Small-cap stocks are set to have their day in the sun this year, and not just because favorable economic and monetary policy conditions are set to put wind in their sales. Instead, investors are increasingly nervous about the high-flying large- and mega-cap tech stocks that beat all odds to rally substantially in 2023.
But the rally that sent the Nasdaq 100 soaring nearly 50% in 2023 came with a price – overvaluation. Today, the index’s average price-to-earnings ratio sits at a whopping 29.15, indicating that the tech giants might have rebounded too much, too quickly. By comparison, the small-cap index S&P 600’s P/E ratio stands at a comparatively slim 16.
Of course, high rates put pressure on small caps, so the relatively low share pricing reflects economic finagling. But, if and when the Fed cuts rates (or just pauses their growth), expect small caps to surpass large caps’ performance quickly. Among those small-cap stocks, these represent the best bang for your buck, blending growth and value.
ClearPoint Neuro (CLPT)
Clearpoint Neuro (NASDAQ:CLPT) started the year with a bang, as the small-cap healthcare stock reported its strongest year-end earnings in quite some time. The brain-focused HealthTech stock saw 2023 close with a 17% annual revenue increase, with biologics and drug delivery sales jumping nearly 50%.
Better yet, most of that growth came from the year’s final quarter, which marked a 32% revenue increase and a 76% sales increase from biologics and drug delivery.
Closing out 2023 with that kind of strength points to solid tailwinds for this small-cap stock in 2024. Though shares surged more than 10% on the heels of the solid earnings report, there’s still upside to be had.
2024 marks a range of operational milestones the company expects to hit. These include FDA clearance for the company’s brain navigation visual interface, full marketization of its laser therapy system, and AI-enabled predictive modeling platform launches. If even a handful of CLPT’s lofty goals come to fruition in 2024, the small-cap stock could be one of the year’s best performers.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) is a bit of a dark horse among small-cap stocks, as the company suffered mightily in 2023, and a wave of bearish sentiment keeps shares suppressed today. Detractors point to slowing installation rates, liquidity concerns and struggles to compete with Tesla’s (NASDAQ:TSLA) charging network. All are, of course, fair points. But if you want to bet on a stock set to surge if the Fed cuts rates, CHPT is a clear winner.
ChargePoint CEO Rick Wilmer told reporters that the past few quarters represented a “wait and see” inflection point rather than a full operational downturn. He said, referencing the company’s prospects for 2024, “It’s getting better, as we’re getting more and more data around the economy, and it appears we’re heading for a soft landing.”
Electrical charger installation is a costly endeavor, especially when competing with a giant like Tesla that can subsidize footprint expansion through car sales. But falling rates open new liquidity opportunities that, in turn, could kickstart rapid network expansion for ChargePoint.
Aehr Test Systems (AEHR)
Aehr Test Systems (NASDAQ:AEHR) is set to capitalize on continued semiconductor enthusiasm but, unlike its larger brothers like Nvidia (NASDAQ:NVDA), Aehr is agnostic to which company wins the proverbial chip arms race.
That’s because Aehr develops and supplies testing systems to ensure semiconductor reliability and quality. As chips become smaller, more intricate, and expensive, demand for high-end and advanced testing systems will surge. And Aehr is one of the few small-cap stocks ready to run based on that opportunity.
The company’s top- and bottom-line stats climbed across the board, with revenue hitting 45% year-over-year growth and GAAP net income climbing 63%. In the call, CEO Gayn Erickson did point to some potential headwinds as “the slowing of the growth rate of the electric vehicle market has had a negative impact on the timing of several current and new customer orders.”
But Aehr is far more than EVs, as the company tests chips associated with 5G tech, AI, machine learning, and more. If the company can move past its EV concerns, Aehr is set for a winning 2024.
Jumia Technologies (JMIA)
Jumia Technologies (NYSE:JMIA) is one of those emerging market-centric stocks that could buck wider asset trends and significantly outperform comparable eCommerce platforms in 2024. Some call the small-cap tech stock the “Amazon (NASDAQ:AMZN) of Africa.” But unlike Amazon, Jumia can still tap a consumer market that’s 1.4 billion strong and otherwise largely unserviced.
The company saw a turbulent few years as factors, including the pandemic and financial struggles, kneecapped its growth. But that ship seems to have repositioned itself, and today, Jumia has cut cash burn, built liquidity to seven quarters’ worth of runway, and expanded its physical delivery footprint.
While there’s still a long road to go, Jumia trades right around penny stock territory, making it a compelling speculative small-cap stock, especially considering the recent Morgan Stanley outlook upgrade.
AST SpaceMobile (ASTS)
AST SpaceMobile (NASDAQ:ASTS) saw shares surge last year as the small-cap space stock completed the world’s first satellite-to-cell phone 5G call between two remote, rural points without tower coverage. Once its product proved viable, ASTS quickly pivoted into marketization mode, though shares have fallen since the stock’s maiden flight.
Much of that share price turbulence came from funding concerns to push ASTS into wider markets to reach consumers. But that funding debacle seems to have been settled, as the company provided an interim update on its strategic financing initiatives.
According to the release, ASTS bulls should see the strategic investment deal close later this month alongside the company breaking ground on planned commercial service stations based on customer orders.
While recent weeks marked a brief pause for ASTS, this small-cap stock is one with massive upside potential in 2024 and beyond, making the suppressed share pricing an ideal entry opportunity.
Enovix Corporation (ENVX)
Enovix Corporation (NASDAQ:ENVX) is a small-cap battery stock competing against larger manufacturers like Tesla, but with a unique twist. Whereas larger manufacturers focus on reducing or eliminating rare-earth minerals, like Tesla did last year, Enovix is redesigning the entire concept of lithium-ion batteries.
The company uses silicone to develop 3D structures that house batteries, making them smaller, nimbler, and cheaper – perfect for applications like smartphones and wearables.
Last year, the company secured FDA approval to leverage its battery tech in vital sign monitoring systems. Enovix also locked down a solid US Army contract to develop batteries to run next-gen soldier wearables and advance defense tech.
Though it saw those wins, Enovix remains firmly within the R&D space, though it’s beginning wider productization. Still, Enovix is a speculative small-cap stock, but as the company improves its innovative battery systems, total marketability could prove huge.
Rocket Lab (RKLB)
Rocket Lab (NASDAQ:RKLB) is set for a solid 2024 as the company secured a $515 million government contract to design and build 18 satellites over the next few years. Though the company marked two milestones last year — ten launches in a single year and the 42nd overall launch — this contract elevates Rocket Lab’s overall position within the wider space industry.
No longer seen as a younger brother to mega-companies like SpaceX, the recent government stamp of approval proves this company has the competence and staying power to keep growing throughout the decade.
Rocket Lab also has a customer backlog of more than 40 satellites, proving the small-cap space stock’s newfound popularity among commercial and government customers and clients.
— Jeremy Flint
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Source: Investor Place