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Small-cap stocks
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tend to suffer more than their larger cap peers when equities are broadly struggling, and 2022 was no exception. Merely if at that place’s a sliver of a silver lining to exist institute, it’southward that analysts say the all-time small-cap stocks to purchase are priced for infrequent returns in 2023.
First, let’due south take a expect at the 2022 tape: The small-scale-cap benchmark Russell 2000 Index generated a total render (toll appreciation plus dividends) of -20.four% for the year-to-engagement through Dec. xvi. That trailed the South&P 500’s total return of -17.9%.
No surprises there. Risker and “growthier” equities such as small-cap stocks tend to underperform when markets are headed southward.
Past the aforementioned token, however, small-cap stocks besides tend to outperform the broader market when equities are communicable a bid. No ane tin can know for sure if nosotros’ve already seen the bottom of our electric current
conduct market
(opens in new tab). Once the equity malaise lifts, yet, the all-time small-cap stocks to purchase should theoretically exist amidst the market’due south top outperformers.
In society to get an idea of where these outsized potential returns might be hiding, we turned to Wall Street analysts to detect the all-time modest-cap stocks to buy for 2023. To that terminate, we screened the Russell 2000 for analysts’ top-rated small-cap stocks.
Here’southward how the process works: S&P Global Market Intelligence surveys analysts’ stock ratings and scores them on a 5-indicate scale, where one.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.v or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to ane.0, the stronger the Purchase telephone call. In other words, lower scores are better than college scores.
We further express ourselves to stocks with at least 10 Stiff Buy recommendations
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(in order to ensure acceptable analyst coverage and sample size). Lastly, we dug into research, fundamental factors, valuation, analysts’ estimates and other data on the top names.
The bottom line? Healthcare stocks – notably biotech and biopharmaceutical firms – dominate the listing, but at least one name might surprise yous.
Read on to see Wall Street’s 7 all-time pocket-sized-cap stocks to buy for 2023 and beyond.
Analysts’ consensus recommendations, courtesy of Southward&P Global Market Intelligence, are equally of Dec. 19, 2022. Share prices, market capitalizations and other data are as of Dec. 16, unless otherwise noted.
1/7
seven. Fate Therapeutics
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Market value:
$one.27 billion -
Analysts’ consensus recommendation:
1.57 (Buy)
Biotech stocks
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held upwardly well in an otherwise terrible 2022. Indeed, the criterion Nasdaq Biotechnology Index was off x% for the year-to-appointment through mid-December. That’s downright defensive compared to the broader market’south loss of 19% over the same span.
Alas, shares in a number of pocket-sized-cap biotechs, such as
Fate Therapeutics
(FATE
(opens in new tab)), did not become along for the ride. FATE is developing cell-based therapies to treat cancer
(opens in new tab). Although clinical trials thus far have impressed the Street, the stock lost more than three-quarters of its value in 2022.
That’s how it sometimes goes with clinical-stage biotech stocks. The potential rewards are unusually high, but and so so are the risks.
Happily for bulls, the Street believes hereafter readouts from trials of FATE cancer-killers such as FT596 will fuel ballistic returns in the stock. With an average target toll of $62.38, analysts give FATE unsaid price upside of more than than 375% in the side by side year or so.
“We believe that data are supportive that FT596 is benefiting from multiple modes of anti-cancer activity and that clinical response rates volition meet the loftier bar set past autologous CAR-T,” writes Stifel analyst Benjamin Burnett (Buy).
Of the 23 analysts covering FATE tracked by South&P Global Market Intelligence, xv call it a Strong Buy, iv say Buy, three have it at Hold and one says Sell. That works out to a consensus recommendation of Buy, with high confidence to kicking. As such, FATE easily makes the list of analysts’ best small-cap stocks to buy for 2023.
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vi. Arvinas
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Market value:
$1.92 billion -
Analysts’ consensus recommendation:
ane.55 (Buy)
Arvinas
(ARVN
(opens in new tab)) is a clinical-stage biopharmaceutical company that creates specialized therapies for the treatment of certain cancers. Shares lost 56% of their value for the year-to-date through mid-Dec, but analysts say that just makes them priced for massive gains adjacent year.
Oppenheimer annotator Mark Breidenbach rates shares at Outperform (the equivalent of Buy), applauding the company’s development of a form of targeted therapeutics called PROTACs, which are designed to degrade disease-causing proteins.
