Do you own any of these small stocks up 100%?
They’re ‘coming of age,’ but be aware of risks
If you’re a stock investor, you’ve heard of blue chips such as Apple, Facebook and Visa. But what about Okta? Or Sunrun? Does Twilio ring a bell?
Chances are you’re drawing a blank. The reason: These are small stocks that are “coming of age, undiscovered, under the radar and less followed by Wall Street,” says Amy Zhang, manager of the Alger Small Cap Focus Fund.
Their relative obscurity, however, hasn’t kept them from becoming some of Wall Street’s highest-flying stocks this year. All have doubled in value and are among a list of companies in the small-company Russell 2000 stock index that have gained more than 100%, according to Bloomberg.
Nearly halfway through 2018, the overall index is up 9.6 percent, much more than the 4.2 percent gain of the large-company Standard & Poor’s 500 stock index.
It’s “small caps’ turn,” Edward Campbell, a senior portfolio manager at financial firm QMA in Newark, N.J., wrote in a report, referring to the lower capitalization of these companies.
Small stocks are benefiting from shifts in policy and the geopolitical mood. Their tax bills are now lower, which has boosted earnings. Another positive is that they generate most of their sales in the U.S., which has a strong economy and also insulates them from current international trade conflicts and tariffs.
Along with the current strengths, small-cap stocks also have the allure of raw potential. Investors who buy shares of small firms “are betting on a much bigger company” in the years ahead, says JP Gravitt, CEO and chief market strategist at Market Realist, an independent market research firm.
But before diving headfirst into the small-cap market, investors must be aware of the risks, Gravitt warns. For every big winner in the Russell 2000, there are also big losers. Currently, there are roughly three dozen stocks in the index that are down more than 50 percent, according to Bloomberg.
Small companies’ fortunes often depend on a handful of key customers, so losing a big client can damage the business. There’s always a chance a new product won’t pan out, or a drug with promise won’t pass muster with regulators, or some management misstep causes irreparable harm. In some
cases, these companies are spending so much to acquire new customers and book more sales that they don’t even earn a profit.
Here are 10 stocks in the Russell
2000 that should be on your radar:
❚ 1. Intelsat (year to date return
+375 percent): With a fleet of more than 50 satellites, Intelsat connects air travelers to mobile devices in flight. It enables news outlets and other content providers to transmit video programming to viewers around the globe and provides broadband signals and connectivity to wireless subscribers.
❚ 2. Genesis Healthcare (YTD return +214 percent): The company operates more than 450 nursing home and assisted senior-living communities in 30 states. Its subsidiaries also supply specialized care to more than
1,600 health care providers.
❚ 3. Twilio (YTD return +146 percent): If you’ve used Uber to hail a ride or messaging service WhatsApp to stay in touch, you’ve seen Twilio’s cloud-driven communications platform in action. The technology allows app users to make and receive phone calls and texts inside the apps.
❚ 4. Immersion (YTD return +144 percent): Immersion is known for its innovations in haptic technology, which extends the power of touch to the digital world. For example, gamers are able to “feel the G-forces applied to a car around an S curve,” according to the company’s website.
❚ 5. Axon ( YTD return +142 per- cent): Axon, formerly known as Taser International, has broadened its reach. Axon remains closely linked to law enforcement, as its body-worn and in-car cameras are increasingly used by police officers for video evidence purposes. It also aids law enforcement officials with a cloud-based digital system to manage evidence.
❚ 6. Enova International (YTD return +128 percent): This online financial services company provides access to credit to borrowers with limited access to funds through more traditional means. It offers short-term loans and lines of credit to small businesses and consumers with poor credit.
❚ 7. Medifast (YTD return +126 percent): An internet-based, doctor-developed weight-loss program that meshes feedback from physicians, who serve as coaches, with nutritionally balanced meals and supplements.
❚ 8. Sunrun YTD return +122 percent): The firm designs and installs residential rooftop solar systems to homes. Sunrun focuses on clean, green-friendly power.
❚ 9. Loxo Oncology (YTD return
+107 percent): The biopharmaceutical company develops highly selective medicines for patients with cancer. Its drug pipeline focuses on cancers that are uniquely dependent on single gene abnormalities so that a single drug has the potential to treat the cancer.
❚ 10. Okta (YTD return +106 percent): Okta is an identity management company you might have come in contact with at work. Its cloud software helps companies manage their employees’ passwords, by providing a “single sign-on” experience that allows instant access to all apps.