Small-cap stocks are often favored by investors because of their big growth potential, but the group has struggled this year. The benchmark Russell 2000 Index (RUT) is only up about 3% for 2023, compared to a gain of more than 18% for the S&P 500 Index ($SPX).
High interest rates and inflationary pressures have created a tough environment for small-cap stocks this year, but as these pressures begin to ease next year, the Russell 2000 could see a revival. Against this background, it is worth looking at some names that could be set for a significant rise in the coming year, according to analysts. Here are the highlights of three top-quality small-cap stock picks.
Gulfport Energy: Fueling Growth with Natural Gas
Valued at $2.46 billion, Gulfport Energy Corporation (GPOR) is an Oklahoma-based oil and gas company with assets in the Appalachian and Anadarko Basins, as well as the Utica Shale. The stock killed it in 2023more than 80% since the beginning of the year.
With a forward P/E ratio of 8.16, the premium energy stock is still priced at a discount relative to many of its peers.
In its most recent quarterly earnings report, GPOR’s adjusted EPS of $3.43 comfortably beat analysts’ expectations, even as revenue of $266.67 million fell short. Looking ahead, analysts are targeting 28% revenue growth for fiscal 2024.
Analysts are unanimous in their supportwith all six giving GPOR a “strong buy” rating. The average target price is $151.83, signaling about 14% upside from the current price.
International Gaming Technology: Gambling on Gaming Innovation
International Game Technology (IGT), based in Las Vegas, is a big player in gambling. Their diverse lineup includes lottery services, gaming hardware and services, and online sports betting.
The stock is up 22.5% in 2023, easily outperforming the small-cap-focused Russell 2000.
IGT has beaten earnings estimates for four quarters straight. In the most recent quarterly report, adjusted EPS of $0.52 and revenue of $1.07 billion both comfortably beat Wall Street expectations.
Analysts expect continued EPS growth in fiscal 2024, with the consensus calling for 0.55%. At 13.66x forward earnings, the stock is fairly priced relative to its peers. IGT also offers a dividend, with the current yield at 3%.
Analysts are cheering for IGT, with all four in coverage giving the stock a “strong buy” rating. The average target price is $38.50, indicating an expected 41.7% upside from the current price.
Redwood Trust: Building Performance in Real Estate Finance
Redwood Trust (RWT) is a real estate investment trust (REIT), with a special focus on mortgage assets. Like all REITs, the stock offers a generous dividend, with the current yield at 11.5%.
Many REITs have been under pressure due to the difficult macro environment this year, but RWT is outperforming the broader RUT with a 10.2% gain for 2023.
RWT missed expectations with its most recent earnings report, short on the top and bottom lines. However, analysts are targeting 36% EPS growth for 2024, and the price/book value of 0.77 suggests that Redwood Trust is trading at a discount.
Analysts nod to RWT, with five out of nine shouting “strong buy,” one saying “moderate buy,” and three recommending “hold.” The average target price is $8.31, suggesting a cool 21.3% upside from current levels.
At the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
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