“Our Outperform rating on Arvinas in part reflects our conviction that both ARV-110 and ARV-471 [PROTACS] could receive regulatory approvals in late-line relapsed/refractory settings by 2024 with future label expansion opportunities into before settings,” Breidenbach writes. “We believe the company’s pipeline has a substantial market opportunity, especially ARV-471, which has shown compelling early activity in heavily pretreated breast cancer
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Of the 22 analysts covering ARVN tracked by Due south&P Global Market Intelligence, 13 charge per unit it a Stiff Purchase, half dozen say Buy and three accept it at Hold. What should really capture the attention of investors seeking out the all-time small-scale-cap stocks, however, is the Street’due south average target price.
At $83.62, analysts collectively requite ARVN implied upside of more than than 130% in the side by side 12 months or so. That sort of potential render helps explain why ARVN makes whatever list of the all-time small-cap stocks to buy for 2023.
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3/7
v. Chart Industries
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Market value:
$four.27 billion -
Analysts’ consensus recommendation:
1.53 (Buy)
Chart Industries
(GTLS
(opens in new tab)) is the only name on our list from exterior the healthcare sector
(opens in new tab). It was having a terrific 2022 until early November, simply then management broke a fleck of news. The visitor announced a rather ambitious acquisition, and shares immediately took a dive.
Chart Industries articles cryogenic equipment for industrial gasses such as liquefied natural gas (LNG) and hydrogen
(opens in new tab). Over the longer term, LNG gives GTLS investors exposure to the global secular trend toward sustainable energy
(opens in new tab). Shorter term, shares were benefitting from LNG investment spurred past Russia’due south invasion of Ukraine
(opens in new tab).
GTLS stock peaked with a fifty% year-to-date gain as of Nov. eight. And and so the bottom fell out. On Nov. 9, management announced its $4.4 billion conquering of Howden, an air and gas services provider, from a private equity
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group. Worries almost the debt financing
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and dilution required to fund the deal instantly clobbered the stock. Past late December, GTLS had lost more than than a quarter of its value in 2022.
The Street, however, says the steep selloff in GTLS stock affords investors an opportunity to become a loftier-quality name on deep discount.
“Nosotros see value in GTLS shares at present trading nearly 50% beneath their pre-deal cost,” writes Jefferies annotator Sam Burwell (Buy). “The Howden deal does increment take chances, merely given the large driblet in share cost, we believe chance/reward is compelling.”
Jefferies is in the majority on the Street, where 11 analysts rate GTLS stock at Potent Buy and four call it a Buy. Analysts’ boilerplate toll target of $200.64 gives the stock implied upside of about 72% in the next year.
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four. Denali Therapeutics
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Market place value:
$3.90 billion -
Analysts’ consensus recommendation:
i.47 (Strong Buy)
Denali Therapeutics
(DNLI
(opens in new tab)) stock lost a third of its value in 2022, but that simply has shares in this biotech springloaded for outsized returns in the year ahead, analysts say.
“We view DNLI every bit an emerging leader in neurodegenerative diseases and central nervous system (CNS) lysosomal storage disorders with several tardily-stage development candidates based on novel and differentiated MOAs with strong data,” writes Oppenheimer annotator Jay Olson, who rates the stock at Outperform.
Although the visitor threw investors for a loop when it announced a secondary offering in November (which dilutes existing shareholders), bulls say it’southward no dealbreaker on the name for 2023.
“We go on to see DNLI assembling ane of the broadest CNS pipelines in the space,” writes Wedbush analyst Laura Chico (Outperform). “The secondary offering, while not necessarily anticipated, does provide important admission to capital at a fourth dimension when the company tin can prepare for potential DNL310 commercialization.”
Of the 17 analysts covering the stock tracked by S&P Global Market Intelligence, eleven charge per unit DNLI at Potent Buy, four say Buy and ii have information technology at Agree. Their average target price of $64.47 gives the stock implied upside of almost 125% in the adjacent 12 months or so. Footling wonder, then, that DNLI makes the listing of best small-cap stocks to buy for 2023 and beyond.
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5/seven
iii. Axsome Therapeutics
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Market place value:
$three.41 billion -
Analysts’ consensus recommendation:
1.40 (Strong Buy)
Analysts are amped that biotech firm
Axsome Therapeutics
(AXSM
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True, AXSM more than doubled in 2022, helped past positive clinical readouts, but the stock has plenty more upside alee.
Axsome’s therapies in various stages of evolution include treatments for Alzheimer’southward disease
(opens in new tab), migraines and narcolepsy, among other illnesses. Merely it’s the company’s progress with AXS-05, a treatment for major depressive disorder that’due south set up for expansion to indications, that has the Street in love with this pocket-sized-cap stock.
Analysts are especially encouraged by AXS-05’south clinical testing in treating Alzheimer’s
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disease agitation.
“We view the results as impressive in a large indication where in that location are no currently approved chronic therapies,” writes William Blair analyst Myles Minter, who rates AXSM at Outperform.
