10 Best Small-Cap Stocks Ready To Explode According To Hedge Funds
In this article, we will look at the 10 best small-cap stocks that are ready to explode.
BofA’s Small/Mid-Cap Strategist Expects “More Downside Risk To Earnings Forecasts”
On February 25 BofA’s head of U.S. small/mid-cap strategy, Jill Carey Hall, appeared in an interview on CNBC to discuss her market outlook and areas of the market she likes. Hall said she was expecting “a bounce” coming into 2023, “given just how negative sentiment had been” at the end of 2022. Hall revealed that her year-end target for the S&P 500 is 4000. However, she thinks “there’s more potential downside risk” since a lot of indicators she looks at that could “signal a potential bottom in the market haven’t been hit yet”. Hall sees markets being volatile in 2023 and noted that there are “better opportunities in spots of the market” one of which was small-cap stocks.
Hall thinks the U.S. will enter a “mild recession” in the second half of 2023, that will “last into early next year (2024)”. Hall noted that “usually, S&P earnings declined about 20% during an average recession” and her estimates for earnings declines are “less than half of that”. Hall said that though “there has been strength in the data”, “earnings have generally been in-line to a slight miss”. Hall thinks “there’s more downside risk to earnings forecasts” but she does not think it would be “as dramatic as we usually see during a recession”. Hall later discussed the “spots of the market” she likes. Here are some comments from Jill Carey Hall:
“When you look at what’s priced in already, how positioning is, you get some different results than the typical recessionary playbook. Also when you look at the shifting risk profiles of sectors, some of the traditionally safer low-beta sectors have actually become higher beta and vice versa. So we’re overweight some of the more cyclical sectors right now. Energy, materials, financials, and then we’re overweight staples, that’s sort of our preferred high-quality defensive sector.”
As of March 3, the S&P 500 has gained 5.79% year to date, the Nasdaq has shot up by 12.54% since the beginning of the year, and the Russell 2000 is up 10.14% for the year. We have compiled a list of the best small-cap stocks to buy now according to hedge funds. Some of the most explosive small-cap stocks right now include Endeavor Group Holdings, Inc. (NYSE:EDR), Tempur Sealy International Inc. (NYSE:TPX), and RH (NYSE:RH). Let’s now look at these stocks, among others, in detail.
Photo by Nick Chong on Unsplash
Our Methodology
We defined small-cap companies as companies that had a market cap between $1 billion and $8 billion. We sifted through the 100 most notable small-cap companies and sourced their hedge fund sentiment from Insider Monkey’s proprietary database of hedge funds. As of Q4 2022, Insider Monkey tracks roughly 900 elite money managers. We narrowed down our selection to the 15 companies that were the most widely held by hedge funds and had the most positive hedge fund sentiment. We have ranked these stocks in ascending order of the number of hedge funds that have stakes in them.
Best Small-Cap Stocks Ready To Explode According To Hedge Funds
10. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 34
AutoNation, Inc. (NYSE:AN) is a leading American automotive retailer. The company has three business divisions: Domestic, Import, and Premium Luxury. As of March 3, AutoNation, Inc. (NYSE:AN) has returned 31.09% to investors year to date.
At the end of Q4 2022, 34 hedge funds held stakes in AutoNation, Inc. (NYSE:AN). The total value of these stakes amounted to $653 million, up from $419.4 million in the previous quarter with 33 positions. The hedge fund sentiment for the stock is positive and it is one of the most explosive small-cap stocks to buy according to hedge funds.
As of December 31, AQR Capital Management is the largest investor in AutoNation, Inc. (NYSE:AN) and has a position worth $109 million in the company.
Some of hedge funds’ top small-cap stock picks include AutoNation, Inc. (NYSE:AN), Endeavor Group Holdings, Inc. (NYSE:EDR), Tempur Sealy International Inc. (NYSE:TPX), and RH (NYSE:RH).
