5 Big Reasons You Should Be Investing In Small Cap Stocks

Most investors gravitate to large, well established stocks. But the secrets behind small cap investing can lead to life changing gains.

When most aspiring investors consider buying stocks, they gravitate to large, well established companies with strong brand names.

The good news for you the reader is that Colin Tedards is one of the most talented and insightful large cap stock research analysts in the world.

That’s why I decided to partner with him and launch Equity Empire.

Colin is the big cap stock guru.

And I complement his work with world class small company stock picks.

My name is John McHugh, and I‘ve been investing in small cap stocks for over 35 years.

I have research, trading, and investing experience as a Wall Street analyst, hedge fund manager, and trading instructor for one of the largest trading education companies in the world.

I have made tens of millions of dollars for my clients and my employers’ clients in small cap stocks.

And today I want to share with you why you should be investing in small cap stocks too.

Here are 5 compelling reasons you should consider small cap stocks:

1. Small Caps Are Where Big Winners Hide

You don’t need a PhD to spot this: small-cap stocks are the farm leagues where tomorrow’s superstars are born. 

These companies - - most with market caps between $100 million and $2 billion - - are often too tiny for Wall Street’s big shots to notice. 

That’s your edge. 

Invest in small caps, and you’re betting on the next big thing before the crowd piles in.

My 35 years of small cap stock investing has helped me develop a keen eye for spotting exceptional profit opportunities in small stocks.

Over the past several years, I have identified two small cap stocks which appreciated more than 1,000%.

In early 2020 I posted the following chart on Celsius CELH 0.00%↑ on Twitter (now X.com):

Over the next four years, CELH climbed 1,941%

But that’s not the only time I recently found a stock which would go up 10x.

In early 2023, I posted the following chart on Super Micro SMCI 0.00%↑ on X.com:

In the year following 13 months, SMCI soared 1,194%.

And most recently, while working with Colin at one of the largest financial publishing companies in the world, five of the ten stocks I recommended increased more than 100%. 

One recommendation - - Vertiv VRT 0.00%↑ - rocketed 308% in the 18 months following my initial report.

My point is that small while small company stocks may be much riskier than big cap stocks, they can provide outsized investment returns if you know what to look for.

2. Wall Street’s Blind Spot Is Your Opportunity

Here’s a dirty secret: Wall Street analysts are like kids chasing a soccer ball - - they swarm the big, shiny names and ignore the small fry. 

Most small-cap stocks have little to no analyst coverage, which means their prices often don’t reflect their true potential. 

It’s like finding a $100 bill in a parking lot nobody bothers to check. 

When I ran my hedge fund, I loved digging into obscure companies - - like a tiny retailer or a niche tech company - - that analysts ignored. 

By the time the overpaid number crunchers on Wall Street caught on, the stock had already doubled or tripled. 

You, the individual investor, can get in early, do your homework (or let a pro like me do the homework for you), and buy before the big institutions take notice.

3. You Can Understand Their Business

Small-cap companies are usually simple to figure out. 

They’re not sprawling conglomerates with divisions in 50 countries; they’re often focused on one product, one market, one idea. 

Take a company like OReilly Automotive ORLY 0.00%↑

The thesis of my tweet was simple.

The average car on the road is more than 12 years old.

And old cars need lots of parts.

The investment thesis seemed almost too simple when I tweeted it.

But simple is good when it comes to investing in small cap stocks.

And ORLY has climbed almost 1,000 points in the five years since that tweet:

If you’re a regular at a small-cap retailer and see lines out the door, that’s a better clue of a potential winning stock than any tip you’ll get on CNBC, The Wall Street Journal, or a random social media stock pick.

Your everyday life gives you an edge in spotting small-cap winners - - something you can’t do with a global giant like General Electric or 3M.

4. They Bounce Back Big in Good Times

Small caps are like the scrappy kid who gets knocked down but comes back swinging. 

They’re sensitive to the economy - - when things get tough, they can take a hit, but when the market rebounds, they soar. 

Why? 

They’re lean, hungry, and quick to capitalize on new demand or lower interest rates. 

After the 2008 crash, the Russell 2000 rocketed 147% from 2009 to 2011.

If you believe the economy’s got room to run, small caps are your ticket to ride the wave. 

Just don’t expect a smooth ride - - they’re volatile, but that’s the price of the big rewards.

5. They’re Cheap for What You Get

Small caps often trade at bargain prices relative to their growth potential. 

Wall Street’s too busy hyping the stories that everyone is already talking about to notice a small company churning out 20% earnings growth at a price-to-earnings ratio half that of the S&P 500.

I love finding these “growth at a reasonable price” stocks - - small caps that are dirt cheap compared to their growth prospects. 

Take Credo Technology CRDO 0.00%↑ for example.

Almost no one had heard of the stock when Colin and I recommended it early last year.

Yet less than a year after our recommendation, Credo was up more than 280%.

If you get one simple product cycle right and the numbers add up, you’re buying a company that’s poised to double or triple while paying pennies on the dollar. 

And if you ever catch a megatrend early, like Colin and I did with numerous AI infrastructure stocks, you could make a major step towards your ultimate goal.

That’s financial freedom.

Small cap stock investing is like a giant treasure hunt.

You simply look for clues that most investors either don’t know how - - or don’t take the time - - to find.

And you end up finding hidden treasure.

That’s what makes small cap investing fun.

And - - even more importantly - - profitable.

I recently started a small cap stock research service with Colin here at Equity Empire.

The service is currently available as a bonus for early subscribers to Colin’s Blue Chip stock research service.

But this rare opportunity to get Wall Street quality research for such a low price won’t last long.

Subscribers for my small cap research product at my last firm were paying upwards of $4000/year for this service.

And soon we’ll  be charging a similar market price for a subscription to the Equity Empire Small Cap Opportunities Report.

I just posted a watchlist for subscribers of the 5 most promising small cap stocks I see in the market today.

If you like the performance I shared in this article of my past ideas and would like to see the best picks going forward, click the link below:

https://myequityempire.com/earlybird/

Early subscribers will get access to both Colin’s world class Blue Chip stock research and Buy Alerts, in addition to my elite level small cap stock research and investment recommendations.

This exceptional offer won't last long, so act fast.

In the last two days, two of the stocks I recently highlighted surged 50% in a single day.

You won’t want to miss the next one.

Or the ones that follow.

You have a chance to have your own personal Wall Street analyst working for you.

Make the most of this rare opportunity.

Vision without action is merely a dream.

Stop dreaming about reaching your financial goals.

Act now and move towards it.

Your experienced guide on your path to financial freedom,

John McHugh