Stocks to buy

3 Small-Cap Stocks to Buy and Hold for the Long Haul

In the big market rally after the pandemic triggered crash of March 2020, small-cap stocks were short to medium-term speculative bets. Some small-cap stocks delivered multi-fold returns in the blink of an eye. However, emerging companies are not just about speculation. There are high-quality small-cap stocks to buy and hold for the long term.

Coming to large-cap stocks, it’s impossible to imagine a portfolio without blue-chip names. These stocks provide stability to the portfolio and quality blue-chip stocks generally deliver returns that beat inflation.

However, it’s impossible to create a big fortune in the stock markets with just large-cap stocks. It’s the mid-cap and small-cap stocks that are the biggest wealth creators.

Of course, if a portfolio has five or six well-researched small-cap stocks, not all will fire off. However, even if the success percentage is 50%, it’s more than enough to boost overall portfolio returns.

Let’s, therefore, talk about three small-cap stocks to buy and hold.

Small-Cap Stocks to Buy and Hold: Rada Electronic (RADA)

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Rada Electronic (NASDAQ:RADA) is possibly among the best small-cap stocks to buy and hold. I expect multi-fold returns from the stock over the next few years.

It’s worth noting that in June 2022, Rada announced an all-stock merger with Leonardo DS. The latter is a leading provider of advanced defense electronics products. For 2021, the combined entity revenue is at $2.7 billion with an adjusted EBITDA margin of 11.2%.

Also, the merged entity will have a strong balance sheet with a net-debt-to-adjusted EBITDA of 0.6x. With rising geopolitical tensions globally, it’s a good time to buy this small-cap stock. Over the long term, the combined entity is likely to deliver high single-digital top-line growth.

Recently, Rada reported results for the second quarter of 2022. The numbers disappointed and the stock has trended lower. This is a good accumulation opportunity with the merged entity likely to benefit from a big addressable market.

Marathon Digital (MARA)

Source: Chart by Josh Enomoto

The slump in Bitcoin (BTC-USD) has translated into a steep correction for Bitcoin mining stocks. For investors bullish on the long-term outlook for cryptocurrencies, Marathon Digital (NASDAQ:MARA) stock is worth buying.

After touching all-time highs of $83, MARA stock has slumped to current levels of $13.7. Assuming a bull case scenario where Bitcoin is back to $50,000, the stock will deliver multi-fold returns.

One reason to like Marathon is the big impending growth. For July 2022, the company reported hashing capacity of 4.9 EH/s. By early 2023, the company plans to increase capacity to 23.3 EH/s. It’s worth noting that the company has already secured hosting capacity for 23.3 EH/s.

Therefore, over the next few quarters, top-line growth is likely to witness a big surge. If this is associated with Bitcoin trending higher, MARA stock will re-test all-time highs.

From a financial perspective, Marathon reported unrestricted cash of $120.7 million as of Q2 2022. The company’s Bitcoin holding also had a fair market value of $236.3 million as of July 2022. Therefore, there is ample financial flexibility to invest in future expansion.

Small-Cap Stocks to Buy and Hold: Piedmont Lithium (PLL)

Source: Olivier Le Moal/ShutterStock.com

Recently, Elon Musk opined that lithium refining is the “license to print money.” Considering the expected growth in the electric vehicle (EV) industry, this statement does seem realistic.

Piedmont Lithium (NASDAQ:PLL) is among the small-cap stocks to buy and hold from the lithium mining segment. The stock has been largely sideways with returns of 13% in the last 12 months. A break-out on the upside seems impending considering posit business developments.

As an overview, Piedmont aims to be the largest producer of lithium hydroxide in the United States. LHP-2 and Carolina assets are 100% owned by the company. These two assets have a combined after-tax net present value of $5 billion.

Further, a stake in the Quebec and Ghana assets also adds to the long-term cash flow potential. In the near term, the re-start of mining (at the Quebec mine) is likely to be a stock upside catalyst.

Overall, PLL stock seems massively undervalued considering the NPV of assets. Once mining commences in 100% owned projects, the stock is likely to go ballistic.

On the date of publication, Faisal Humayun did not hold (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.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.