13 super small-cap stocks to buy for 2020 and beyond

  • By Dan Burrows,
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Small-cap stocks lagged the S&P 500 (.SPX) by a wide margin last year. However, strategists say these smaller companies are set to catch up (and more) in 2020.

"We see three favorable factors in place for small-cap stocks: a slow economy, an accommodative Fed, and the calendar, all of which add up to positive prospects for this asset class," asset manager Legg Mason says.

To get an idea of which small-cap stocks are set to break away from the pack, we scoured the S&P SmallCap 600 Index – which includes stocks worth between $450 million and $2.1 billion at the time they enter the index – looking for names with an average broker recommendation of Buy or Strong Buy. Why? Small caps can be a risky lot given their often narrow businesses and access to capital – but a bullish consensus from the pros is at least a signal that those risks might be smaller compared to their peers, and that the potential upside is worth it.

S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.0 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.

We further culled that pool by considering only stocks with market values of at least $1 billion and a minimum of five Strong Buy recommendations. Lastly, we dug into research, fundamentals and headlines. The result is a list of 13 promising small-cap stocks to buy for 2020.

Analyst ratings, stock prices, dividend yields and other data are as of Jan. 16, unless otherwise noted. Companies are listed by strength of analyst average rating, from lowest to highest. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

NMI Holdings

Market value: $2.3 billion

Dividend yield: N/A

Analysts' average recommendation: 1.55

NMI Holdings (NMIH) – parent of mortgage company National MI – is on a tear, and analysts expect more to come. The mortgage insurance company is coasting on favorable monetary policy and a rock-solid labor market.

"Against a favorable backdrop of lower interest rates and a low unemployment rate, it was not surprising that the company also posted very solid results for (the most recent quarter)," say analysts at BTIG, which rates shares at Buy. "All the metrics the company posted during the quarter were impressive."

Meanwhile, shares, which trade at 8.3 times fiscal 2021 earnings, are a rare bargain among the best small-cap stocks to buy.

It's not often a stock rallies 67% in a one-year period and can still be called cheap, but analysts by and large love this name. Six analysts tracked by S&P Global Market Intelligence rate NMIH at Strong Buy, four call it a Buy and one says Hold.

PDC Energy

Market value: $2.4 billion

Dividend yield: N/A

Analysts' average recommendation: 1.53

PDC Energy (PDCE), an oil-and-gas exploration-and-production company, is a major player in the Wattenberg Field in Colorado and the Delaware Basin in West Texas. And it's only getting bigger.

Having completed its $1.7 billion merger with SRC Energy, PDCE is now the second-largest producer in Colorado's DJ Basin and offers "one of the most compelling combinations of free cash flow yield and capital efficient growth," according to Stifel analysts, who rate shares a Buy.

Stifel adds that "high asset quality, a strong growth profile and a top tier balance sheet" make PDC an irresistible buy among small-cap energy stocks.

PDCE shares are trailing the S&P 500 by almost 55 percentage points over the past 52 weeks, getting the worst of what has been a bad year for energy stocks as a group. However, the bull case prevails among analysts who believe the SRC Energy merger will be pivotal. Of the 19 analysts covering the stock surveyed by S&P Global Market Intelligence, 12 rate it at Strong Buy, four say Buy and three call it a Hold.

Callaway Golf

Market value: $2.1 billion

Dividend yield: 0.2%

Analysts' average recommendation: 1.50

Callaway Golf (ELY) has been racking up Buy recommendations recently. Since August, the maker of golf clubs, golf balls and pretty much every kind of golf gear has been the subject of bullish analyst notes from Raymond James, Stephens & Co., B. Riley FBR, Compass Point and Berenberg.

Not too long ago, folks were afraid that golf was in long-term decline, hurt by an aging population and high costs. But the pros believe things have changed. Jefferies, which also rates shares at Buy, says the golf industry has undergone a significant transformation over the past decade. Off-course concepts such as Topgolf are driving new, and younger, entrants to the sport.

ELY has outperformed the S&P 500 by about 7 percentage points over the past year, and analysts see more market-beating upside ahead. Bulls are lining up on the small cap thanks in part to a long-term profit-growth forecast of 25%. Eight analysts rate shares at Strong Buy, two say Buy and two say Hold.

Tabula Rasa HealthCare

Market value: $1.1 billion

Dividend yield: N/A

Analysts' average recommendation: 1.50

The health-care technology industry is awash in smaller players trying to break out from the pack.

Some analysts think Tabula Rasa HealthCare (TRHC), which offers a suite of cloud-based software to help manage patients' medication needs, is the company best poised to distinguish itself.

Stifel's experts believe that the fundamentals are in place to support sustainable 20% revenue growth and margin expansion. "TRHC's strong technological advantage and ability to continue to gain market share/increase pricing in the Medicare/Medicaid end market," notes Stifel, which rates shares at Buy.

