It’s no secret that investing in small-cap companies comes with both risk and volatility.
Companies with market values between $300 million and $2 billion are considered “small-cap.”
They are riskier because:
- They tend to have less access to credit.
- They have greater uncertainty to future cash flows.
- Their business model may be unproven.
- They have less access to cash, which restricts their ability to overcome economic downturns.
But with greater risk comes the potential for greater reward — especially when we follow a system that ranks these stocks for us.
You see, mutual funds limit how many shares of one company they can buy. To go over that limit, they have to file publicly with the Securities and Exchange Commission.
Doing that tips their hand to smaller investors, pushing more buyers into the company and raising share prices above their attractive price point.
In April, we recommended three small-cap stocks that have done just that: jumped significantly above their previously attractive prices — and produced triple-digit returns in just three months!
I’ll get to those in a bit.
Adam’s Take on Small-Cap Stocks
Adam O’Dell is Money & Markets’ Chief Investment Strategist.
He recently told his Green Zone Fortunes readers of the inherent risks in small-cap companies, as well as a major advantage:
“For one, investors in small companies are paid a ‘premium’ to do so. And in the end, assuming you hold a diversified portfolio of small companies, you can make more money buying these somewhat riskier small-cap stocks than you can piling into the big names. The research is crystal-clear on that.”
Let’s take the Russell 2000 index for example.
It tracks a broad scope of small-cap companies and has blasted its three large-cap-centric peers.
From mid-March 2020 to June 4, 2020, the index jumped 50.3%. The S&P 500, on the other hand, is up only 33% from its March lows.
The Russell 2000’s Rocket Ride
In April, before the Russell 2000 really took off, we recommended three small-cap stocks that have collectively gained more than 100% in just three months!
Our Small-Cap Stocks Have Delivered Big Gains
When we recommended these three small-cap stocks, the market was still trying to recover from its coronavirus bottom.
But the trends indicated these three stocks were trending up and would continue to do so.
And they certainly did.
Here’s how those recommendations have paid off so far:
- Niu Technologies ADR (Nasdaq: NIU) — This Chinese electronic scooter manufacturer has been a big winner for investors during the COVID-19 pandemic. When we recommended it in April, its shares were trading at $6.90. They have skyrocketed 186% since then!
- Nautilus Inc. (NYSE: NLS) — The fitness equipment manufacturer has done well. More people are buying its equipment because gyms are closed. The company was trading at $4.20 per share in April and it’s jumped to $9.94 … a 136% gain.
The third company we recommended — Investors Title Co. (Nasdaq: ITIC) — has been mostly flat since April, but it’s starting to bounce back. It’s down just 2% since April.
Overall, our small-cap stocks have netted an average total adjusted return of 106%!
There’s Still Time to Get in for Gains
If you bought these three companies when we recommended them, that’s awesome. Enjoy your gains.
If you didn’t, that’s not a problem because these companies will continue growing.
Here’s why:
- NIU: People will still look for mobility options.
- NLS: As a second phase of lockdowns goes into effect in some states, gyms and fitness centers will close again. More folks will need to find ways to work out at home.
- ITIC: With the recent boom in housing sales and low mortgage rates, new homebuyers will need title insurance for their new homes.
The bottom line is that these companies’ share prices will continue rising. If you bought them, hang on. More gains are coming.
If you didn’t, it’s a good time to consider buying these small-cap stocks to realize future profits.