7 Small-Cap Stocks to Buy Before the Market Starts to Soar in 2023

Stocks to buy

Investors may want to target small-cap stocks to buy. Understandably, smaller and therefore less-proven enterprises present higher risks, which is why some folks avoid the sector. Nevertheless, because they’re so small, they offer tremendous upside should broader circumstances turn favorably.

Also, small-cap stocks to buy may benefit from less attention. As an emotional Jim Cramer demonstrated, blue-chip enterprises command most of Wall Street’s spotlight. It can be a wonderful place when the market churns out strong returns. However, during downcycles, center stage can be a glaring and cruel environment. In contrast, smaller companies tend to fly under the radar.

Of course, you don’t want to quickly dismiss the risks associated with small-cap stocks to buy. For this list, I used Gurufocus.com to filter out securities commanding a market capitalization between $100 million to $1 billion. As well, these ideas feature relatively low risk, making them much more sensible than run-of-the-mill small-cap stocks to buy.

MHH Mastech Digital $13.60
FF FutureFuel $6.49
OFLX Omega Flex $89.73
NRC National Research Corp. $36.24
NOAH Noah Holdings $13.24
HZO MarineMax $32.18
CEVA CEVA. $27.04

Mastech Digital (MHH)

Source: Shutterstock

Based in Pittsburgh, Pennsylvania, Mastech Digital (NYSEAMERICAN:MHH) is a digital transformation and information technology services firm. Currently, Mastech features a market cap of just under $160 million. On a year-to-date basis, MHH dropped over 20% of equity value. Much of that loss came recently, with shares declining 10.5% for the Nov. 2 session.

Wednesday’s loss centered on the company’s third-quarter earnings report. Mastech reported earnings per share of 33 cents against Wall Street’s estimate of 38 cents. Although distracting, Mastech still represents one of the small-cap stocks to buy from a holistic standpoint. For instance, Gurufocus.com identifies MHH as a significantly undervalued investment. Specifically, MHH is priced at 8.1 times forward earnings, whereas the industry median is 13.6 times.

Also, it’s important to note that Mastech features a strong balance sheet. In particular, the company’s Altman Z-Score hits 6.33, reflecting a very low bankruptcy risk. As we head into an uncharted economic territory, fiscal resilience may command a higher premium.

FutureFuel (FF)

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Headquartered in Missouri, FutureFuel (NYSE:FF) is a developer and producer of chemicals and biofuels. At the moment, FutureFuel carries a market cap of $284.8 million. Since the beginning of the year, FF dropped over 17% in equity value. However, over the trailing month, shares moved up a little less than 1%, reflecting possible near-term momentum.

Fundamentally, FutureFuel cynically benefits from geopolitical paradigm shifts relating to energy sourcing. With rival nations stooping to blackmailing policies, finding alternative fuels is more important than ever. Therefore, the company’s focus on premium biodiesel products may enjoy substantial relevance. Even better, Wall Street doesn’t recognize the opportunity, making FF one of the best small-cap stocks to buy for speculators.

For instance, FutureFuel’s Shiller price-earnings ratio sits at 4.91 times. In contrast, the industry median level stands at 19.6 times, making FF significantly undervalued. Just as importantly, the chemicals firm has a strong balance sheet, highlighted by a cash-to-debt ratio of nearly 343 times.

Omega Flex (OFLX)

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Headquartered in Pennsylvania, Omega Flex (NASDAQ:OFLX) is a manufacturer of corrugated flexible stainless steel tubing used for natural gas and propane installations in residential and commercial applications. Presently, Omega Flex features a market cap of slightly over $930 million. Since the January opener, OFLX dropped nearly 28% in equity value.

Arguably, market observers will justify OFLX as one of the small-cap stocks to buy based on its underlying profitability record. Primarily, the company’s gross, operating, and net margins stand at 63.1%, 25.4%, and 18.9%, respectively. These metrics rank better than at least 92% of the competition. In addition, Omega’s return on equity is 41.6%, higher than 97% of its rivals. The metric also indicates an extremely high-quality business.

As well, the company enjoys a strong balance sheet. Most conspicuously, its Altman Z-Score rates at an astronomic 28 points, indicating an extremely low probability of bankruptcy. Also, its cash-to-debt ratio stands at nearly 9 times, a favorable stat.

