a flight to safety in the aftermath of the COVID-19 selloff. Now, after the recent stock market rally, many market observers see large caps as having little room to appreciate. In contrast, betting against significant appreciation in small-cap value would require believing that the spread between small-cap value and other assets will not revert to historic means and small businesses will continue lagging the broader economy throughout the recovery.

There is one factor working against small-cap value: falling dividends. Dividends are a crucial component of small-cap value returns – up to 40% on average – and there is little doubt that small businesses will be forced to continue reducing or eliminating dividends. However, the same phenomenon occurred during the GFC, and it in no way disrupted the outperformance trend during the subsequent recovery.

Having said that, given how the current crisis is reshaping the economy, investors considering tilting toward small-cap value today might benefit by avoiding broad index strategies in favor of actively managed approaches that can better navigate the shifting economic sands to focus on companies with the strongest fundamentals while minimizing the drag of dividend cuts on potential returns.

Even taking lower dividends into account, the market is sending clear signals that small-cap value appears potentially poised to outperform large-cap equities. Investors who remain unconvinced by the historic data and fear a continuation of small-cap value's extended run of underperformance should remember that Washington has made clear that the federal government will support small businesses throughout the crisis – potentially to an even greater extent than in any previous crisis.

That commitment should bolster investors' confidence in the historic trend.

The Bottom Line on Small-Cap Value Stocks

History teaches us that the time to act on these signals is now. Investors who are still doubtful about "the return of value" leave themselves at risk of missing out on the potentially significant outperformance of small-cap value during the initial stages of the coming recovery from the Covid-19 pandemic.

Small-cap value stocks can be a long-term investor’s best friend. Indeed, research shows that historically, value stocks with small market capitalizations – or market values between roughly $300 million and $3 billion – are the best-performing asset class.

That’s why it’s always interesting to see which small-cap value stocks analysts like best at any given time.

To do so, we screened the small-cap benchmark S&P SmallCap 600 Value Index for stocks with the highest average analyst ratings. We limited ourselves to companies with market caps of at least $1 billion. Furthermore, these stock picks had to have a minimum of five “Strong Buy” analyst recommendations.

S&P Global Market Intelligence surveys analysts’ ratings on stocks and scores them on a five-point scale, where 1.0 equals a “Strong Buy” and 5.0 means a “Strong Sell.” Any score lower than 3.0 means that analysts, on average, rate the stock as being buy-worthy. The closer the score gets to 1.0, the better.

Based on those criteria, here’s a look at the 10 best-rated small-cap value stocks in the S&P SmallCap 600 Value Index.

Data is as of May 10, 2019. Analysts’ ratings, provided by S&P Global Market Intelligence, are as of May 7. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Companies are listed by strength of analysts’ recommendations, where the last company holds the best rating.

• Market value: $2.8 billion
• Dividend yield: N/A
• Analysts’ average recommendation: 1.55

Analysts are high on Vonage Holdings (VG, $11.62) as the internet-based telecommunications provider pivots toward business customers and away from individual consumers.

For the quarter ended March 31, Vonage posted a 31% increase in revenue from its segment serving small-, medium- and large-sized businesses. Consumer revenues declined 15% year-over-year, as planned. Enterprise customers accounted for almost two-thirds of Vonage’s revenue in the first three months of the year.

“The company’s focus on larger customers appears to be paying off, with revenue from midmarket and enterprise customers accelerating on a sequential basis,” say analysts at William Blair, who rate shares at “Outperform” (equivalent of “Buy”).

Those analysts go on to lay out part of the forward growth case, saying, “In 2018, Vonage invested in product innovation and executed the acquisitions of TokBox and NewVoiceMedia as part of its continued investment in its OneVonage strategy. With the acquisitions, Vonage has a robust set of offerings to continue to gain share in the over $50 billion cloud communications-as-a-service market (CCaaS), in our view.”

Of the 11 analysts covering VG tracked by S&P Global Market Intelligence, seven rate it at “Strong Buy,” two say it’s a “Buy” and two have it a “Hold,” elevating it to this list of small value stocks.

• Market value: $2.9 billion
• Dividend yield: N/A
• Analysts’ average recommendation: 1.5

Analysts are hot on Chart Industries’ (GTLS, $91.03) profit prospects. The company, which manufactures cryogenic equipment that converts natural gas into liquefied natural gas, is forecast to generate average annual earnings growth of 25% over the next five years, according to data from Refinitiv.

