Small-cap stocks tend to suffer more than their larger cap peers when equities are broadly struggling, and 2022 has been no exception. But if there's a sliver of a silver lining to be found, it's that analysts say the best small-cap stocks to buy are now priced for truly exceptional returns.
First, let's take a look at the tape: The small-cap benchmark Russell 2000 index generated a total return (price appreciation plus dividends) of -15.3% for the year-to-date through June 8. That trailed the S&P 500's total return by 2.2 percentage points.
No surprises there. Small-cap stocks tend to underperform in down markets. Thanks to their risk-reward profiles and correlations to the broader market, that's just what they do.
By the same token, however, small-cap stocks also tend to lead the broader market when equities are catching a bid. Now, no one knows when the current market malaise will lift, but when it does, the best small-cap stocks to buy should theoretically be among the biggest outperformers.
In order to get an idea of where these outsized potential returns might be hiding, we turned to Wall Street analysts to find the best small-cap stocks to buy for the second half of 2022 and beyond. To that end, we screened the Russell 2000 for analysts' top-rated small-cap stocks.
Here's how the process works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.
We then limited ourselves to names with at least 10 Strong Buy recommendations. Lastly, we dug into research, fundamental factors, analysts' estimates and other data on the top-scoring names.
The bottom line? Read on to see Wall Street's 12 favorite small-cap stocks to buy for a rebound in the second half of 2022 and beyond.
Share prices, analysts' consensus recommendations and other data are as of June 8, courtesy of S&P Global Market Intelligence, YCharts and Refinitiv Stock Reports Plus, unless otherwise noted. Stocks are listed by strength of analysts' consensus recommendation, from weakest to strongest.
12. Global Blood Therapeutics
- Market value: $1.6 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.64 (Buy)
Shares in Global Blood Therapeutics (GBT (opens in new tab), $24.42) have held up comparatively well so far in 2022, and analysts see tremendous price upside over the next 12 months or so.
That's because the biopharmaceutical company specializing in treatments for rare blood diseases has a hit on its hands and a promising development pipeline, bulls say.
Oxbryta, the company's oral, once-daily treatment for sickle cell disease (SCD), was granted regulatory approval for use in patients as young as four years old in mid-December. Analysts see the pediatric label expansion as critical to driving broader uptake of the medication.
"We rate GBT Outperform [the equivalent of Buy] based on our assessment of the commercial potential of Oxbryta in sickle cell disease," writes Oppenheimer analyst Mark Breidenbach in a note to clients.
Shares in Global Blood Therapeutics were off nearly 17% for the year-to-date through June 8 to lag the broader market by about 3 percentage points. That relative resilience is pretty notable, considering that clinical-stage biopharmaceutical stocks are hardly known for their defensive characteristics.
Looking ahead, optimism abounds on the Street, which gives GBT stock a consensus recommendation of Buy, with high conviction. Of the 22 analysts covering the biotech tracked by S&P Global Market Intelligence, 13 rate it at Strong Buy, four say Buy and five call it a Hold. Their average price target of $58.60 gives GBT implied upside of about 140% in the next year or so.
11. Fate Therapeutics
- Market value: $2.3 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.52 (Buy)
It's been a bad year for biotech stocks – the benchmark Nasdaq Biotechnology Index has lost more than a fifth of its value so far in 2022 – but some names are faring much worse than others.
Case in point: Fate Therapeutics (FATE (opens in new tab), $24.26). The company is developing a pipeline of immuno-oncology therapies, and results from clinical trials thus far have greatly impressed the Street.
But before we continue, know that clinical-stage biotech stocks are speculative. They're high-risk/high-reward bets. That said, FATE's prospects are thought to be so bright that the 59% year-to-date selloff in shares only has analysts banging their buy-the-bargain drums with more urgency than ever.
Bulls believe that future readouts from trials of FATE's cancer-killer FT596 will fuel ballistic returns in the stock. Indeed, with an average target price of $83.60, the Street gives FATE implied price upside of roughly 245% in the next year or so.