National Research Corp (NRC)

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Based in Lincoln, Nebraska, National Research Corp (NASDAQ:NRC) focuses on collecting vast volumes of healthcare consumer data, as well as creating healthcare products and subscription-based solutions in the U.S. and Canada. Currently, National Research carries a market cap of $897.5million. At the time of writing, NRC shares dropped almost 17% in equity value compared to the start of the year.

Most of the volatility can be tied to the Nov. 2 session, where NRC tanked 13%. Unfortunately, investors took a dim view of the company’s Q3 earnings report. Possibly, they didn’t care for the fact that National Research posted a net income of $8.3 million. In the year-ago period, NRC posted a net income of $9.7 million. Still, those looking for a recent discount among small-cap stocks to buy may want to consider NRC.

Holistically, Gurufucus.com argues that NRC represents a significantly undervalued business. For me, I’m looking at the profitability track record. For example, National Research’s net margin stands at 23.8%, ranked better than 93% of the competition. Also, its return on equity stands at nearly 46%, reflecting a very high-quality enterprise.

Noah Holdings (NOAH)

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A lesser-known entity within China’s vast equities market, Noah Holdings (NYSE:NOAH) is a wealth management service provider with a focus on global wealth investment and asset allocation services for high-net-worth individuals and enterprises in China. Presently, Noah carries a market cap of just under $815 million. Since the start of the year, NOAH dropped 57% in equity value.

Fundamentally, NOAH obviously presents great risks, even compared to other small-cap stocks to buy because of politics. Essentially, Chinese President Xi Jinping consolidated power in a norm-busting third term. Therefore, if you can’t handle vagaries, NOAH may not be for you. At the same time, these unusual circumstances bolster the case for professional wealth management. This contrasts with how some folks may have been getting guidance, such as via YouTube luminaries.

Enticingly, Gurufocus.com rates NOAH as significantly undervalued. For instance, the stock trades at 5.32 times trailing-12-month (TTM) earnings. In contrast, the industry median is 10.5 times. Also, the company’s price-to-sales ratio is 1.74 times, favorably lower than the industry median’s 6 times.

MarineMax (HZO)

Source: shutterstock.com/Harry Powell

Based in Clearwater, Florida, MarineMax (NYSE:HZO) is a boat dealership, specializing in both new and used boats. At the time of writing, MarineMax features a market cap of $680 million. Since the start of the year, HZO slipped over 46% in equity value. In the trailing month, however, shares returned nearly 8%, possibly reflecting a comeback effort.

While MarineMax presents fundamental risks because of its exposure to consumer discretionary sentiment, it’s also important to note that the company caters to a wealthier clientele. Obviously, if you’re middle-income, you’re not going to be buying a boat anytime soon. Interestingly, then, Gurufocus.com rates HZO as significantly undervalued. Its forward PE ratio is just above 4 times, which is below 97% of its peers.

Just as importantly, MarineMax represents a growth machine. The company’s three-year revenue growth rate stands at 20.9%, better than 84% of the competition. Also, its FCF growth rate during the same period is 83.6%, above 92% of its rivals. Thus, HZO presents a tempting profile for those seeking small-cap stocks to buy.

CEVA (CEVA)

Source: Shutterstock

CEVA (NASDAQ:CEVA) is a semiconductor intellectual property company. It specializes in digital signal processor technology and owns international development facilities. Currently, CEVA commands a market cap of $637.7 million. Since the beginning of this year, shares dropped nearly 40% in equity value. However, in the trailing five days, CEVA gained almost 2%.

Technically speaking, CEVA appears to have priced in the bulk of bad news, such as global supply chain disruptions. Looking at its trailing five-year performance, CEVA has yet to test the $20 horizontal support line that bolstered shares in late 2018 and during the spring doldrums of 2020. Therefore, it’s possible that CEVA could build from here, making it an attractive speculative idea among small-cap stocks to buy.

Financially, CEVA may draw in market participants because of its strong cash position. Currently, the company features a cash-to-debt ratio of just under 20 times. That rates better than nearly 76% of the competition. Also, its Altman Z-Score of 9.6 reflects a very low bankruptcy risk.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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