Small-cap investing is an entirely different animal than the strategy of buying established market leaders with stable businesses. These are companies with a market capitalization typically ranging from $300 million to $2 billion, so they naturally come with more risk, increased exposure to volatility, and lower liquidity. On the other hand, stock pickers with an eye for diamonds in the rough can really grow their accounts by adding the right small-cap stocks to their portfolios.
Keep in mind that many of these small-cap companies have high growth potential and can be significantly undervalued due to market inefficiencies. There are a few standout small-caps for investors to consider buying now, and we’ve put together a brief overview of 3 of them below.
1. Standard Motor Products
First up is a company that should benefit from a rebound in automotive sales as it plays a vital role in the automotive aftermarket industry. Standard Motor Products (NYSE:SMP) is an independent manufacturer and distributor of replacement parts for the engine management and temperature control systems of motor vehicles and has been in business since 1919. It’s an intriguing small-cap company due to its reasonable P/E ratio of 9.81, strong domestic customer base, and a long history of dividend payouts.
Although there are some risks to mention here, including the rise of electric vehicles and a heavy reliance on a few large customers, Standard Motor Products is still a nice way to gain exposure to the automotive industry and bank on a 2.13% dividend yield. The company had to suspend its dividend payments and share buyback program in 2020 due to the pandemic, but this was merely a precautionary measure due to pandemic uncertainty and not a real cause for concern. Standard Motor has since reinstated both the dividend and the share buybacks, making it a standout small cap that has been rallying nicely in October.
2. Customers Bancorp
Regional banks have been on a tear lately, and that includes this small-cap stock that has rallied over 141% year-to-date. Customers Bancorp (NYSE:CUBI) is a bank holding company engaged in banking activities through its subsidiary, Customers Bank. A lot of the positive narratives surrounding banks apply here—lending volumes should pick up as stimulus measures run out, an improving economy means more revenue upside, and the potential for rate hikes in the coming months could be another huge catalyst that sends shares soaring.
Customers Bank is a full-service bank with $19.6 billion in assets as of June 30, 2021, and provides a range of banking and lending services to small and medium sized-business, professionals, individuals, and families. Jefferies just adjusted its price target on the stock to $52 from $47 and maintains a buy rating on the stock. This implies plenty of upside for shares of this lesser-known regional bank, which absolutely makes it one to watch as earnings season for banks kicks off this week.
3. ZipRecruiter
This is a small-cap company that made its public debut earlier in 2021 and could be worth a look if the job market rebounds. Ziprecruiter's (NYSE:ZIP) online employment marketplace makes it easy for job seekers to connect with employers and can help reduce the amount of time it takes for a company to make a new hire, which is certainly a strong value proposition in today’s business world.
The company’s platform leverages artificial intelligence to match candidates with jobs that might be good fits based on the traits and skills that job seekers have provided. This can cut down on the amount of time it takes a company to find a suitable candidate and is a big differentiator for ZipRecruiter when compared to competitors.
The company’s first earnings report since going public was decent, as ZipRecruiter reported record revenue in Q2 of $183 million, up 109% year-over-year. According to the company’s website, over 2.8 million businesses and 110 million job seekers have used ZipRecruiter since the founding of the company in 2010. Although the latest jobs report was disappointing, there is plenty of demand for workers and employment growth is likely to be bouncing back in the coming months, making ZipRecruiter a standout small-cap stock to consider adding now.