Top Small-Cap Stocks for June 2023

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Top small-capitalization stocks in June 2023 include Prometheus Biosciences Inc., TG Therapeutics Inc., and Aero Therapeutics Inc., all of which have risen more than 400% in the past 12 months, while the Russell 2000 Index, a broad measure of US small-cap stocks, is down almost 3%.

Below, we list the top three small-cap stocks in each category: value, growth, and momentum. All data is as of June 2.

Best Value Small-Cap Stocks

These are the small-cap stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.

Best Value Small-Cap Stocks
Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Vital Energy Inc. (VTLE) 43.45 0.8 0.9
Theravance Biopharma Inc. (TBPH) 11.09 0.6 1.0
SilverBow Resources Inc. (SBOW) 25.79 0.6 1.1

Source: YCharts

  • Vital Energy Inc.: It explores, acquires, and develops oil and natural gas properties throughout Texas. On May 9, the company released its first-quarter earnings—net income swung to $114 million from a net loss of $87 million in the same quarter in 2022. Vital Energy posted a large derivatives loss of $326 million in the first quarter of 2022, which is a major reason the stock is trading at such a low P/E ratio. In May, Vital Energy entered into an agreement with Forge Energy II LLC, a private oil and gas exploration company, to acquire their Delaware Basin assets through a third-party partnership. The all-cash transactions total $540 million; the acquisition will add 198,000 net acres to the Vital Energy Permian Basin leasehold.
  • Theravance Biopharma Inc.: This is a biopharmaceutical company in the Cayman Islands that develops and manufactures respiratory medicines such as Yupelri and Trelergy to treat COPD.
  • SilverBow Resources Inc.: An oil and gas company focused on acquiring and exploring properties in Texas.

Fastest-Growing Small-Cap Stocks

These are the top small-cap stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per- share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax laws or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1.000% were excluded as outliers.

Fastest-Growing Small-Cap Stocks
Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
CTI BioPharma Corp. (CTIC) 9.05 1.2 N/A (see company description) 951
Ellington Financial Inc. (EFC) 12.93 0.9 N/A (see company description) 911
Vertex Energy Inc. (VTNR) 6.29 0.5 N/A (see company description) 827

Source: YCharts

  • CTI BioPharma Corp.: A pharmaceutical company that develops treatments for blood-related cancers. On May 10, Swedish Orphan Biovitrum AB (SOBI), a biotechnology company based in Sweden, announced the acquisition of CTI BioPharma. SOBI will acquire CTI in an all-cash transaction for $9.10 per share, or approximately $1.7 billion. Following this news, CTI’s share price rallied by 85% to $8.93 from $4.82 per share. Note that CTI BioPharma doesn’t have an EPS growth figure in the table above because the company reported a loss per share in the most recent quarter.
  • Ellington Financial Inc.: A company that manages mortgage-backed securities (MBS) and other financial assets. On May 30, it announced a merger agreement through which Ellington Financial will acquire Arlington Asset Investment Corp. (AAIC), a mortgage-related REIT. The expected market cap for the combined company will be approximately $1 billion. Note that Ellington Financial doesn’t have an EPS growth figure in the table above because the company reported a loss per share in the first quarter of 2022.
  • Vertex Energy Inc.: This company engages in oil refining and distribution. Note that Vertex Energy doesn’t have an EPS growth figure in the table above because the company reported a loss per share in the first quarter of 2022.

Small-Cap Stocks With the Most Momentum

These are the small-cap stocks that had the highest total return over the past 12 months.

Small-Cap Stocks With the Most Momentum
Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Prometheus Biosciences Inc. (RXDX) 198.83 9.5 666
TG Therapeutics Inc. (TGTX) 26.56 4.0 548
Akero Therapeutics Inc. (AKRO) 46.73 2.6 475
Russell 1000 N/A N/A 4
Russell 2000 N/A N/A -3

Source: YCharts

  • Prometheus Biosciences: This is a biotech company that develops treatments for inflammatory bowel disease (IBD); its flagship product is PRA023, which is positioned for Stage 3 clinical trials. The company’s share price more than tripled in December following positive Phase 2 results for PRA023. On April 16, Merck (MRK) announced it would acquire Prometheus for $200 a share, a 75% premium over the company’s $114 share price at the time.
  • TG Therapeutics: A biopharmaceutical company that focuses on producing medications to treat diseases such as multiple sclerosis.
  • Aero Therapeutics: Akero is a clinical-stage pharmaceutical company that develops treatments for non-alcoholic steatohepatitis (NASH). On June 5, the company announced that its Phase 2b study of efruxifermin (EFX) met safety and tolerability protocols while improving patient outcomes when combined with a GLP-1 receptor agonist. After this news, the company’s share price rose 11% to $52.02 per share.

Things to Consider When Analyzing Small-Cap Stocks

Quality Management: A competent management team is essential for any company, let alone a smaller one trying to establish itself in the market. Potential investors should undertake some basic online research on the key people within the company, such as the chief executive officer (CEO) and chief financial officer (CFO). Do they have a track record of running successful businesses? Also, see if the leadership team owns shares in the company. Company insiders owning stock usually indicates a commitment to success and aligns their interests with those of the shareholders.

Growing Sales: Small-cap companies typically have limited cash flow—therefore, they must generate healthy sales. As a rule of thumb, small-cap investors should look for stocks with a strong annual revenue growth rate, which indicates that a company has the potential for disruptive innovation within its industry and is well-positioned to generate a future profit. Investors can find this information on Yahoo! Finance under the “Financials” tab, which shows a company’s revenue for the past four years.

High Operating Margins: A company’s operating margin represents how efficiently it can generate profit through its primary operations before paying interest and tax. When investing in small caps, it’s a good idea to look for consistently increasing operating margins, as this indicates that a company is good at turning sales into profits.

Advantages of Small-Cap Stocks

Growth Potential: Small-cap stocks provide investors with significant upside if they get in early before a company potentially goes on to become an industry leader. Moreover, small-cap stocks with a market cap of under $1 billion can double in value much easier than massive companies such as Amazon or Apple that have $1 trillion-plus market caps, as it takes far less money to move their share price. Also, a small-cap stock that goes on to realize rapid growth can gain the attention of Wall Street analysts and institutional investors, which can increase shareholder returns even further.

Less Competition from Larger Investors: Institutional investors⁠—such as banks, hedge funds, and real estate investment trusts (REITs)⁠—typically stick to investing in large-cap stocks, often overlooking many small-cap opportunities. This allows retail investors to buy the story of a company of tomorrow without competing with traditional Wall Street money.

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As of the date this article was written, the author doesn’t own any of the above stocks.

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