Craig-Hallum analyst Eric Stine, who rates shares at “Buy,” raised his target price on GTLS to $117 from $107 in late March, telling investors he expects the company to be “a major participant” amid accelerating demand for liquefied natural gas.

Of the eight analysts tracked by S&P Global Market Intelligence, six call GTLS a “Strong Buy,” while two rate shares at “Hold.” Analysts’ average price target of $110.67 gives this small-cap value stock implied upside of about 18% in the next 12 months or so.

• Market value: $1.8 billion
• Dividend yield: N/A
• Analysts’ average recommendation: 1.5

Shares in Axos Financial (AX, $30.03) were up 19% for the year-to-date through May 10, beating the Standard & Poor’s 500-stock index by more than four percentage points, and analysts think they have more room to run.

Just don’t be surprised if AX, like many small-cap stocks, is volatile along the way. The company, known as BofI Holding until a name change in late 2018, was dogged by a two-year Securities and Exchange Commission investigation into its lending practices that ended in June 2017. More recently, Axos disclosed in March that its securities clearing business was hit by a $15 million fraudulent trading scheme.

Despite these issues, analysts are upbeat about the prospects for the holding company for Axos Bank, which provides consumer and business banking products.

AX is expected to deliver average earnings growth of 10% a year for the next five years, according to Refinitiv data. And six out of eight analysts surveyed by S&P Global Market Intelligence rate the stock at “Buy,” while two say shares are a “Hold.” Their average target price of $36.25 gives AX stock an implied upside of more than 20% in the next 12 months or so.

• Market value: $454.1 million
• Dividend yield: N/A
• Analysts’ average recommendation: 1.44

Shares in MarineMax (HZO, $16.62) were down 9% for the year-to-date through May 10, but analysts hardly think the nation’s largest recreational boat and yacht retailer is sunk. And with the stock trading at just 8 times projected earnings, HZO at least looks like a bargain.

HZO stock became waterlogged in late April after the company reported quarterly earnings that missed Wall Street’s forecast and cut its full-year outlook. However, analysts at IFS Securities note that revenue growth was better-than-expected, boat-buying season is upon us and the stock looks cheap.

“With the boating market continuing to grow, we believe now would be an excellent time to build or add to positions of MarineMax,” says IFS, which rates shares at “Strong Buy.”

Analysts’ average price target of $21.38 gives HZO implied upside of 29% over the next 12 months. That’s in line with analysts’ projections for future earnings growth – the boat dealer is forecast to expand its earnings by 30% annually on average over the next half-decade.

• Market value: $831.2 million
• Dividend yield: N/A
• Analysts’ average recommendation: 1.44

Analysts are bullish on Boot Barn (BOOT, $29.34), thanks partly to what William Blair analysts summarize as “strong underlying fundamental momentum in the business.” Blair rates shares in the cowboy boots and Western apparel chain at “Outperform.”

One thing’s for sure: While BOOT belongs among small-cap value stocks, it sure looks like a growth play in 2019. Shares were up 73% for the year-to-date through May 10. Whether that continues (in the shorter-term, at least) will depend on what the company has to say when it reports quarterly results on May 16.

Analysts’ average price target of $30.88 gives BOOT implied upside of only about 5% over the next 12 months. Thus, the next quarterly report could be a pivotal one that sees analysts either raise their targets or lower them (along with their ratings). For now, six analysts rate the stock at “Strong Buy,” two say it’s a “Buy” and one calls BOOT a “Hold.”

Over the longer haul, analysts currently expect the retailer to deliver average annual earnings growth of 25% for the next five years, according to Refinitiv data.

• Market value: $2.9 billion
• Dividend yield: N/A
• Analysts’ average recommendation: 1.38
• TopBuild’s (BLD, $83.56) stock is on fire so far in 2019, and analysts see more momentum ahead. Shares in the installer and distributor of insulation and other building products were up a scorching 86% for the year-to-date as of May 10.

Of the nine analysts covering BLD tracked by S&P Global Market Intelligence, six say it’s a “Strong Buy,” one has it at “Buy” and two rate shares at “Hold.” Although TopBuild reported better-than-expected earnings and revenue in the most recent quarter, and raised its outlook, SunTrust Robinson Humphrey analysts have a “Hold” rating on the stock, citing recent weakness in housing starts.

Whether that plays out remains to be seen, but not everyone is so skeptical. KeyBanc analyst Kenneth Zener, who has a “Buy” rating on the stock, recently lifted his price target from $67 per share to $91, and Nomura’s Michael Wood raised his from $71 to $90.