9. Skechers U.S.A., Inc. (NYSE:SKX)
Number of Hedge Fund Holders: 36
On February 2 Skechers U.S.A., Inc. (NYSE:SKX) posted market-beating earnings for the fiscal fourth quarter of 2022. The company reported an EPS of $0.48 and outperformed EPS estimates by $0.11. The company’s revenue for the quarter amounted to $1.88 billion, up 14.01% year over year and ahead of Wall Street estimates by $106.48 million.
At the close of the fourth quarter of 2022, 36 hedge funds were long Skechers U.S.A., Inc. (NYSE:SKX) and disclosed positions worth $1.01 billion in the company. This is compared to 35 hedge funds in the previous quarter with stakes worth $794.9 million. As of December 31, Pzena Investment Management is the top investor in the company and has a position worth $315.5 million.
Here is what Cove Street Capital had to say about Skechers U.S.A., Inc. (NYSE:SKX) in its Q4 2022 investor letter:
“We sold out of Skechers U.S.A., Inc. (NYSE:SKX), which was one of our “what should we be buying in the Covid Crash of 2020” stocks. While we think the brand has enormous global value and appeal, the Achilles heel has always been the existence of voting control stock that enables the founding family to essentially run this like a captive weekend lemonade stand with all that attendant discipline to cost and interest in shareholder returns. We generated a solid return in the name but have difficulty seeing an interest in a path that raises margins 50% which would still put them below their peers. We think we can do better.”
8. Ritchie Bros. Auctioneers (NYSE:RBA)
Number of Hedge Fund Holders: 37
Ritchie Bros. Auctioneers (NYSE:RBA) operates as an asset management and disposition company. The company sells industrial equipment and other durable assets through unreserved auctions, online marketplaces, listing services, and private brokerage services. Ritchie Bros. Auctioneers (NYSE:RBA) is ranked thirteenth among the best small-cap stocks to buy according to hedge funds and has gained 2.20% year to date, as of March 3.
37 hedge funds were bullish on Ritchie Bros. Auctioneers (NYSE:RBA) at the end of Q4 2022. These funds held collective stakes worth $768.8 million in the company. This is compared to 24 hedge funds in the previous quarter with stakes worth $291 million. The hedge fund sentiment for the stock is positive.
As of December 31, Luxor Capital Group has a stake worth $243.4 million in Ritchie Bros. Auctioneers (NYSE:RBA) and is the most prominent shareholder in the company.
7. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 37
Toll Brothers, Inc. (NYSE:TOL) is a leading American homebuilding company. On February 21, the company reported strong earnings for the first quarter of fiscal 2023. The company generated a revenue of $1.78 billion and outperformed market consensus by $37.26 million. The company’s EPS for the quarter amounted to $1.70 and beat EPS estimates by $0.31.
At the close of Q4 2022, 37 hedge funds were eager on Toll Brothers, Inc. (NYSE:TOL) and disclosed positions worth $916.5 million in the company. This is compared to 32 hedge funds in the preceding quarter with stakes worth $620.9 million. Toll Brothers, Inc. (NYSE:TOL) is one of the most explosive small-cap stocks to buy now according to hedge funds.
As of December 31, Greenhaven Associates is the leading investor in the company and has a position worth $267.3 million.
Here is what Ron Baron’s Baron Funds had to say about Toll Brothers, Inc. (NYSE:TOL) in its Q4 2022 investor letter:
“Toll Brothers, Inc. (NYSE:TOL) is the leading luxury homebuilder in the U.S. with a capable management team as well as a large and valuable owned land portfolio. Toll Brothers is more insulated than its peers from elevated mortgage rates because 20% of the buyers of Toll homes pay 100% in cash.
At its year-end 2022 price of only $49.92/share, the company is valued at only 0.83 times our estimate of 2023 tangible book value of $60/share. Historically, Toll Brothers’ shares have been valued, on average, at 1.4 times book value and a peak multiple of approximately 2.0 times tangible book value. If the shares recover in the next few years and trade only to the company’s long-term average multiple of 1.4 times book value, Toll Brothers’ share price would increase 82% to $91 per share.”