"We rate FATE shares Buy," writes Stifel analyst Benjamin Burnett. "Our positive thesis is predicated on our belief that future FT596 updates will be positive, and in turn be positive catalysts for shares. We also believe the company's multiple myeloma opportunities will further drive enthusiasm for the platform while diversifying the company's opportunity set within oncology."
Of the 21 analysts covering FATE tracked by S&P Global Market Intelligence, 14 call it a Strong Buy, three say Buy and four have it at Hold. That works out to a consensus recommendation just a bit shy of Strong Buy.
- Market value: $2.4 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.50 (Strong Buy)
Arvinas (ARVN (opens in new tab), $44.76) is a clinical-stage biopharmaceutical company that creates therapies for the treatment of certain cancers. Shares have lost almost 46% their value so far in 2022 – hurt in part by disappointing clinical trials reported by competitors – but analysts say that just makes them priced for massive gains.
Oppenheimer analyst Mark Breidenbach rates shares at Outperform (the equivalent of Buy), applauding the company's development of a class of targeted therapeutics called PROTACs, which are designed to degrade disease-causing proteins.
"We believe the company's pipeline has a substantial market opportunity, particularly RV-471A, which has shown compelling early activity in heavily pretreated breast cancer," Breidenbach writes in a note to clients.
Over at Credit Suisse, analyst Richard Law initiated coverage of ARVN at Outperform in April, praising the firm's leading edge technology.
"ARVN is a pioneer in protein degradation with many accolades, including the first to develop an oral PROTAC, cross the blood-brain barrier, achieve positive proof of concept in humans, and advance into Phase 2 study," Law writes. "ARV-471 is the lead asset and has the potential to become the best-in-class estrogen receptor-targeting therapy."
Of the 20 analysts covering ARVN, 12 call it a Strong Buy, six say Buy and two have it at Hold. What should really capture the attention of investors seeking out the best small-cap stocks, however, is the Street's average target price.
At $106.58, analysts' collectively give ARVN implied upside of almost 140% in the next 12 months or so.
9. Chart Industries
- Market value: $6.8 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.47 (Strong Buy)
Chart Industries (GTLS (opens in new tab), $186.46) is the first of the small-cap stocks on our list to boast positive returns so far this year. That's due in no small part to the company's close association with the energy sector, which has been a rare bright spot in 2022.
Chart Industries manufactures cryogenic equipment for industrial gasses such as liquefied natural gas (LNG) and hydrogen. Over the longer term, LNG gives GTLS investors exposure to the global secular trend toward sustainable energy. In the shorter term, GTLS is benefitting from heightened investment in LNG caused by Russia's invasion of Ukraine.
Geopolitical turmoil helped shares in GTLS gain nearly 17% for the year-to-date through June 8, and analysts see more outperformance ahead. Their average target price of $206.56 gives GTLS implied upside of about 11% in the next year or so.
Although shares might look pricey trading at almost 36 times the Street's 2022 earnings per share (EPS) estimate, Stifel analyst Benjamin Nolan (Buy) says GTLS deserves a premium valuation given its outsized growth prospects.
"While oil and gas-related sales may be under near-term pressure, there is potentially a decade or more of high single-digit to low double-digit revenue growth, more recurring revenue, accelerating hydrogen opportunities and the potential big LNG surprise bounces," Nolan writes.
Nolan is very much in the majority on GTLS. The Street's consensus recommendation of Strong Buy comprises 13 Strong Buy calls, four Buys and two Hold ratings.
8. Varonis Systems
- Market value: $3.8 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.45 (Strong Buy)
Data security and analytics software firm Varonis Systems (VRNS (opens in new tab), $34.46) protects unstructured data not stored in a database, which is an increasingly tasty target for hackers. But it's the company's transition away from selling software licenses to offering cloud-based subscriptions that has the Street excited about its prospects.