As a group, analysts forecast BLD’s earnings per share to rise almost 20% this year and another 13% next year. It also bears mentioning that even after BLD’s torrid 2019 run, this value stock doesn’t appear particularly pricey. The stock currently trades at less than 15 times projected earnings.

• Market value: $1.9 billion
• Dividend yield: N/A
• Analysts’ average recommendation: 1.31

Shares in LivePerson (LPSN, $29.07) are up 54% so far in 2019, and analysts don’t think it’s even close to topping out. Their average price target of $35.27 gives LPSN implied upside of 21% over the next 12 months or so.

What’s all the excitement about? LivePerson competes in the business of providing live-chat customer support on web pages and in mobile apps. Piper Jaffray analysts, who rate LPSN at “Overweight,” think those little pop-up windows that lets users chat with a sales rep or someone on the help desk will benefit from a massive, long-term shift away from voice calls to messaging and artificial intelligence. Thanks to its early-mover positioning, LPSN has a leg up on the competition, Jaffray analysts say.

Analysts expect LivePerson to generate average annual earnings growth of 30% over the next five years, according to Refinitiv. Of the 13 analysts covering LPSN tracked by S&P Global Market Intelligence, nine rate LPSN at “Strong Buy” and four call it a “Buy.”

• Market value: $3.1 billion
• Dividend yield: 0.8%
• Analysts’ average recommendation: 1.25

Analysts expect SkyWest’s (SKYW, $60.67) stock to maintain its high-flying ways in 2019 despite a soft start to May. Shares in the nation’s largest regional airline were still up about 36% for the year-to-date ended May 10.

Analysts like SkyWest in part because of the way in which it contracts to carry passengers for larger industry players such as United Continental (UAL), American Airlines (AAL) and Delta Air Lines (DAL).

“SkyWest has a diverse base of contracts that provide relatively strong visibility into future revenue and cash flow with no outsized reliance on any one contract,” say analysts at Stifel, who rate shares at “Buy.” Analysts also applaud SkyWest’s efforts to modernize its fleet and cut costs.

Of the eight analysts tracked by S&P Global Market Intelligence that cover the stock, seven rate SKYW at “Strong Buy.” The lone dissenter has it at “Hold.”

• Market value: $2.4 billion
• Dividend yield: N/A
• Analysts’ average recommendation: 1.21

Shares biopharmaceutical firm The Medicines Company (MDCO, $32.44) were up nearly 70% for the year-to-date through May 10. The company is devoted to the development of inclisiran, a drug intended to lower levels of bad cholesterol.

Analysts are unanimously bullish on the biopharma’s chances for success, with no “Hold” ratings, making it a rarity among small-cap value stocks. Of the 14 analysts covering MDCO tracked by S&P Global Market Intelligence, 11 rate it at “Strong Buy” and three have it at “Buy.” In April, B. Riley FBR analyst Mayank Mamtani said “we continue to like the setup going into Ph. III ORION-9/10/11 program readout in (the third quarter of 2019),” referring to the Phase III testing of inclisiran.

Analysts’ average target price of $54.92 gives MDCO implied upside of almost 70% in the next 12 months or so. Analysts expect to company to generate average annual earnings growth of 37% over the next three to five years, according to S&P Global Market Intelligence.

• Market value: $773.8 million
• Dividend yield: N/A
• Analysts’ average recommendation: 1.00

So much for the retail apocalypse.

When it comes to analysts’ recommendations, Conn’s (CONN, $24.77) gets a perfect score. All six analysts covering the regional furniture, electronics and appliance retail chain rate it at “Strong Buy,” according to S&P Global Market Intelligence, making it tops among small-cap value stocks in the S&P SmallCap 600 Value Index.

Analysts expect the company to deliver average annual earnings growth of 23% over the next five years, according to Refinitiv data.

Conn’s is benefitting from improvements in its credit business -- it provides financing to customers to fund their purchases -- and its core retail business is projected to get a boost from expansion plans.

“The retail business remains quite profitable and should be able to accelerate revenue growth as the new store opening pace increases in coming years,” say Stifel analysts.

In a year when the major market indexes are struggling to put up gains, it might be time to take a closer look at smaller stocks with outsized growth prospects. Historically, small-cap growth stocks have a low performance correlation to stocks with large market values, asset manager Federated Investors notes. They also tend to outperform stocks with big market caps over time, too.

Small-cap growth stocks have certainly paid off so far in 2018. The large-cap Dow Jones Industrial Average is off 3% for the year-to-date. But the small-cap growth benchmark Russell 2000 growth index is actually flat.

