Small-cap stocks with lower market capitalizations ranging from $300 million to $2 billion have taken quite a hit since January. These stocks typically belong to smaller companies with massive long-term growth potential. However, they are sensitive to rising inflation and interest rate hikes due to tighter profits and weak balance sheets. Therefore these stocks have taken a bigger hit compared to the broader market. The Russell 2000’s performance is a testament to that, so it’s best to pick up some top small-cap stocks to buy before the bull market returns.
Due to the risk-reward profiles, small-cap stocks usually struggle during a market crash. However, they tend to lead when the sentiment turns bullish.
It is important, though, for investors to have a well-rounded portfolio with a combination of mega-cap, small-cap, and other stocks. Having said that, let’s look at the best small-cap stocks to invest in now.
Small-Cap Stocks to Buy Before the Bull Market Returns: Consol Energy (CEIX)
Consol Energy (NYSE:CEIX) is a coal mining operator that operates the largest underground mining complex in the U.S., the Pennsylvania Mining Complex (PAMC). The complex has a capacity of 28 million tons annually, and its coal is of high quality and with strong energy content. The small-cap mining operator will benefit from rising coal prices from the supply-demand imbalance. Year to date, coal prices have risen by a staggering 150%.
The conducive market conditions have been reflected in the company results. Its revenue growth on a year-over-year basis was above 60% in Q1, with double-digit improvements in operating margins. Moreover, its levered free cash flow margins have soared over 17%.
With a relatively robust balance sheet, CEIX can effectively push on and continue increasing its production at a healthy pace.
Coursera (NYSE:COUR) operates one of the top online marketplaces for educational content globally. The demand for online education proliferated during the pandemic when users were forced to opt for online education. The trend is likely to be permanent, but that’s not to say that the business is shielded from reopening tailwinds. Recent results have been understandably choppy, in line with the tough macroeconomic outlook.
Nevertheless, its business remains stable over the long term and should attract new customers.
According to a research report from Technavio, the industry is expected to grow at a 9.24% CAGR from 2020 to 2025, pointing to massive upside for the business.
Small-Cap Stocks to Buy Before the Bull Market Returns: Fate Therapeutics (FATE)
Fate Therapeutics (NASDAQ:FATE) is an up-and-coming biotech with proof of concepts in the studies of two of its drug candidates for relapsed/refractory aggressive lymphomas. Its candidates, FT516 and the FT596, have speedy pathways for approval ahead. Particularly for FT516, the U.S. Food and Drug Administration gave it an RMAT designation which helps significantly streamline the approval process.
In the meantime, the firm is generating collaboration sales, which has helped it stay afloat. Cash equivalents are around $581 million, which should be enough to steer its product development past the finish line. Moreover, the lymphomas market is estimated to grow at 4.2% from 2021 to 2028.
The Ensign Group (ENSG)
The Ensign Group (NASDAQ:ENSG) offers a portfolio of services in 245 senior living and nursing facilities. The U.S. is facing an aging society, and the demand for elderly homes remains, which is why its business has a strong growth runway ahead. It has an excellent business track record, growing its EPS from $3.06 in 2020 to $3.42 in 2021.
Given the strength of its occupancies and labor improvements, it has raised its earnings guidance during the second quarter. The new midpoint represents a healthy 13% bump over 2021 results. Additionally, during the quarter, it grew sales by 14.7% on a year-over-year basis. Its management remains confident in making a few operational adjustments to effectively take advantage of the acquisition environment and lean on its impeccable leadership to continue on its long-term performance path.
Small-Cap Stocks to Buy Before the Bull Market Returns: InterDigital (IDCC)
InterDigital (NASDAQ:IDCC) develops technologies that improve wireless communications across the world.
Additionally, it develops technologies for automotive companies, consumer markets and electronic products. Over the years, it has built a massive customer base, which has become a source of recurring revenues due to the nature of its agreements. Looking ahead, the growth of 5G will be a critical element for IDCC’s growth moving forward. Recently, the firm commissioned a study examining the potential of video in harnessing 5G networking tech.
Recent results have been amazing, with a 42.1% increase in revenues, beating estimates by $2.66 million. Moreover, its adjusted EBITDA rose 119% to $77.8 million compared to $35.6 million in the second quarter of 2021. Hence, there’s plenty to like about the company as it looks to establish its position in the 5G realm.
Rent-A-Center (NASDAQ:RCII) is a top lease-to-own (LTO) retail business which includes 2,435 locations across the U.S., Mexico, and Puerto Rico. The company made headlines after announcing the acquisition of Acima Holdings a couple of years ago. Acima is another LTO firm with a presence in the e-commerce realm along with having stable brick-and-mortar operations. Acima has been an incredible performer, generating 89% growth from 2016 to 2020.
The quarter after it was acquired showed how much of an impact Acima has had on the business. In its first quarter as part of RCII it constituted 50% of total sales. Moreover, with tailwinds in the sector, the business is likely to perform at an elevated pace. Additionally, its management expects free cash flows to be at the $390 million mark, which is well over the its previous year’s forecast of $330 million.
Small-Cap Stocks to Buy Before the Bull Market Returns: Tenable (TENB)
Tenable (NASDAQ:TENB) is a cybersecurity solutions provider that covers a variety of vulnerabilities, security concerns, and misconfigurations. The Maryland-based tech company is best known for its vulnerability scanning software Nessus. It has flown under the radar, but its top- and bottom-line growth have been relatively robust. The firm has been investing a lot in its research and development expenses due to it being in its growth phase.
Last year, the company did well in attracting several new enterprises, with the clientele increasing from 1,455 to 1,882. A major portion of the growth was also attributable to its international expansion efforts.
Consequently, sales from outside the U.S. rose 32%, comfortably ahead of the 17% increase in domestic sales. The momentum from last year has carried forward into 2022, generating over 25% revenue growth in the first two quarters.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.