Overall, the stock market hasn’t been very rewarding for investors so far in 2022. Amid a wide range of global and economic concerns, many of the go-to mega-cap stocks have not only seen their growth slow this year, but they’ve also been losing ground. That said, the answer to these problems for growth investors is micro-cap stocks. Why? Many smaller companies are positioned to perform despite the challenging conditions, and they can grow fast.
However, there is some downside to micro-cap stocks: risk. The ability to post rapid growth also comes with the potential for a dramatic drop in value, and these companies are vulnerable in ways that larger ones aren’t.
For example, they tend to have less access to capital and their customer base may be less loyal — making them a target for larger competitors. Also, there is much less information available about these companies, which can cloud the investment picture.
Nonetheless, I’ve helped to reduce your exposure by selecting these eight micro-cap stocks that score very well in my Portfolio Grader. In turn, the idea is to approach these micro-cap stocks as a calculated gamble — minimizing risk as much as possible.
- DLH Holdings (NASDAQ:DLHC)
- Evolution Petroleum (NYSEAMERICAN:EPM)
- Euroseas (NASDAQ:ESEA)
- Hudson Technologies (NASDAQ:HDSN)
- J Jill (NYSE:JILL)
- Pangaea Logistics Solutions (NASDAQ:PANL)
- Sensus Healthcare (NASDAQ:SRTS)
- Urban One (NASDAQ:UONEK)
Now, let’s dive in and take a closer look at each one.
Micro-Cap Stocks to Buy: DLH Holdings (DLHC)
During the early days of the novel coronavirus pandemic, there were many micro-cap stocks that saw spectacular gains as they raced the pharma giants to bring a Covid-19 vaccine to market. However, that period also showed the risk that can be part of micro-cap stocks after many of those companies fell short. That said, DLH Holdings is a much safer approach to investing in the field of medical research.
This company isn’t a biotech startup developing vaccines or treatments, which can be a win or lose proposition. Instead, DLH Holdings leverages technology (such as cloud computing) to deploy and administer health care programs as a third party. It works with organizations including the National Institutes of Health (NIH) and the U.S. Department of Defense to “deploy large-scale federal health and human service initiatives.”
Of course, the pandemic has shown the critical importance of such initiatives. Creating a vaccine is one thing, but getting shots in arms is a huge logistical challenge. Additionally, DLH Holdings also works with pharma companies, offering services like clinical trial research management.
Moreover, DLHC stock boasts a market cap of just under $220 million. Also, since the early days of the pandemic about two years ago, DHLC stock has delivered a near-400% return. And unlike many startups that tried and failed to deliver a Covid-19 vaccine, that growth trajectory shows no sign of letting up.
At the time of publication, DLHC stock scored an “A” rating in Portfolio Grader.
Evolution Petroleum (EPM)
While we’re on the topic of the pandemic, I don’t need to tell you what happened to oil and gas stocks in 2020. With demand in free fall, they tanked. And not only was there no demand for their product, but they also lacked the capital of an oil giant to ride out the rough times.
In turn, many companies in the sector went bankrupt — and smaller companies were particularly at risk. Houston-based Evolution Petroleum was one of those smaller companies. However, it had the advantage of focusing on proven onshore reserves accessible using conventional extraction methods — no costly offshore drilling, or fracking.
EPM stock felt the effect of cratering oil and gas prices in 2020. And for the year, it dropped by 50%. Despite the challenges faced by the sector, the company was still able to generate cashflow and keep up its dividend streak. As of the most recent quarter, that was 33-straight months of quarterly dividends.
After the drop in 2020, though, EPM stock really bounced back in 2021. And last June, it topped its pre-pandemic levels. And now with oil and natural gas prices now surging, EPM stock has gained 31% year-to-date (YTD).
So, to summarize: the company is profitable, it has cash in the bank, it’s making strategic acquisitions, it pays dividends like clockwork and the world demand for oil and natural gas is hitting new highs at the same time that the Russian war is making supply uncertain. Thus, it’s a great time to consider adding EPM stock to your growth portfolio.
The current Portfolio Grader rating for EPM stock is “A.”
Euroseas (ESEA)
One of the top headlines from the past year has been supply chain disruption, and a big part of that equation has been unprecedented demand for ships to transport containers and bulk goods.
Desperate companies have been paying record rates to get their products on ships, and industry analysts don’t see the sky-high prices coming down any time soon. Thus, 2022 is shaping up to be another spectacular year for the container shipping industry.
That brings me to Euroseas. This micro-cap stock is a Greek container shipping company that has been in operation for 140 years. So there’s not much risk of Euroseas disappearing with that track record.
More specifically, the company operates a fleet of 16 container ships with four more due to arrive soon to capitalize on sky-high demand. And ESEA stock is delivering for investors, with a return of 191% over the past 12 months.
Most importantly, if you plug ESEA stock into my Portfolio Grader, you’ll find it scores an “A” rating. So investors should keep this one in mind for micro-cap stocks to buy.