True, TRHC trades at nearly 36 times expected earnings, but that's not such an eye-watering multiple when you consider that the company is expected to generate average annual earnings growth of 25% over the next three to five years. Indeed, high valuations are common among the most coveted small-cap stocks to buy.

The analyst community has seven Strong Buy recommendations on the stock, one Buy and two Holds. Their average price target of $73.43 gives the stock implied upside of 43% over the next 12 months or so.


Market value: $3.3 billion

Dividend yield: 0.7%

Analysts' average recommendation: 1.44

The near-term outlook for airline stocks is bright, according to Zacks Equity Research. If that's the case, then SkyWest's (SKYW) future is particularly upbeat.

Demand for air travel remains robust demand despite headwinds such as U.S.-China trade tensions, Zacks notes. Furthermore, airline tickets remain affordable, and declining fuel costs are giving the industry a lift.

Against that backdrop flies SkyWest, which has contracts with major carriers. It has partnered with American Airlines (AAL), flying as American Eagle, Delta Air Lines (DAL) as Delta Connection and United Airlines (UAL) as United Express. Those contracts give the SkyWest unparalleled scope.

Indeed, Stifel initiated coverage of SKYW last year, citing the company's status as the best and most diversified regional airline operator. All told, seven analysts call the stock a Strong Buy, and they're opposed by just two Holds.


Market value: $3.4 billion

Dividend yield: N/A

Analysts' average recommendation: 1.44

Itron (ITRI) makes systems to measure and analyze water and electricity use, and partners with electric and water utilities to better manage the services they provide. But it has a much better growth rate than the comparatively sleepy utility sector.

Shares in Itron are up by more than 60% over the past year to more than double the S&P 500's performance, and they've notched a series of 52-week highs along the way. The valuation remains reasonable, however. ITRI goes for about 19 times estimated fiscal 2021 profits. That's a good deal when the long-term earning-growth rate is pegged at 17.5% annually, according to S&P Global Market Intelligence

The attractive valuation and high projected growth rate have analysts loading up this small-cap stock with bullish calls. That includes Raymond James' Pavel Molchanov (Buy), who recently upgraded his price target from $75 to $90. Six analysts tracked by S&P Global Market Intelligence say ITRI is a Strong Buy, two say Buy and one says Hold.

Addus HomeCare

Market value: $1.5 billion

Dividend yield: N/A

Analysts' average recommendation: 1.44

The aging of the baby boomers – that cohort of about 76 million Americans born between 1946 and 1964 – presents all sorts of opportunities for the health-care industry, including among small-cap stocks. One that is ramping up is the business of providing in-home care. From skilled nurses to homemaking assistance to spiritual counseling, boomers are going to increasingly rely on help coming to them in their homes.

Analysts say Addus HomeCare (ADUS) is a unique way to bet on this trend. The company boasts more than 33,000 employees delivering in-home care, home-health and hospice services to more than 40,000 patients each week.

"Addus is one of the few ways for public market investors to play the in-home healthcare delivery theme, with a particular emphasis on preventive care," says William Blair, which rates ADUS at Outperform (equivalent of Buy). "Addus offers investors exposure to accelerating demographic trends and attractive industry dynamics that should support organic growth."

Blair, which specializes in smaller growth stocks, isn't alone in its bullish stance. Of the nine analysts covering ADUS tracked by S&P Global Market Intelligence, six say it's a Strong Buy, two have it at Buy and one calls it a Hold. They forecast a long-term earnings-growth rate of 15%.

Chart Industries

Market value: $2.6 billion

Dividend yield: N/A

Analysts' average recommendation: 1.43

Chart Industries (GTLS) is one of Wall Street's favorite small-cap stocks to buy, and among its top ways to bet on the secular growth of liquefied natural gas. The company, which makes cryogenic equipment for LNG and other industrial gases, sits in a prime position in the supply chain, and shares are cheap.

"(The) LNG industry is likely to grow at more than a 5% annual rate through 2030 by taking share from coal and oil," says Stifel, which rates the stock at Buy. "Chart has exposure across the fast-growing LNG supply chain as well as a solid and more gradually growing base from industrial gases."

"We believe the shares offer the best opportunity to play the growing LNG space with outstanding prospects for growth over the next decade," Stifel adds.

At the same time, the valuation doesn't match the company's long-term growth potential, analysts say. Shares trade at less than 15 times fiscal 2020 earnings despite a long-term growth forecast of 25% a year for the next half-decade.

Nine analysts slap a Strong Buy rating on the stock, four say Buy and one rates it at Hold.

LHC Group

Market value: $4.5 billion

Dividend yield: N/A

Analysts' average recommendation: 1.42

Like Addus Home Care, LHC Group (LHCG) is poised to benefit from America's rapidly aging population. The bull case comes down the fact that the company provides home nursing services, as well as physical, occupational and speech therapy – all in the crosshairs of this demographic mega-trend.

