Small Cap Stocks

Investing in small-cap stocks is a good way to earn huge returns. The smaller companies often have the most potential for growth. They also carry plenty of risk for investors.

Anytime you buy shares of small, little-known company, there are a bevy of unknowns. Some small-cap stocks are clinical-stage biotechs whose drugs have yet to be approved for commercial use. Others are chipmakers or cloud-computing companies that have plenty of promise but have been simply misunderstood by the market.

It’s impossible to take the risk completely out of small-cap stocks. But there are ways to minimize those risks without sacrificing potential profits. For starters, set up a clearly established set of rules ahead of time, and stick to them.

Our small-cap expert Thomas Garrity has his own set of rules in searching for small-cap stocks. Those are:

  • Make certain the company you're considering has enough capital to run its operations for many years and its balance sheet is (for the most part) debt free.

  • Time your investment with a company-specific event—a new product unveiling, clinical trial results being released, an earnings release, etc.

  • Get into a small-cap stock before institutional investors become aware of it. Sometimes it takes a while for the big hedge funds or mutual funds to discover small yet promising companies. Once they do, it quickly drives up the price.

  • To the best of your ability, ensure that your investment has the highest probability for success. The proof will come from doing research and assessing data. Any company can fail, big or small, you just want to try to avoid being a shareholder when that happens.
  • Only put capital to work in a stock that correlates with your investment risk tolerance and timeline. If you’re content to hit singles with lower-risk that can accrue over time, then it doesn’t make sense to swing for the fences with high-risk, high-reward small-cap stocks.
  • Lastly, become committed to your investment, which means being comfortable with market volatility, and also having the patience to let it succeed.

These rules won’t help you pick all winners. But they should give you a leg up in selecting the right small-cap stocks.

They have certainly worked for Thomas Garrity throughout his decades as a stockbroker, stock analyst, venture capitalist and portfolio manager. Above all, Tom invests only when the odds of winning significantly outweigh the risks.

Tom applies those winning philosophies as editor of our Cabot Small-Cap Confidential advisory. Searching for small-cap stocks can seem a bit overwhelming. In the Cabot Small-Cap Confidential advisory, Tom does all the heavy lifting for you, identifying those hard-to-find small caps that can earn you triple-digit returns. Over the years, Tom’s under-the-radar picks have helped Cabot Small-Cap Confidential become one of the leading technology advisories in the industry.

 

Featured Stock Picks

Each write-up features commentary on the picks from one or more of our expert stock market analysts, as well as company details and a stock chart.


Headline News

Stock Picks

58.com

The online marketplace is helping businesses and customers find each other in the localized Chinese economy.

Illumina

The world’s leading developer and manufacturer of DNA analysis machines.

Ovascience

Currently, OVAS is digesting rapid gains, and appears to be forming a base. Any dips could be seen as buying opportunities.

Cabot Wealth Advisory

Test Your Investing Knowledge: Stock Ticker Quiz

By Chloe Lutts Jensen on May 04, 2015

You might be surprised just how many stocks there are in the dividend-paying universe, and how varied they are. I put together the little quiz below to introduce you to some stocks that you might not know are dividend payers. Can you name the symbol for each of the dividend-paying companies, and figure out what companies each of the symbols represent?Read More >

Investing for Retirement

By Paul Goodwin on May 01, 2015

My contention is that most of us manage to put off thinking too hard about our financial futures until we hit 55.Read More >

Five Stocks Recently Upgraded

on April 30, 2015

Last summer, a little over nine months ago, I wrote a Cabot Wealth Advisory column about how confusing—and often subjective—the ratings issued by Wall Street analysts can be. In the column, I listed eight companies whose shares had been recently upgraded. Recently, I decided to go back and see how those stocks have performed since last July.Read More >