Hudson Technologies (HDSN)
New York’s Hudson Technologies has a market capitalization of just over $267 million, making it an easy fit in any list of small-cap stocks. Why is this company worth looking at as potential growth winner? The answer is climate change.
Hudson Technologies specializes in cooling systems. One of the primary effects of climate change that we’ve been experiencing is rising temperatures. That means the demand for air conditioning is increasing, and it’s going to become even more critical going forward. At the same time, AC units consume huge amounts of energy, and the refrigerants used in the systems are also bad for the environment.
Thus, Hudson Technologies comes into the picture because it has targeted the issues around AC, and has solutions. The company’s offerings include services to ensure AC units are working at peak efficiency, as well as emergency repairs. It also offers the recovery, reclamation, reuse and responsible disposal of refrigerants. In other words, Hudson Technologies keeps the AC going while making cooling greener. It’s been doing this for three decades for a wide range of customers including schools, data centers, hotels, government, manufacturing and residential.
With HDSN stock delivering 264% growth over the past 12 months, and demand for its services going nowhere but up, the time to invest in this micro-cap stock is now.
HDSN stock currently earns an “A” rating in Portfolio Grader.
J. Jill (JILL)
Clothing retailers were another notable victim of the pandemic, at least those that weren’t focused on the athleisure market. With many employees working from home, people stopped adding to their wardrobes. And the situation wasn’t helped by lockdowns that cut into socialization. Many people slipped into their sweatpants while clothing retailers suffered.
More specifically, women’s clothing retailer J Jill was very nearly a casualty, but narrowly managed to stave off bankruptcy. However, belt-tightening — including closing underperforming stores — and a re-opening of the economy helped the company bounce back in 2021.
The calculated gamble is that this micro-cap stock — which is now trading at more than double its pre-pandemic levels — still has room to grow. With many companies now bringing their remote workers back to the office, and people becoming more comfortable with going out, clothing sales are expected to rise. If everything goes as expected, then JILL stock stands to kick into growth mode.
JILL stock cored an enviable “A” rating in Portfolio Grader at the time of publication.
Pangaea Logistics (PANL)
Pangaea Logistics — with a market cap of around $256 million — is another pick along the lines of Euroseas. The Rhode Island-based bulk carrier has a sizeable fleet consisting of eight Supramax ships, three Ultramax, 10 Panamax, four Post Panamax vessels, and one barge. They have a combined cargo capacity of 1,444,406 DWT (deadweight tons).
One of the reasons that Pangaea is attractive as an investment is that in 2019, the company had reported five straight profitable years. That was a big accomplishment at a time when many fleet operators struggled. In 2016, with most global shipping companies losing money, Pangaea was profitable. In 2017, when the world’s largest container shipping company was “in big trouble,” Pangaea was profitable. You get the picture.
Furthermore, it was reported that in 2021, ocean-fleet carriers globally pulled in profits nine times higher than in 2020. An investment in PANL stock is a calculated gamble that the good times for the shipping industry are going to continue. And even if demand slows, remember that Pangaea Logistics was profitable during the tough times as well.
The current Portfolio Grader score for PANL stock is “A.”
Sensus Healthcare (SRTS)
Skin cancer is one of the most common forms of cancer in the U.S., with 9,500 new cases being diagnosed every day. Additionally, according to the American Academy of Dermatology, one in five Americans will develop skin cancer during their lifetime. Also, skin cancer rates have been rising dramatically, especially among an aging population.
Good to know, but what does skin cancer have to do with micro-cap stocks?
The answer is Sensus Healthcare, a Florida based company with a market cap of $170 million. Sensus Healthcare specializes in medical devices used in the treatment of skin cancer. This includes the company’s minimally invasive Superficial Radiation Therapy (SRT) devices. They allow for treatment in a doctor’s office without the need for anesthesia or reconstructive plastic surgery.
Moreover, SRTS stock has been in growth mode over the past six months, up 185%. The company’s fourth-quarter earnings report in February showed the momentum is justified, with record revenue up 156% year-over-year (YOY), EPS up 433% and a projection of full-year profitability for 2022.
SRTS stock currently earns an “A” rating in Portfolio Grader.
Urban One (UONEK)
With a current market capitalization of $231 million, Urban One is one of the more interesting entries on this list of micro-cap stocks. At its heart, Urban One is a media company that targets an African American audience. This includes media properties like Radio One (with stations across many U.S. urban markets), TV One (which serves 49 million households) and iOne digital (an online presence with over 20 million unique monthly visitors).
However, the Urban One story extends beyond media, and that’s what makes this more of a calculated gamble than an easy win.
For example, there’s its One VIP credit card. Then there was the company’s 2021 bid to build a $565 million casino resort in Richmond, Virginia. UONEK stock plummeted 38% in a single day when that project was rejected. That’s the kind of wildcard move that adds an element of risk to what is an otherwise proven company. That being said, despite the casino setback, UONEK stock is up 145% over the past 12 months.
At the time of publication, UONEK stock earned an “A” rating in Portfolio Grader.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place