"We believe LHC's industry-leading quality performance and partnership model position the company to continue to generate above-market revenue growth, while LHC's scale and broad set of in-home capabilities position the company to partner with payers looking to reduce total cost of care," say William Blair analysts, who rate shares at Outperform.

The valuation, while not cheap, isn't unreasonable for a growth stock in the current bull market. LHCG trades at almost 30 times expected earnings on long-term growth forecast of 15.8%. Analysts are largely bullish on the small-cap stock as a result, with nine of them calling it a Strong Buy. The remaining two analysts are split: one Buy and one Hold.

Tivity Health

Market value: $1.2 billion

Dividend yield: N/A

Analysts' average recommendation: 1.40

Tivity Health (TVTY) is likewise betting on a rapidly aging population. The company operates the SilverSneakers senior fitness program among other wellness initiatives.

Shares have lagged the broader market by a wide margin over the past year. Analysts chalk that up to disapproval of its December 2018 acquisition of Nutrisystem and the heavy debt load taken on to complete the transaction.

Wall Street expects the stock to bounce back in a big way in 2020, however. Analysts' average target price stands at $29.33. That gives TVTY implied upside of 33% in the next 12 months or so.

A depressed valuation makes the stock attractive given the company's earnings potential. "We continue to believe that shares can – at a minimum – move higher in tandem with solid profit growth growing forward," says William Blair, which has a rating of Outperform on the stock. As a group, analysts expect TVTY to generate average annual earnings growth of 16.7% over the next three to five years, according to S&P Global Market Intelligence.

The breakdown of analysts' average recommendation comes down to seven Strong Buy ratings, two Buy calls and one Hold.

Emergent BioSolutions

Market value: $2.9 billion

Dividend yield: N/A

Analysts' average recommendation: 1.38

Emergent BioSolutions' (EBS) stock is very much in demand even as everyone hopes we never need its wares. The biotechnology company creates specialty products for civilian and military populations that address accidental, intentional and naturally occurring public health threats. In other words, EBS makes things such as vaccines for anthrax, cholera and smallpox.

Cantor Fitzgerald initiated coverage on the stock in November with an Overweight (Buy) rating. Its analysts say the company leads the biodefense field and has been able to significantly diversify its business since 2016. Cantor adds that EBS "is a lot more durable than it gets credit for."

EBS shares are down about 14% over the past 52 weeks, but analysts view this slump as a buying opportunity. Wall Street's price target of $66.13 gives Emergent implied upside of almost 20% in the next 12 months or so. The analyst community's long-term growth rate forecast of 17.5% – when shares are trading at just 15.4 times 2020 expected earnings – makes the stock look like a bargain.


Market value: $2.7 billion

Dividend yield: N/A

Analysts' average recommendation: 1.29

LivePerson (LPSN) is set for a new era of revenue growth, analysts say. The company helped pioneer live chat in the 1990s and eventually became the dominant player with about 35% market share, William Blair analysts say. But several years ago, the company saw a much larger opportunity in customer service. LivePerson's LiveEngage software platform allows consumers to message with brands through WhatsApp, iOS Messages, Facebook Messenger, websites or smartphone apps.

Mizuho recently rated shares at Buy thanks to these newer capabilities, saying the company has successfully transitioned from its legacy product to this new artificial intelligence-based messaging platform. Analysts say LiveEngage gives the company a competitive advantage, with LPSN potentially benefiting from "the emerging conversational commerce trend and consumers' increasing preference for messaging over voice."

William Blair, which rates the stock at Outperform, likewise touts the company's big edge over the competition. "LivePerson has accumulated a massive trove of data over the years – hundreds of millions of user conversations," William Blair notes. "This data helps power the company's AI and automation capabilities, providing a competitive edge."

Of the 17 analysts covering the stock, 13 rate it at Strong Buy, three say Buy and just one calls it a Hold.

Agree Realty

Market value: $3.3 billion

Dividend yield: 3.2%

Analysts' average recommendation: 1.18

Agree Realty (ADC) – a real estate investment trust (REIT) specializing in retail properties – is pretty darn near a perfect analyst score. Out of 11 recommendations, 10 analysts rate ADC a Strong Buy and one has it at Hold.

Citigroup bases its Buy call on the company ramping up its acquisition pipeline. Acquisitions make ADC well-positioned to drive outsize growth compared to peers, analysts note.

Indeed, ADC enjoyed record levels of investment activity in 2019. Projects completed or currently under construction amounted to $733.8 million, says ADC. The properties are net leased to 57 retail tenants in 40 states.

Analysts' average price target of $82.50 gives the stock implied upside of about 14% in the next year. And unlike the rest of these top small-cap stocks to buy, ADC offers a nice dividend yield, at more than 3% currently.

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