“What we love about small-cap growth stocks is that they are small businesses that constantly innovate and are creating their own demand,” writes Federated Kaufmann Fund (KAUAX) portfolio manager Stephen DeNichilo. “They are not reliant on market tailwinds. They create their own trajectory and are masters of their own universe.”

When we talk about small-cap growth stocks, we generally mean stocks with market values of between about $300 million and $3 billion. As for the growth part, the companies these stocks represent might be generating annualized sales gains of 30% or more. Naturally, expectations for outsized earnings growth are part of the equation too.

Here are 10 small-cap growth stocks to buy now. These 10 picks are smaller companies that have average analyst ratings of “Buy” or better. Several of these small-cap growth stocks that stood out are health-care names, but specialty chemicals, information technology and even veterinary services make appearances too. One thing they all have in common is that analysts are bullish on them at current levels.

Data is as of April 25, 2018. Companies are listed in alphabetical order. Analysts’ ratings provided by Zacks Investment Research. Click on ticker-symbol links in each slide for current share prices and more.

• Market value: $1.8 billion
• Analysts’ opinion: 7 strong buy, 1 buy, 0 hold, 0 sell, 0 strong sell
• Aimmune Therapeutics (AIMT, $30.82) aims to save lives. The clinical-stage biopharmaceutical company is developing treatments to desensitize people with food allergies. If successful, its AR101 treatment would ensure that accidental exposure to say, peanuts, wouldn’t cause a life-threatening condition.

Analysts at Credit Suisse, who rate shares at “Outperform” (equivalent of buy), say the late-stage clinical data looks encouraging. If all goes well, Aimmune could get U.S. Food and Drug Administration approval next year and have a blockbuster on its hands. Credit Suisse’s best-case scenario has Aimmune capturing up to 70% of the market for such drugs in the U.S. and Europe.

• Market value: $1.9 billion
• Analysts’ opinion: 7 strong buy, 0 buy, 4 hold, 0 sell, 0 strong sell
• Esperion Therapeutics (ESPR, $69.25) is developing a cholesterol-lowering drug for patients who don’t tolerate current crop of medications on the market, and analysts think it has a winner on its hands. At Stifel, which rates shares at “Buy,” analysts expect the company to complete regulatory submissions for approval by the first quarter of next year. Ultimately, Stifel thinks Esperion’s cholesterol drug – currently known as ETC-1002, can eventually generate more than $2 billion in sales in the U.S. alone.

The company, which is forecast to book revenue of just $32 million this year, according to data from Thomson Reuters, is poised for breakout growth if ETC-1002 hits like Stifel thinks it will.

• Market value: $1.3 billion
• Analysts’ opinion: 12 strong buy, 0 buy, 0 hold, 0 sell, 0 strong sell

Analysts are bullish on Evolent Health’s (EVH, $16.55) ability to deliver outsized revenue growth. Indeed, Wall Street expects the health-care software and consulting services company to deliver a year-over-year sales increase of 32% in 2018.

William Blair analysts say that “at a minimum,” shares will appreciate in line with strong sales growth going forward. Health-care providers such as Orlando Health, Community Care Cooperative and Crystal Run Healthcare are just some of the company’s clients driving these gains, Blair notes. “We thus reiterate our ‘Outperform’ rating and continue to recommend purchase of EVH shares,” the analysts say.

Analysts project long-term earnings growth to average 30% annually for the next five years.

• Market value: $1.1 billion
• Analysts’ opinion: 8 strong buy, 0 buy, 1 hold, 0 sell, 0 strong sell
• Glaukos (GKOS, $31.52) makes the iStent, a tiny medical implant used to reduce eye pressure caused by glaucoma. The device, which is implanted during cataract surgery, currently is in use in 300,000 eyes around the world.

Analysts expect the company to deliver average annual profit growth of 40% for the next half-decade. That’s in part because Glaukos has a first-mover advantage with iStent, and the market for such a product remains largely untapped.

Perhaps most important, however, is that Glaukos has other glaucoma products in the works. “(The) pipeline, if successful, would give Glaukos the broadest set of products to treat glaucoma of any pharmaceutical or device company,” write analysts at William Blair Equity Research, who rate shares at “Outperform.”

• Market value: $1.8 billion
• Analysts’ opinion: 5 strong buy, 1 buy, 2 hold, 0 sell, 0 strong sell
• Installed Building Products (IBP, $31.52) has been on an acquisition tear. The maker of home and commercial garage doors and control systems bought its fourth company in as many months in early April. Last year IBP bought 16 companies – predominantly small chains that supply and install building products, Columbus Business First reports.

