We were able to narrow down our list to 15 stocks using the hedge fund sentiment data. In order to identify the 15 best micro-Cap stocks to buy now we started with the top stocks in the 30 most popular micro-cap stocks from 1999 to 2016. That’s why micro-cap stocks are often mispriced. But growth cannot be evaluated with these metrics. Investors try to gauge stocks on metrics like size, price-to-book value and assets. The “value effect” always helps micro-cap stocks. Large-cap stocks posted 9.8% during this period. Their research shows micro-cap stocks returned 12.1%, better than low-cap, mid-cap and large-cap stocks. The four portfolios containing micro-cap stocks posted returns of 0.14 to 0.45 percent after adjustment for risk, beating large-cap portfolios that posted negative monthly alphas ranging from -0.01 percent to -0.35 percent.Ĭentre for Research in Security Prices analyzed stocks data for a period of 80 years, from 1926 to 2009. They ranked 3,130 stocks on the basis of market capitalization and divided them into several portfolios. Professors Thomas Cook and Michael Rozeff of the University of Iowa analyzed thousands of stocks trading on the NYSE, the AMEX and several other exchanges from 1968 to 1978. Micro-cap stocks often get no attention from the Wall Street, but data shows that these stocks often outperform mid-cap and large-cap stocks. The Russel 2000 micro-cap stocks index has recovered more than 8% since the start of January 2021, which outperformed the large-cap focused S&P 500 1% gain. For instance, from January 2008 to January 2018, the Dow Jones Select Micro-Cap Index returned an annualized 11.6% while the S&P 500 returned an annualized 10.37%. Investing in micro-cap stocks during an economic recession can offer unlimited growth potential with long-term sustainability as these companies often focus on long-term projects. Despite this, most investors include these stocks in their portfolio as they offer the potential for higher rewards. They tend to burn through cash quickly, losing to their counterparts due to financial instability.
Most of these stocks are early growth-stage companies that are more vulnerable to problems arising both internally and externally.
Micro-cap stocks have higher risks amid low liquidity and lack of assets. A micro-cap stock has a market capitalization between $50 million to $1 billion.