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9 Best Small Cap Stocks to Invest In

Jason BondJason Bond ·

Small cap companies typically fall in the market cap formula between $300 million and $3 billion. Even though their market cap may still be considered high, small-cap companies usually are less established than their large cap counterparts, and many are involved in up-and-coming industries. While small cap investments may come with a slightly higher risk, they often provide a much quicker return. They will offer a range in cost from penny stocks to more moderate levels costs. The trick is learning the best small cap companies to watch and the best small cap stocks to buy as there is often little financial history because most are still growing and trying to establish themselves.

Great Small Cap Stocks to Buy

Check out some of the small cap stocks with big potential that you might want to consider investing in.

1. Archrock

With a market value of $1.4 billion and a dividend yield of 5%, Archrock is definitely a small cap stock to watch. Archrock is currently running in the middle of the pack in the energy market. The company handles extracted and processed gas and oil before it makes it to the end-users. They compress the natural gas, making it more easily stored or transported through pipes. They have been strong out of the gate obtaining new customers and are not affected by the fluctuations in gas prices, providing them with stability in an industry that many other companies don’t experience.

2. B&G Foods

B&G Foods offers a dividend yield of 10.1% and a market value of $1.2 billion. They bring the public a wide range of food offerings from frozen foods such as Green Giant vegetables to Cream of Wheat and Ortega taco shells. Due to recent events in the packaged food industry, many investors may be wondering why B&G is a small stock to invest in right now. Concerns over costs have caused the stock to drop the past year, but surprisingly, B&G Foods is expected to pay more out in dividends than analysts have expected due to recent cost-cutting methods. They have also recently announced that they have acquired the baking product brand Clabber Girl.

3. Covanta

Valued at $2.2 billion on the market, the trash disposal company Covanta is one of the best small cap stocks to buy due to the resilient nature of its business plan. No matter how the economy changes, trash disposal is a reality that all consumers and companies will have to face. The unique thing about Covanta is that they do more than waste disposal—they actually create energy from waste.

The process involves harassing and collecting the burnable gasses that are emitted when garbage goes through the decay cycle. Yearly, the company collects enough methane to produce 9 million megawatt-hours of electricity. They also recycle more than 600,000 tons of metal per year. Analysts expect a bullish performance from Covanta, and investors enjoy their timely dividend payments.

4. Landmark Infrastructure Partners LP

One of the top small cap stocks to buy with an impressive $425.2 million market value and over 8% distribution yield is Landmark Infrastructure Partners. The company owns a wide network of billboards, wireless communication towers, and renewable power plants across the country. Even though the stock only provides for more modest growth opportunities, the returns are reliable and consistent. As cellular devices continue to become more powerful, the demand for more powerful towers provides the company with stability in the future. Landmark Infrastructures not only looks like a good stock to bet on but has also shown itself in previous years as its distribution has continued to improve year after year.

5. Office Properties Income Trust

Real estate investment trusts have always been considered reliable as well as consistent when it comes to income. The Office Properties Income Trust is no different. With a market value of $1.2 billion and an 8.4% dividend yield, it is consistently proving to be one of the top small stocks to buy. With noise about a merger that would provide for cross-ownership with the Government Income Properties Trust and Select Income REIT. Estimates expect the stock price to almost double this year.

6. Patterson Companies

While analysts may not have much faith in Patterson Companies, which has a market value of $1.9 billion and a dividend yield of 5.3%, many savvy, income-minded investors see it as one of the best small cap stocks to buy. They have proven to have a dividend growth advance, and the yield over 5% is ample enough to satisfy income investors.

Patterson Companies is a small cap IT stock that specializes in technologies for both veterinarian and dental practices across the globe. They provide everything from dental drills to examination tables, and even though this is not considered one of the highest growth areas, the continued aging of the population means a growing need for dental care, and our attachment to our pets in the United States makes investors appreciate the growth potential and consistency it supplies.

7. Steelcase

Steelcase has made the list of best small cap stocks to buy due to its resilience. They boast a market value of $2 billion and a dividend yield of 3.5%. Steelcase has seen huge plunges over the years, but it always seems to find a way to bounce back. This gives investors confidence that even when the company may face roadblocks, they can easily find their way back before too long. Case in point: the company suffered a drop of 11% in June and have already regained over half of the ground they have lost.

Their recent acquisitions and targeted synergies prime them for expected growth, and per-share profits tend to increase year after year.

8. ABM Industries

Though the dividend yield may be on the low end at 1.8%, the $2.7 billion ABM Industries is still a small stock with high potential. The company offers organizations a wide range of building management solutions such as cafeteria operations, athletic fields maintenance, and even lighting. It may not seem like a thriving market to some, but the truth is that over $35 billion were spent on third-party building management last year alone, showing that many building owners would much rather outsource the work.

Even though the dividend percentage yield is smaller than some, their dividends have reliably grown each year with over a 30% increase over the past four quarters. ABM is actually increasing its dividend much faster than many of the other companies with similar profiles.

9. Clearway Energy

The clean energy provider, Clearway Energy, is a top small cap company to invest in with a $3.5 billion market share, and a dividend yield of 4.4% The company’s wind and solar farms are a reliable and consistent form of revenue. They are known to be able to deliver up to 4.1 gigawatts of clean power as well as take on challenging locations and customer requests. Their partnership approach has allowed them to produce a more than respectable dividend profile, and while they may have suffered due to the bankruptcy of PG&E, the company is expected to recover and begin being profitable again.

How to Research the Best Small Stocks to Buy

While trying to research small stocks to invest in can seem like a daunting task at first, below are a few simple steps that can make the process easier than you thought.

  1. Start With the Technical Analysis: You should start by trying to see the history of how the stock has performed in the past. While this can be difficult for newer companies, it can still help you with a starting point to see how a stock performs. If possible, look for patterns and see when the best time to take advantage is.
  2. Perform a Fundamental Analysis: After looking over the charts and data, you will want to take some time to research the company’s performance as well as who they are and where their future goals lie. How a company handles finances, how they react to market and industry changes, and how they tackle problems all could have an effect on future stock prices.
  3. Consider a Small Cap Screener: There are many available small cap screener tools that can help to narrow down a large sea of choices. You can then use this list to delve further into your research and come up with the appropriate decision.
  4. Watch for News Catalysts: Now you want to let stock indicators such as news catalysts and high volume help guide your research at this point. These indicators can be a great way to make the final decision between two comparative stocks.

While researching small cap stocks to invest in can be more complicated due to their limited history or recent emergence to the market, they can be an extremely profitable investment for income-minded investors looking to grow their wealth and strengthen their portfolio. Want to learn more about which are the best long term small cap stocks to invest in? Join our webinar or register for our free e-book to learn more tips and tricks for trading to prepare a portfolio designed to meet your future wants and needs.

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