Introduction
One of the things long-term stock traders usually look out for in the market; is identifying promising stocks when their prices are still low with low market capitalization too. Investing in these small-cap stocks usually offer the investor a good advantage to maximize his returns as more investors come into the market to invest in the same stock. However, not all small-cap stocks launched in the market eventually turned out successful. Some have turned out to be a hoax resulting in a total crash.
This work will therefore help you learn about the small-cap stocks most recommended for investment today. You will also learn from this work the effects of small-cap stocks on your total portfolio, and why you need to be cautious in choosing the small-cap stocks to invest in using the UK stock brokers.
What are Small-cap Stocks
Small-cap stocks refers to those stocks with low capitals invested in them. It is a term used to describe stocks whose total market capitalization ranges from $300 Million to 2 Billion. Often the cost per stock of the low-cap stocks are usually very cheap depending on the total units of the stocks issued during the public offering.
What impact will the Small-cap Stocks have on your portfolio?
Investing in small-cap stocks offers the trader the opportunity to diversify their portfolios. Here, the trader can spread his risk by investing in multiple stocks at the same time.
More so, investing in small-cap stocks provides an opportunity for the investor to increase the total value of his portfolio over time especially when the small-cap stocks begin to grow in prices.
Best ten Small-cap Stocks to trade today
- Akero Therapeutics, Inc
- Jackson Financial Inc
- Green Dot Corporation
- Genworth Financial
- ACM Research, Inc
- Apollo Medical Holdings, Inc.
- Target Hospitality Corp.
- American Eagle Outfitters
- Arconic Corporation
- Ranger Oil Corporation
Major Factors to consider while choosing the Small-cap Stocks for Investment
- Annual Revenue generated: It is very important to examine the annual revenue generated by the company since its creation. A company that generates above 30% of its net worth annually is a healthy one for investment.
- Previous price performance: The historical performance of the stock since its creation helps to show whether investors are interested in the stock. Stocks that have performed well in the past are likely to continue in the same trend in the future.
- Demand for company’s products and services: The nature of the company’s products and services as well as the demand for it in the market is always very necessary to consider while choosing small-cap stocks to invest in. Companies whose products and services are highly demanded in the market have greater potential for growth and development.
- Total share unit offered for sales: The total unit of the stock offered for sale by the company usually affects its price growth rate. The smaller the total unit offered, the higher the chances of future price increase with new capital inflows.
Advantages of buying the Small-cap Stocks
- Has good potentials for future price growth.
- Allows the trader to purchase a large volume of shares with small capital
- Enables the traders to spread their risks by diversifying their portfolios
- Provides a long-term investment package
- Could serve as a good hedge against inflation.
Disadvantages of buying the Small-cap Stocks
- Often some small-cap stocks may fail to attract new investors.
- A large portion could be purchased by wealthy investors (Whale) or hedge fund managers.
- Small-cap stocks are usually very unstable in their market prices.
- Exposed to criticism and media attacks
- Could take a long time for prices to rise.