Although clinical-stage biotechs such every bit AXSM carry “pregnant investment risks,” in the words of Truist Securities analyst Joon Lee (Purchase), “Advertizing agitation is a huge unmet need for which nothing is approved.”
Such a large and untapped market has the Street highly bullish on this proper noun. Of the fifteen analysts covering AXSM tracked by S&P Global Market Intelligence, 12 call information technology a Strong Purchase, ane has it at Buy, one says Hold and one rates it at Sell. Meanwhile, their average target price of $110.08 gives shares unsaid upside of nigh 40% in 2023.
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2. Karuna Therapeutics
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Market place value:
$six.77 billion -
Analysts’ consensus recommendation:
i.32 (Stiff Buy)
Karuna Therapeutics
(KRTX
(opens in new tab)) is another loftier-risk, high-advantage clinical-phase biopharmaceutical stock that’southward primed for even more outperformance subsequently putting up large returns in 2022.
Karuna develops novel neuroscience drugs targeting diseases such as schizophrenia
(opens in new tab), psychosis and dementia
(opens in new tab). But the bull case at the moment hinges on the firm’s success of its KarXT therapy for schizophrenia, and and then expanding information technology to other indications.
KarXT could generate more than $1 billion in U.S. schizophrenia sales, notes Stifel analyst Paul Matteis (Purchase), and if information technology succeeds in Alzheimer’due south Disease Psychosis, “it could easily add some other $1 billion to $ii billion in peak revenue potential,” the analyst writes.
Oppenheimer analyst Jay Olson (Outperform) is likewise a large believer in the proper noun. The analyst calls KRTX a leader in schizophrenia and neuropsychiatric disorders, with KarXT offering “potential superiority over currently bachelor antipsychotics
(opens in new tab).”
True, clinical-stage biotech stocks are speculative, simply analysts love Karuna’s chances. Of the 19 analysts covering KRTX tracked by Southward&P Global Market Intelligence, 13 rate it at Strong Buy and six call it a Purchase.
Shares gained more than 50% for the year-to-date through Dec. 16, and yet the Street says they have more room to run. With an average price target of $290.39, analysts give KRTX stock implied upside of nigh 45% in 2023.
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one. Rocket Pharmaceuticals
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Market value:
$1.75 billion -
Analysts’ consensus recommendation:
one.20 (Stiff Buy)
Rocket Pharmaceuticals
(RCKT
(opens in new tab)) is some other modest-cap biotech with promising drugs under evolution, and it currently tops the list of Wall Street’s favorite minor-cap stocks to purchase now.
Indeed, with a consensus recommendation score of 1.xx, RCKT is a loftier-conviction Strong Buy. As with all such stocks in its sector, circumspection is warranted. Names like RCKT are speculative
(opens in new tab), lest we forget.
Regardless, analysts are enough bullish on the proper noun, which focuses on developing factor 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). “Nosotros call back RP-A501, an AAV9 based cistron therapy for Danon disease, will become a major value driver due to the size of the indication and lack of bachelor therapy.”
At William Blair, analyst Raju Prasad (Outperform) says Rocket is taking a “audio strategic approach,” and is headed in the right management to successfully tackle its ambitious goals.
“Further continuation in this strategic direction could unlock significant value creation for the company,” Prasad adds.
Of the xv analysts covering RCKT tracked past Southward&P Global Market Intelligence, 12 rate it at Strong Purchase and three phone call it a Buy. Shares were upwards near two% for the year-to-date through December. 16, and with an average toll target of $52.46, the Street expects them to more than double in 2023. That’s the kind of potential return investors should expect from the best pocket-size-cap stocks to purchase for 2023.
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Dan Burrows is Kiplinger’s senior investing writer, having joined the august publication total time in 2016.
A long-time fiscal journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston mag, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor’s Business Daily, among other publications. As a senior writer at AOL’south DailyFinance, Dan reported market news from the flooring of the New York Stock Exchange and hosted a weekly video segment on equities.
One time upon a time – before his days as a financial reporter and assistant financial editor at legendary manner trade paper Women’south Wearable Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim mag back when lad mags were a thing. He’s likewise written for Esquire mag’south Dubious Achievements Awards.
In his current office at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more than.
Dan holds a bachelor’s degree from Oberlin Higher and a main’s degree from Columbia University.
Disclosure: Dan does not merchandise stocks or other securities. Rather, he dollar-price averages into cheap funds and index funds and holds them forever in revenue enhancement-advantaged accounts.
Source: https://www.kiplinger.com/investing/stocks/small-cap-stocks/super-small-cap-stocks-to-buy