"Varonis has carved out a dominant position in an important segment of the market," writes Needham analyst Alex Henderson (Buy). "It is seeing larger deal sizes, an increasing shift to larger accounts, more subscriptions per transaction and no lengthening of its sales cycle. Post-COVID, Unstructured Data Protection is front and center for organizations where we see Varonis having a broad moat with little change on the competitive front."
Over at Truist Securities, analyst Joel Fishbein (Buy) says "near-term headwinds" are clouding an otherwise strong execution of the company's game plan.
"With the threat landscape evolving from traditional file systems to software-as-a-service apps, we believe VRNS is set up well for long-term durable growth," Fishbein writes.
With VRNS stock off almost 30% for the year-to-date, bulls like Fishbein advise clients to buy on weakness. And he's hardly alone in that view. Analysts' consensus recommendation stands at Strong Buy, with 13 Strong Buy calls, five Buys and two Hold ratings.
Meanwhile, their average target price of $55.68 gives VRNS stock implied upside of about 60% in the next 12 months or so.
7. Axsome Therapeutics
- Market value: $1.1 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.40 (Strong Buy)
Analysts are amped that biotech firm Axsome Therapeutics (AXSM (opens in new tab), $27.67) has a host of drugs in its pipeline set to power shares higher in the second half of 2022 and beyond.
True, AXSM is off about 27% for the year-to-date, hurt in part by the generalized selloff in pricey growth stocks and biotechs in particular. But that just has shares springloaded for outsized returns, analysts say.
Axsome's therapies in various stages of development include treatments for migraines, Alzheimer's disease agitation and narcolepsy, among other illnesses. But it's the company's progress with a treatment for major depressive disorder that has the Street in love with this small-cap stock.
Analysts are optimistic that Axsome's highly promising AXS-05 drug therapy could be given the green light for sale and marketing before too long.
"Despite ongoing regulatory uncertainty, we continue to like the approval odds of AXS-05 as a new antidepressant given the consistent and impressive efficacy, durability and safety data generated to date," writes William Blair analyst Myles Minter (Outperform).
Be forewarned, however, that clinical-stage biotechs such as AXSM carry "significant investment risks," notes Truist Securities analyst Joon Lee (Buy). Their success is inordinately contingent on the favorable completion of clinical trials and regulatory approvals.
Nevertheless, the Street is highly bullish on the firm's chances, giving AXSM a consensus recommendation of Strong Buy. Twelve analysts call the stock a Strong Buy, one says Buy, one has it at Hold and one rates it at Sell. Their average target price of $84.11 implies that AXSM stock will triple in the next year or so.
6. Sunnova Energy International
- Market value: $2.6 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.39 (Strong Buy)
Sunnova Energy International (NOVA (opens in new tab), $22.44) isn't your typical utility play. For one thing, it doesn't pay a dividend. That's highly unusual in a sector best known for equity income. Furthermore, the company isn't expected to generate a full-year of operating profit until fiscal 2024.
What makes Sunnova stand out in the eyes of analysts — who give it a consensus recommendation of Strong Buy — is its dominant residential solar energy business.
The company installs and services solar cells on U.S. homes. It currently operates a network of more than 207,000 customers and 915 dealers, sub-dealers and new home installers. This infrastructure collectively deploys more than 1,238 megawatts of energy.
B. Riley analyst Christopher Souther (Buy) has called NOVA a "top idea" for 2022, saying it's the "best way to play the residential solar plus storage theme."
Baird analyst Ben Kallo (Outperform) concurs, noting that the U.S. residential solar market is forecast to expand at a 15%-plus compound annual growth rate over the next several years.
"NOVA should benefit from (and potentially gain share in) a rapidly growing residential solar market," writes Kallo in a note to clients.
And with shares off about 19% for the year-to-date through June 8, BMO Capital Markets says the drawdown in NOVA is very much overdone.
"At its current share price, we see virtually no value for growth priced into the stock," writes BMO analyst Ameet Thakkar (Outperform).
