Small-cap stocks (opens in new tab) tend to suffer more than their larger cap peers when equities are broadly struggling, and 2022 was no exception. But if there’s a sliver of a silver lining to be found, it’s that analysts say the best small-cap stocks to buy are priced for exceptional returns in 2023.
First, let’s take a look at the 2022 tape: The small-cap benchmark Russell 2000 Index generated a total return (price appreciation plus dividends) of -20.4% for the year-to-date through Dec. 16. That trailed the S&P 500’s total return of -17.9%.
No surprises there. Risker and “growthier” equities such as small-cap stocks tend to underperform when markets are headed south.
By the same token, however, small-cap stocks also tend to outperform the broader market when equities are catching a bid. No one can know for certain if we’ve already seen the bottom of our current bear market (opens in new tab). Once the equity malaise lifts, however, the best small-cap stocks to buy should theoretically be among the market’s top outperformers.
In order to get an idea of where these outsized potential returns might be hiding, we turned to Wall Street analysts to find the best small-cap stocks to buy for 2023. To that end, we screened the Russell 2000 for analysts’ top-rated small-cap stocks.
Here’s how the process works: 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 2.5 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. In other words, lower scores are better than higher scores.
We further limited ourselves to stocks with at least 10 Strong Buy recommendations (opens in new tab) (in order to ensure adequate analyst coverage and sample size). Lastly, we dug into research, fundamental factors, valuation, analysts’ estimates and other data on the top names.
The bottom line? Healthcare stocks – notably biotech and biopharmaceutical firms – dominate the list, but at least one name might surprise you.
Read on to see Wall Street’s seven best small-cap stocks to buy for 2023 and beyond.
Analysts’ consensus recommendations, courtesy of S&P Global Market Intelligence, are as of Dec. 19, 2022. Share prices, market capitalizations and other data are as of Dec. 16, unless otherwise noted.