6. Voya Financial Inc (NYSE:VOYA)
Number of Hedge Fund Holders: 37
Voya Financial Inc (NYSE:VOYA) is an American financial services company that provides retirement, investment, and insurance services in the United States. As of March 3, Voya Financial Inc (NYSE:VOYA) has gained 23.27% year to date and is placed eleventh on our list of the top small-cap stocks ready to explode.
Voya Financial Inc (NYSE:VOYA) was spotted on 37 investors’ portfolios at the end of Q4 2022. These funds held collective positions worth $1.17 billion in the company, up from $957.3 million in the previous quarter with 31 positions. As of December 31, Samlyn Capital is the largest shareholder in Voya Financial Inc (NYSE:VOYA) and has disclosed a position worth $293.1 million in the company.
5. Zions Bancorporation, National Association (NASDAQ:ZION)
Number of Hedge Fund Holders: 38
Zions Bancorporation, National Association (NASDAQ:ZION) is an American financial services company based in Utah. On January 23, the company released earrings for the fourth quarter of fiscal 2022. The company reported an EPS of $1.88 and beat EPS estimates by $0.22. The company’s revenue for the quarter amounted to $883 million, up 17.26% year over year and ahead of Wall Street estimates by $21.24 million.
At the end of Q4 2022, Zions Bancorporation, National Association (NASDAQ:ZION) was held by 38 hedge funds. The total stake of these hedge funds amounted to $498.10 million, up from $401.9 million in the previous quarter with 34 positions. The hedge fund sentiment for the stock is positive.
As of December 31, Marshall Wace LLP has a position worth $68.9 million in Zions Bancorporation, National Association (NASDAQ:ZION) and is the leading shareholder in the company.
4. ShockWave Medical, Inc. (NASDAQ:SWAV)
Number of Hedge Fund Holders: 38
ShockWave Medical, Inc. (NASDAQ:SWAV) is a California-based medical device company with operations across the globe. The company is involved in the development of intravascular lithotripsy technology for the treatment of calcified plaque in patients with peripheral and coronary vascular, and heart valve diseases. As of March 3, the stock has gained 15.85% over the past 12 months and is the ninth best small-cap stock ready to explode according to hedge funds.
ShockWave Medical, Inc. (NASDAQ:SWAV) was spotted on 38 investors’ portfolios at the end of Q4 2022. These funds held collective positions worth $520.3 million in the company. This is compared to 34 hedge funds in the previous quarter with stakes worth $496.1 million.
As of December 31, Marshall Wace LLP is the top investor in ShockWave Medical, Inc. (NASDAQ:SWAV) and has disclosed a position worth $68.7 million in the company.
Here is what Artisan Partners had to say about ShockWave Medical, Inc. (NASDAQ:SWAV) in its Q4 2022 investor letter:
“Among our bottom contributors were ShockWave Medical, Inc. (NASDAQ:SWAV), Advanced Drainage Systems and Wolfspeed. From a fundamental standpoint, we believe it was a good quarter for Shockwave. The company received FDA approval for its C2 Plus intravascular lithotripsy (IVL) device for coronary procedures much earlier than expected. Its C2 Plus product provides a 50% increase in treatment capacity versus the current C2 device and is currently in limited launch in Europe. Shockwave believes it will likely launch in the US in the second half of 2023, but it now has increased flexibility with this approval. Despite the positive catalyst, the company sold off in the quarter as it appears investors took profits after a year of material outperformance.”
3. TechnipFMC plc (NYSE:FTI)
Number of Hedge Fund Holders: 38
TechnipFMC plc (NYSE:FTI) is an oil and gas equipment and services company based in the United Kingdom. The company’s revenue for the fiscal fourth quarter of 2022 amounted to $1.69 billion, up 11.23% year over year, and outperformed Wall Street consensus by $28.85 million. As of March 3, the stock has returned 100.26% to investors over the past 12 months.