Of the 18 analysts covering NOVA tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy and eight call it a Buy. Their average target price of $40.82 gives shares implied upside of more than 80% in the next 12 months or so.
5. Karuna Therapeutics
- Market value: $3.3 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.35 (Strong Buy)
Karuna Therapeutics (KRTX (opens in new tab), $111.10) is another high-risk, high-reward clinical-stage biopharmaceutical stock the Street sees as primed for a big rebound.
Karuna develops novel neuroscience drugs targeting diseases such as schizophrenia, psychosis and dementia. But the bull case at the moment hinges on the firm's development of its KarXT therapy for schizophrenia, notes Stifel.
"If successful, we believe KarXT could generate more than $1 billion in U.S. schizophrenia sales," writes analyst Paul Matteis (Buy). "Beyond schizophrenia psychosis, Karuna is also planning on developing KarXT in schizophrenia cognitive and negative symptoms, as well as in Alzheimer's disease psychosis and pain."
Oppenheimer analyst Jay Olson (Outperform) is also a big believer in the name. The analyst calls KRTX a leader in schizophrenia and neuropsychiatric disorders, with KarXT offering "potential superiority over currently available antipsychotics."
And in another vote of confidence, Wedbush Securities (Outperform) has KRTX on its Best Ideas List, a collection of its highest conviction stocks to buy.
"We continue to hold a positive view on KarXT and the potential for success in the [clinical trial] program," writes Wedbush analyst Laura Chico.
True, clinical-stage biotech stocks are speculative, but analysts love Karuna's chances. Of the 17 analysts covering KRTX tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy and six call it a Buy.
KRTX is off about 15% so far this year, but with an average price target of $175.54, analysts give it implied upside of about 60% in the next 12 months or so.
- Market value: $2.5 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.33 (Strong Buy)
Virtual classrooms became a key feature of pandemic life, and that bodes well for Coursera (COUR (opens in new tab), $17.63) even in a post-COVID-19 world, analysts say.
Coursera, which operates an online educational content platform, went public in March 2021. Shares were off about 28% through June 8, hurt by the general downdraft in growth stocks and the easing of the pandemic.
But bulls say the beaten-down stock affords investors a way to participate in a transformative company at a reasonable price. The pandemic changed the marketplace for online education, the thesis goes, and COUR is uniquely set up to benefit.
"Coursera is the leading platform for online adult education content, with over 100 million highly engaged learners and more than 200 leading content partners," writes Stifel analyst Scott Devitt (Buy). "We are constructive on shares of Coursera given the size of the opportunity ($2.7 trillion in adult education expenditure), attractive long-term margins, and the company's leading competitive position."
Needham analyst Ryan MacDonald (Buy) concurs. He notes that ongoing "innovations and expansions'' in the core consumer business should instill confidence in the division's current trajectory of revenue and margin growth. Meanwhile, the "fast growing enterprise segment appears poised for new wins and wallet share gains," MacDonald adds.
Bullishness is the order of the day on the Street, which gives COUR a consensus recommendation of Strong Buy. Ten analysts rate the stock at Strong Buy and five call it a Buy. Their average price target of $32.71 gives COUR implied upside of about 85% in the next year or so.
3. Tenable Holdings
- Market value: $5.7 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.29 (Strong Buy)
The Street sees Tenable Holdings (TENB (opens in new tab), $51.37) as an optimal way to play the ever-growing threat hackers present to corporations' increasingly complex digital operations.
"Tenable is transforming how customers manage and measure cybersecurity risk by providing a unified view of the organization's attack surface," writes Needham analyst Mike Cikos (Buy). "Vulnerabilities extend beyond the typical corporate network's servers and infrastructure to assets such as cloud infrastructure, containers, Internet of Things (IoT) devices and Operational Technology (OT) like Industrial Control Systems."
That sort of holistic approach to cybersecurity not only allows managers to make better strategic decisions, the analyst adds, but it also helps security teams prevent and address threats.
