How to Find the Best Small-Cap Stocks to Buy

The second half of 2025 could be much more favorable for stockpickers looking for the best small-cap stocks to buy.

That might sound counterintuitive after the way small caps performed through the first half of the year. After all, small caps as an asset class have been a dud. They went nowhere as mega-cap stocks pushed the broader market to record highs.

To recap: the S&P 500 gained almost 8.6% on a price basis through early August, while the tech-heavy Nasdaq Composite rose more than 11%. The Dow Jones Industrial Average rose just 3.4%, hurt partly by its price-weighted construction.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

But while select Magnificent 7 stocks such as Nvidia (NVDA) and Microsoft (MSFT) helped drive the market's gains, small caps – which tend to be more sensitive to the economic cycle and interest rates – traded sideways. Indeed, the small-cap benchmark Russell 2000 Index – struggling to stay positive for months – was slightly negative through the first eight months of the year.

If there is a sliver of a silver lining to the Russell 2000's underperformance, it's that small caps are now trading at bargain basement prices.

"As the premium on large caps continues to expand, small cap equities become increasingly attractive on a relative basis," writes Jeff Buchbinder, chief equity strategist for LPL Financial. "Their lower valuations may signal undiscovered value or underappreciated growth potential, particularly in sectors poised to benefit from domestic policy tailwinds."

And with the Federal Reserve expected to enact several incremental cuts to the federal funds rate before year-end, small caps should have at least one catalyst on the horizon.

Best small-caps stocks to buy

In order to find the best small-cap stocks to buy now, we started by screening the Russell 2000 for Wall Street analysts' top-rated names.

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.

In other words, lower scores are better than higher scores.

We further limited ourselves to stocks with at least 12 Strong Buy recommendations (in order to ensure adequate analyst coverage and sample size). Lastly, we dug into research, fundamental factors, valuation, analysts' estimates and other data on the top names.

Our screen of the Street's best small-cap stocks served up a list dominated by the healthcare sector, mostly pharmaceutical and biotechnology companies. That's to be expected, and investors should always do their own due diligence when considering, say, a clinical-stage biotech firm, which is essentially a speculative investment.

In other cases, some of these names – a gaming stock, real estate – might just surprise you.

And with that, have a look at the table below to see Wall Street's best small-cap stocks to buy now.