Investors who can stomach more risk stand to reap greater rewards. That's where small-cap growth stocks come in, and they just might deserve a place in your buy-and-hold portfolio.
Research shows that growth stocks with small market capitalizations - market values between roughly $300 million and $3 billion - tend to outperform larger asset classes over time. Indeed, the so-called small firm effect was documented by
"Because they usually are young and lack exposure, small-cap growth companies tend to fly under the radar," writes financial services company
To get a sense of which small-cap growth stocks look ripe for the picking these days, we screened the small-cap benchmark S&P SmallCap 600 Growth Index for stocks with the highest average analyst ratings. We limited ourselves to companies with market caps of at least $1 billion. Furthermore, our stocks had to have a minimum of five "Strong Buy" analyst recommendations.
Based on those criteria, here's a look at the 10 best-rated small-cap growth stocks in the S&P SmallCap 600 Growth Index.
10. Armada Hoffler Properties
Market value: $1.1 billion
Dividend yield: 5.1%
Analysts' average recommendation: 1.57
REITs offer an easy way for investors to bet on real estate and collect a generous stream of income at the same time. By law, a REIT must pay out at least 90% of its taxable income in the form of dividends. As such, REITs offer comparatively high - albeit sometimes more volatile - yields.
Shares in AHH are up more than 17% year-to-date (vs. a gain of 14.4% for the
Analysts at Janney, who rate shares at "Buy," note that AHH's core portfolio's occupancy rate grew both sequentially and year-over-year in the first quarter, and now stands at 96%.
Of the seven analysts covering
9. Viavi Solutions
Market value: $3.1 billion
Dividend yield: N/A
Analysts' average recommendation: 1.45
Shares in
Viavi specializes in testing and monitoring various types of communications networks, such as broadband, copper, Wi-Fi and fiber optic, and analysts are bullish on its growth prospects.
Viavi is projected to deliver average annual earnings growth of 16% over the next three to five years, according to data from
The emergence of next-generation, or 5G, cellular networks is a key part of analysts' collective faith in this firm.
"We continue to believe the company's wireless test business is in the early stages of a multi-year investment cycle as original equipment manufacturers and service providers begin their transition to 5G networks," write Stifel analysts, who rate VIAV a "Buy."
8. HMS Holdings
Market value: $2.7 billion
Dividend yield: N/A
Analysts' average recommendation: 1.38
It's been a volatile past year for investors in
Shares in the benefits coordinator and billing auditor for government and commercial health care programs are up 51% over the past 52 weeks versus a gain of 5.5% for the S&P 500 over the same span. But they haven't done so in linear fashion. Indeed, HMSY's 52-week range stretches from $20.73 to $38.15.
Analysts' average price target of $38.58 gives HMSY implied upside of about 23% from current levels. Farther out, analysts expect HMS to generate average annual earnings growth of 14% for the next three to five years. Of the 13 analysts surveyed by
"We continue to view the growth outlook as robust, driven by strong commercial sales, novel product launches, and solid execution on myriad corporate initiatives," say analysts at William Blair, who rate shares at "Outperform," their top buy-worthy rating.
7. Dave & Buster's Entertainment
Market value: $2.0 billion
Dividend yield: 1.1%
Analysts' average recommendation: 1.36
The company's amusements division, which includes arcade games, billiards and bowling, saw strong sales in the most recent quarter, note analysts at Maxim, which rates shares at "Buy." But it was the restaurant's results that really stood out. The food and beverage business posted an increase in same-store sales - a key retail industry metric - "for the first time in two years," Maxim says.
PLAY stock is up nearly 25% year-to-date, more than doubling the performance of the broader market over the same time frame. Analysts think there's more where that came from. Their average target price of $63.60 gives
Longer-term,
6. Brooks Automation
Market value: $2.8 billion
Dividend yield: 1.1%
Analysts' average recommendation: 1.33
Analysts as Stifel, who give BRKS shares their top "Buy" rating, say their recommendation is based in part on a "more favorable outlook" for Brooks' emerging life sciences business, continued outperformance in its semiconductor business, and improved cash flow generation.
Brooks has gained 46% year-to-date, but only one pro thinks shares are fully valued at the moment. Of the six analysts covering the stock tracked by
5. CryoLife
Market value: $1.1 billion
Dividend yield: N/A
Analysts' average recommendation: 1.33
Shares haven't wowed investors so far in 2019, with meager 6% returns that are easily underperforming the market. But analysts think that's about to change.
Five analysts surveyed by
4. Virtusa
Market value: $1.6 billion
Dividend yield: N/A
Analysts' average recommendation: 1.29
Shares in
But while three analysts did lower their price targets on VRTU in response, they also maintained their bullish ratings on the information technology services company.
But their average price target on VRTU shares, which was $64.83 on
For instance,
3. Agree Realty
Market value: $2.6 billion
Dividend yield: 3.4%
Analysts' average recommendation: 1.25
That bullishness stems in part from the company's occupancy rate, which stood at 99.7% at the end of the first quarter.
The dividend, while not great for a REIT, still is roughly twice the S&P 500 average. And the stock's low volatility - it moves far less drastically than the S&P 500 in both up markets and down - allows investors to sleep at night.
Seven analysts tracked by
2. Supernus Pharmaceuticals
Market value: $1.7 billion
Dividend yield: N/A
Analysts' average recommendation: 1.25
Total prescriptions for Trokendi XR, a migraine-prevention medicine, and Oxtellar XR, an anticonvulsant, rose 11% year-over-year in the first quarter, note analysts at Janney, which has SUPN at "Buy."
"Over the long-term, we anticipate Oxtellar will continue to grow and benefit from expansion as a monotherapy for the treatment of partial seizures," Janney's analysts write. "Further upside will come from potential expansion for bipolar disorder."
SUPN also is targeting treatments for attention-deficit/hyperactivity disorder (ADHD).
Seven analysts surveyed by
1. NeoGenomics
Market value: $2.2 billion
Dividend yield: N/A
Analysts' average recommendation: 1.22
Shares in
With the stock bumping up against their average price target of $24.13, they'll either have to hike those targets or downgrade the stock to "Hold" on valuation concerns.
Until then, however, the operator of a network of cancer-focused genetic testing laboratories is tops among small-cap growth stocks with a market cap above $1 billion and at least five "Strong Buys," according to
Seven analysts rate shares at "Strong Buy" and two call it a "Buy," according to
Dan Burrows is a Contributing Writer for Kiplinger.