And given Tenable's leadership position in the fast-growing vulnerability management market, analysts are all in on one of the best small-cap stocks for 2022 and beyond.
"Tenable is our Top Pick for 2022," Cikos says. "The company anticipates a 20%-plus compound annual revenue growth rate through 2025."
TENB is also a top pick at Wedbush, which has the stock on its Best Ideas List.
"We believe TENB has just started to penetrate its customer base and is in the very early innings of capitalizing on a significant market opportunity," says Wedbush analyst Daniel Ives (Outperform).
The Steet is rife with such optimism, giving TENB a consensus recommendation of Strong Buy, and with high conviction to boot. Twelve analysts rate the stock at Strong Buy and five call it a Buy.
TENB was off less than 7% for the year-to-date through June 8, which beat the broader market by about 7 percentage points, and analysts see more outperformance ahead. Their average target price of $68.19 gives shares implied upside of about 33% in the next 12 months or so.
2. Health Catalyst
- Market value: $798.7 million
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.27 (Strong Buy)
Small-cap stocks in the technology sector have taken a beating this year, and Health Catalyst (HCAT (opens in new tab), $14.74) has been no exception. Shares have lost more than 60% of their value for the year-to-date, but analysts remain steadfastly bullish on the name.
Health Catalyst provides a cloud-based data platform, analytics software and professional services for hospitals and other healthcare organizations. The idea is that a partnership with this software-as-a-service (SaaS) company can help healthcare providers improve patient outcomes.
Unfortunately for HCAT shareholders, the company's clients are facing margin pressures, and that's been a major headwind for the stock.
Bulls, however, will remind you that HCAT remains the market leader in the healthcare analytics market, with organic revenue growth approaching 20%. They further contend that HCAT's selloff is overdone.
"Latent concerns about duress in the customer base and recession may continue to weigh on the stock," writes Stifel analyst David Grossman (Buy). "However, we believe these fears are largely discounted in the current stock price."
Grossman says HCAT, at current levels, "represents an attractive entry point." William Blair equity research analyst Ryan Daniels (Outperform) agrees.
"We are buyers of the stock on recent non-fundamental weakness," Daniels writes. "We continue to view HCAT as a core long-term healthcare technology holding."
And as for investors with shorter horizons? Raymond James analyst John Ransom (Strong Buy) says HCAT "presents a good takeout target for a larger healthcare organization."
Whatever their reasons for optimism, 11 analysts rate HCAT at Strong Buy and four say Buy. Their average target price of $25.79 gives the stock implied upside of about 75% in the next year or so.
1. Rocket Pharmaceuticals
- Market value: $887.5 million
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.17 (Strong Buy)
Rocket Pharmaceuticals (RCKT (opens in new tab), $13.48) is another small biotech with promising drugs under development, and it currently tops the list of Wall Street's favorite small-cap stocks to buy now.
Indeed, with a consensus recommendation score of 1.17, RCKT is a high-conviction Strong Buy. As with all such stocks in its sector, caution is warranted. Names like RCKT are speculative, lest we forget.
Regardless, analysts are plenty bullish on the name, which focuses on developing gene therapies for rare and devastating pediatric diseases.
"Rocket is a pioneer in the development of both ex vivo lentivirus-based and in vivo adeno-associated (AAV) based therapies," writes Needham analyst Gil Blum (Buy). "We think RP-A501, an AAV9 based gene therapy for Danon disease, will become a major value driver due to the size of the indication and lack of available therapy."
At William Blair, analyst Raju Prasad (Outperform) says Rocket is taking a "sound strategic approach," and is headed in the right direction to successfully tackle its ambitious goals.
"Further continuation in this strategic direction could unlock significant value creation for the company," Prasad adds.
Of the 12 analysts covering RCKT tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy and two call it a Buy. Shares are off nearly 40% so far in 2022, but with an average price target of $57.60, analysts expect them to more than quadruple in price in the next year or so.
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