2023 was dominated by the Magnificent Seven stocks, which has left investors wondering how much higher mega-cap stocks can go. Investors worry that growth is nearing a peak or perhaps reversing. That is just one of the reasons that small cap stocks look particularly strong at the moment.
Beyond that, small cap stocks are known to do particularly well as the markets reach Peak rates. it appears that we have already passed that rubicon which continues to be a positive sign. Further, experts including Fundstrat’s Tom Lee, who had an excellent year in 2023, expect small caps to rise substantially in 2024.
Flywire (FLYW)
Flywire (NASDAQ:FLYW) should be a strong consideration for investors in 2024, but not only because of the potential of small cap stocks this year. The company is a payments firm that serves a global clientele of 3,500 which transacts in more than 140 currencies. Fintech is expected to continue to grow for years to come. So, Flywire hits on a lot of positives that make it that much easier to invest.
The firm’s primary focus is in accounts and receivables (A/R) and Enterprise Resource Planning (ERP). Flywire’s fundamentals continue to improve rapidly. In fact, the company reported $10.6 million in third quarter net income, a strong pivot from a $4.3 million loss a year earlier. Revenues increased by 29.5% during the same period, reaching $123.3 million. Furthermore, revenues increased by 43% through the first three quarters of 2023.
There is a very straightforward argument to be made in favor of Flywire: rapid growth, small cap status, and a pivot internet income are all strong factors that it possesses.
Guardant Health (GH)
Guardant Health (NASDAQ:GH) reminds me a lot of Exact Sciences (NASDAQ:EXAS) and its stock. Both companies provide testing materials that ultimately help reduce cancer mortality. Exact Sciences is well known for its cologuard test which has become very prominent. Guardant Health, on the other hand, provides blood-based tests and is very well regarded by Wall Street. The company maintains a strong buy rating and based on target prices has the potential to more than double.
I’d argue that the fundamentals behind the company are its strongest asset. The company is not like a lot of highly rated highly speculative biopharma stocks in that it does produce substantial revenues. In the most recent quarter Guardant Health’s revenues reached $143 million dollars.
Net losses during the period were substantial at $86.1 million dollars. However, that is a substantial improvement over the $162 million net loss the company reported a year prior. Further, with interest rates set to decline, investors will again be pivoting into growth stocks where losses matter less.
Academy Sports and Outdoors (ASO)
Academy Sports and Outdoors (NASDAQ:ASO) is a rapidly growing retail outlet that deserves investor attention. The company and its stock are facing difficulties however Wall Street remains highly upbeat on the company’s shares.
Part of the reason that Wall Street is so upbeat relates to projected growth for the company over the next few years. Academy Sports and Outdoors currently operates at 282 locations across 18 states. The company opened 14 of those locations this year and intends to open as many as 140 additional locations by 2027.
Company-wide revenues were somewhat weak during the third quarter at $1.397 billion. However, on a positive note, those results did not include the holiday season which provided some reason for optimism.
Anyway, Academy Sports and Outdoors is expected to grow by 50% over the next three years based on its own projections. With increasing scale comes all kinds of opportunities which could lead to higher share prices.
ACM Research (ACM)
ACM Research (NASDAQ:ACM) Is another name that’s going to continue to come up on lists of small cap stocks to consider in 2024. The company primarily provides cleaning equipment that it sells to customers in the semiconductor sector. That sector, of course, is one that continues to be full of potential due to its connection to artificial intelligence.
ACM research is really a company that is all about efficiency and improvements therein. I mean that in a few ways. First of all, ACM research provides cleaning equipment which has the purpose of identifying and reducing defect rates in the production of chips, i.e. increasing yields. Increasing production efficiency in the semiconductor production field is especially important given the costs associated.
However, I’m also referring to a different kind of efficiency in margins. Margins at ACM research increased from 49.3% to 52.5% in the third quarter. The company is itself becoming more efficient while also promising to increase the efficiency of the firms that it serves.
MicroStrategy (MSTR)
MicroStrategy (NASDAQ:MSTR) isn’t exactly a small cap stock given that it has a market cap of roughly $10 billion. Technically, it’s more of a mid-cap stock, but I thought it was an interesting one to consider given the constitution of the company.
The reason that investors continue to be interested in MicroStrategy is less about the actual work done by the company and more about its Bitcoin (BTC-USD) holdings. MicroStrategy itself is a business intelligence firm and its revenues are essentially flat, growing by 3.3% to $129.5 million in the third quarter. Not great but also not bad however, overall not really the reason anyone cares about the company.
Instead, it is the company’s massive Bitcoin holding that continues to make it interesting. At the end of the second quarter MicroStrategy controlled $4.7 billion worth of Bitcoin purchased at an average price of $29,586. Bitcoin prices are above $44,400 as I write this, which is probably all investors need to know about the firm. Bitcoin is becoming more and more integrated with mainstream finance as time goes on, which promises to send its price even higher.
Nano Dimension (NNDM)
Nano Dimension (NASDAQ:NNDM) is a 3D printing stock — which is a sector that has generally been maligned. 3D printing, or additive printing as Nano Dimension refers to it, hasn’t exactly provided the returns many anticipated. Thus, a lot of investors continue to be hesitant to consider firms in the space including Nano Dimension.
The company’s recent results will probably serve to alleviate some of those concerns. Revenues reached $14.3 million for the fourth quarter which was a record. Further, fiscal year 2023 revenues increased by 29% to $56.2 million.
Nano Dimension is also in growth mode and proposed to buy Stratasys (NASDAQ:SSYS) for $16.50 per share back in the days leading up to Christmas. The all cash proposal would lead to a complete purchase of all outstanding shares of Stratasys.
Nano Dimension remains an interesting company for the simple fact that it produces that it leverages 3D printing for additive manufacturing. In other words, the company seeks to manufacture greater volumes of highly valuable parts. Based on its most recent revenues there’s reason to believe that the strategy is working.
Xeris Biopharma (XERS)
Xeris Biopharma (NASDAQ:XERS) Is one of many in a long line of biopharmaceutical stocks that hold a lot of potential for investors. The reason to believe that Xeris Biopharma is a particularly strong one relates to continued guidance out of the company.
As I write this, its shares have risen by more than 12% on the day. The reason for the enthusiasm is that the company continues to provide guidance to investors that it will reach positive cash flow in the fourth quarter. The company won’t report those earnings for the fourth quarter until March. However the markets are responding very strongly to the news.
Meanwhile, the company also noted that revenues are expected to reach near the high end of guidance which had ranged from $160 to $165 million. Biopharmaceutical firms often lose a lot of money, only to never reach profitability. Xeris Biopharma is proving that it won’t be among those statistics and with a price below $3 that makes it quite attractive.
On the date of publication, Alex Sirois 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.