Analysts largely approve of the company’s growth-through-acquisition strategy given the robust national housing market. Credit Suisse rates shares in IBP at “Outperform,” citing a “favorable macroeconomic backdrop” and “positive industry fundamentals.”

Wall Street’s pros, on average, expect earnings per share to rise 40% this year to $2.86 a share, according to a survey by Thomson Reuters. Revenue is projected to increase nearly 16% to $1.31 billion.

• Market value: $1.9 billion
• Analysts’ opinion: 10 strong buy, 0 buy, 1 hold, 0 sell, 0 strong sell
• Mindbody (MB, $39.00) provides cloud-based business management software for the wellness services industry. Think gyms, spas and salons. Now, a recent acquisition adds thousands of fitness studios like yoga, Pilates and CrossFit into the fold.

Mindbody in March acquired Booker, a cloud-based booking management platform, for $150 million. Together, the integrated company will offer everything from marketing and retention tools to booking and payments processing for the health and wellness services industries.

Analysts think the merger will allow earnings per share to more than double in 2019, to 47 cents a share from a projected 22 cents a share this year, according to data from Thomson Reuters. Wall Street expects revenue to rise 29% this year and 24% in 2019.

• Market value: $535.6 million
• Analysts’ opinion: 4 strong buy, 1 buy, 0 hold, 0 sell, 0 strong sell

Analysts think PetIQ’s (PETQ, $22.53) sales growth is the cat’s meow. The company, which makes branded treats and medications for cats and dogs, is expanding into veterinary services. It acquired VIP Petcare in January and plans to open 20 to 30 veterinary service clinics during 2018, including 20 in Walmart (WMT) locations, note analysts at William Blair Equity Research, who rate shares at “Outperform.”

Sales are forecasts to jump by almost 79% in 2018 alone, according to data from Thomson Reuters.

“Management continues to forecast that its veterinary services clinics – coupled with the company’s core pet medication product lines – will help PetIQ achieve total sales of more than $1 billion by 2023,” Blair analysts say. PetIQ recorded just $267 million in sales last year.

• Market value: $1.9 billion
• Analysts’ opinion: 7 strong buy, 0 buy, 2 hold, 0 sell, 0 strong sell

Specialty chemical company PQ Group (PQG, $14.37) is set to deliver truly outsized annualized profit growth, the pros say. They expect earnings per share to increase an average of 35% annually for the next five years, according to data from Thomson Reuters.

Some of the bullishness hinges on the rapid adoption of ThermoDrop, a thermoplastic material used to paint lines on roads. Analysts at Credit Suisse rates shares at “Outperform,” citing demand for ThermoDrop, which is supposed to increase crews’ productivity by as much as 35%, and some other specialty products.

The analysts also are bullish on PQ Group’s progress in paying down debt and boosting free cash flow.

• Market value: $2.0 billion
• Analysts’ opinion: 4 strong buy, 1 buy, 1 hold, 0 sell, 0 strong sell

Analysts are bullish on Quidel’s (QDEL, $54.86) growth prospects.

The maker of diagnostic healthcare tests was once pigeonholed as “a flu company and a stock to be traded around the respiratory season,” note William Blair analysts, who rate shares at “Outperform.” But FDA approvals to test for other viruses such as Lyme disease and the 2017 acquisition of Triage MeterPro cardiovascular and toxicology assets from Alere have the company set on a new path.

Analysts expect Quidel’s earnings to rise an average of 48% a year over the next five years, according to Thomson Reuters data.

“When looking at the formal longer-term forecast for the company, we believe the company is set up well for a number of years of revenue and earnings growth,” William Blair says.

• Market value: $1.4 billion
• Analysts’ opinion: 5 strong buy, 0 buy, 0 hold, 0 sell, 0 strong sell
• Zogenix (ZGNX, $39.15) is a small pharmaceutical company that targets orphan diseases, which the FDA defines as conditions that affect fewer than 200,000 people nationwide. Cystic fibrosis and Lou Gehrig’s disease are two of the better-known orphan diseases.

Zogenix is targeting Dravet syndrome, a type of epilepsy. Analysts say promising data from clinical trials of fenfluramine, also known as ZX008, in treating Dravet syndrome make the stock a buy. “We continue to remain bullish on Zogenix shares as ZX008 is poised to become the therapy-of-choice amongst epileptologists/neurologists,” Stifel analysts say.

The company’s earnings are projected to grow at an average annual rate of 25% for the next five years, according to data from Thomson Reuters.