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.


How New Treatments are Fueling the Boom in Biotech Stocks

Biotech stocks have been red-hot this year, and a major reason for it is the glut of promising treatments being developed for diseases that have long been woefully undertreated. »

Stock Picks

Ross Stores

McKesson (MCK) distributes ethical and proprietary drugs, surgical supplies and health and beauty products throughout North America to the healthcare industry. The company also provides technical consulting services to biotech and pharmaceutical manufacturers.

Carnival Cruise Lines

Having just returned from vacation, Tim Lutts is thinking of the millions of baby-boomers who are spending more and more money on leisure travel, particularly on cruises, an industry that is dominated by a few big players.

China Biologic Products

Paul Goodwin advises putting this stock on your watch list.

Cabot Wealth Advisory

Beach Weather in the Market

By Paul Goodwin on July 31, 2015

It’s the beginning of August, high summer in New England, and a bit of summer fatigue is setting in. Summer in New England is short, so we try to pack half a year’s worth of cookouts, beach days, hikes, kayaking, sight-seeing and other outside recreation into three months. It’s fun, but the pace can be a bit frantic, especially as the season enters its third act. Frankly, all I want to do now is lie on a beach somewhere and read a book. Read More >

Managing Your Stock Portfolio to the Market's Tune

By Michael Cintolo on July 30, 2015

In today’s Wealth Advisory, I’m doing something I’ve never done before—reprinting an entire piece I wrote in Cabot Growth Investor last Wednesday. It doesn’t involve any specific stock advice (that is and always will be for subscribers only), but it details the wild divergences in the market (which are now getting lots of press—even the Wall Street Journal had a big write-up on it Monday), what it means, and how I’m advising people to handle it—I think it’s very timely.Read More >

Do Your Stocks Have Borrowing Trouble?

By Nancy Zambell on July 28, 2015

Hostess is making news today as it is issuing $1.23 million in term loans—most of which will go toward paying $905 million in a special dividend to its private shareholders—which I may add, is also more than two times what the buyers paid for this tasty snack business, and triples the company’s debt. According to Bloomberg, these types of deals grew to nearly $16 billion in the second quarter, the highest level in the past 12 months. I’m not making a judgment for or against this action. I just want to make a point that this debt, or leverage recapitalization—spurred by low interest rates—is increasingly becoming a method in which private equity holders get their money back—without selling the business. But it does burden the company with additional debt, which isn’t going to fund company expansion or operations.Read More >