TechnipFMC plc (NYSE:FTI) was spotted on 38 hedge funds’ portfolios at the end of Q4 2022. These funds held collective stakes worth $648.9 million in the company. This is compared to 31 hedge funds in the previous quarter with stakes worth $563.6 million. As of December 31, Two Sigma Advisors is the leading shareholder in the company and has a position worth $104.1 million.
Here is what Miller Value Partners had to say about TechnipFMC plc (NYSE:FTI) in its Q3 2022 investor letter:
“During the quarter, the two largest positive contributors were TechnipFMC plc (NYSE:FTI) and Bed Bath & Beyond (BBBY). Both companies’ share prices traded more than 25% higher in the market. TechnipFMC was a new investment made over the past year. We believe the company remains well positioned to gain incremental market share in the current multi-year upcycle for the subsea marketplace. TechnipFMC has industry leading innovation, their integrated offering, iEPCI/Subsea 2.0 platform and configure-to-order model is eliminating engineering costs for new projects and significantly reducing completion time (by up to 1 year).”
2. The New York Times Company (NYSE:NYT)
Number of Hedge Fund Holders: 38
At the end of the fourth quarter of 2022, 38 hedge funds were long The New York Times Company (NYSE:NYT) and disclosed positions worth $1.82 billion in the company. This is compared to 34 hedge funds in the preceding quarter with stakes worth $1.65 billion. The hedge fund sentiment for the stock is positive and the stock is ranked seventh among the most explosive small-caps according to hedge funds.
On February 8, The New York Times Company (NYSE:NYT) posted earnings for the fiscal fourth quarter of 2022. The company reported an EPS of $0.59 and beat EPS estimates by $0.16. The company’s revenue for the quarter amounted to $667.54 million, up 12.34% year over year and ahead of Wall Street expectations by $20.72 million.
As of December 31, Jeff Ubben’s ValueAct Capital is the top shareholder in The New York Times Company (NYSE:NYT) and has a stake worth $442.9 million in the company.
1. Boyd Gaming Corporation (NYSE:BYD)
Number of Hedge Fund Holders: 39
Boyd Gaming Corporation (NYSE:BYD) is a gaming company and casino operator based in Las Vegas, Nevada. As of March 3, the stock has gained 21.05% year to date.
On February 2, Boyd Gaming Corporation (NYSE:BYD) reported earnings for the fourth quarter of fiscal 2022. The company reported an EPS of $1.72 and outperformed EPS estimates by $0.23. The company’s revenue for the quarter amounted to $922.92 million, up 4.90% year over year, and beat revenue consensus by $42.63 million.
At the close of Q4 2022, 39 hedge funds disclosed ownership of stakes in Boyd Gaming Corporation (NYSE:BYD). These funds held collective positions worth $887 million in the company, up from $809.7 million in the previous quarter with 36 positions. As of December 31, Ariel Investments is the most prominent stockholder in Boyd Gaming Corporation (NYSE:BYD) and has a position worth $188.5 million in the company.
Here is what Baron Funds had to say about Boyd Gaming Corporation (NYSE:BYD) in its Q4 2022 investor letter:
“Shares of U.S. regional casino operator Boyd Gaming Corporation(NYSE:BYD), increased in the fourth quarter due to stable consumer visitation and spending levels despite an uncertain macro environment. The company continued to generate strong free cash flow that it is using to invest into its casinos, pay out dividends, and buy back shares. The company has repurchased 8% of its shares over the past year while paying out a 1% dividend. We believe Boyd can withstand any bumps in the economy given its strong balance sheet and free cash flow. We also don’t think Boyd’s share price reflects its 5% ownership in online bookmaker FanDuel. We continue to be positive on the company’s long-term prospects.”
In addition to Boyd Gaming Corporation (NYSE:BYD), other explosive small-caps that are popular among elite money managers include Endeavor Group Holdings, Inc. (NYSE:EDR), Tem
