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What’s hiding in there?
Back in December, it seemed like we were in deep trouble. The stock market suffered its worst December since the Great Depression, and all winter there was talk of the beginning of a prolonged bear market taking shape.
But now it’s spring, and the weather has warmed up and the birds are singing as brighter days are ahead. The S&P 500 posted its fifth-straight quarter of double-digit earnings growth in the fourth quarter, unemployment remains below 4.0%, and the S&P 500 SPX, +0.36% is up roughly 12% since Jan. 1!
As a result, many investors have been getting increasingly “risk on” in the last few months. And one higher risk but high potential sector that has been in their crosshairs are small-cap tech stocks — some of which have doubled since Jan. 1.
Now, there are always risks in smaller stocks that aren’t as well capitalized and are sometimes operating at a significant loss as they plow all their cash into growth. If the broader economy does suffer a downturn, these companies naturally have less of a cushion to fall back on.
And worse, some analysts are warning that fourth-quarter earnings have lulled us into a false sense of security as future growth is set to dry up; there are even predictions of an “earnings recession” in 2019 for small-caps in particular as earnings-per-share growth is actually replaced by declines.
There are always risks in the stock market, however, and it’s worth noting that the bears who warned the December lows were the beginning of the end for U.S equities have been left to grouse on the sidelines while the market has left them in the dust.
So, for those who aren’t afraid of going “risk on” right now, here are some high-flying small-cap tech investments to consider.
Best small-cap fintech stock
Shares of Intelligent Systems INS, -6.91% have been on an absolute tear lately. Shares are up more than 150% year-to-date since Jan. 1, and more than 500% in the last year! That’s because this yet-unprofitable small-cap stock has seen equally impressive revenue growth thanks to its payment processing technology.
Specifically, in March Intelligent Systems posted quarterly earnings that boasted over $6 million in sales on the quarter — up a staggering 138% over the prior year! What’s more, full-year revenue was up almost 120%.
Its CoreCard software and processing suite is aimed at companies providing credit- and debit-card services in fast-growing markets, including Romania and India, where bigger brands aren’t entrenched. Based on these latest results, the future remains incredibly bright for INS even after its already stellar performance.
Best small-cap health tech stock
High-potential biotechnology stocks get a lot of attention from growth investors, but there are also an increasing number of high-tech medical-device companies that are creating the next generation of surgical tools instead of simply researching molecules under a microscope. That’s what Corindus Vascular Robotics Inc. CVRS, -4.49% with its CorPath technology that is revolutionizing telemedicine.
In December, Corindus robots performed a remote catheterization using a surgery robot that was roughly 20 miles away from the physician doing the actual procedure! This is an incredible milestone in the evolution of modern medicine — particularly as this telerobotics company already has a footprint in India, which has a huge potential patient pool as well as highly educated medical professionals, and that its focus is on common cardiovascular ailments.
The stock trades for only a few dollars and has no EPS to speak of yet, but has seen revenue surge 70% in the last year on top of these favorable headlines — which has caused the stock to roughly double since Jan. 1.
Best small-cap cloud computing stock
A new player on Wall Street, Domo Inc. DOMO, -2.66% conducted its IPO in mid-2018. And since then, it’s been off to the races with shares roughly doubling from its offer price of $21 in short order. That’s because the $1 billion cloud player specializes in analytics as well as data, with flexible integration that allows it to seamlessly complement existing vendors such as Salesforce. CRM, +0.04% and Amazon.com AMZN, +0.44% with its AWS cloud offerings.
It’s a great strategy, where Domo doesn’t try to go toe-to-toe with entrenched players on products, but simply on support services. It’s a great solution for businesses that have fragmented information across systems. Domo has consistently beat expectations in each of its three earnings since the IPO, and is running a 20% revenue growth rate this fiscal year. Shares have doubled so far in 2019, and show no sign of slowing down.
Best small-cap tech ETF
If individual stocks don’t float your boat, either because you have specific concerns about a company or simply because you prefer a bit more diversification via funds, then consider the Invesco S&P SmallCap Information Technology ETF PSCT, +0.38% . This fund is takes the S&P 600 index of stocks that range between roughly $400 million and $2 billion in market capitalization, and then overlays a sector-based methodology to capture only the tech firms.
You’d be forgiven if you don’t recognize components like electronics manufacturer Rogers Corp. ROG, +0.64% . But considering Rogers is up 50% since Jan. 1, it’s easy to understand the appeal of this fund that has built a portfolio of small-cap tech stocks so you don’t have to.
Though a niche ETF, PSCT is not quite as liquid as the big bots but boasts a very legitimate $300 million in total assets. And perhaps most importantly, this fund is up 17% year-to-date to significantly outperform the typical large-cap benchmark.
