5 Best Small-Cap Stocks for July 2022

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There have been few bright spots in the stock market so far this year, but experienced investors will tell you this can indicate a buying opportunity. With plenty of room for upside, small-cap stocks may be worth a look.

What Is a Small-Cap Stock?

The term small-cap is short for small capitalization. A company’s market capitalization is its worth in terms of what investors will pay for it. Market capitalization is the price per share times the number of shares outstanding, and small-cap companies have a market capitalization between $300 million and $2 billion. Note that small-cap stocks are more volatile than mid- or large-cap positions, so choose carefully.

There are several indices that follow small-cap stocks, but the benchmark is the Russell 2000. Since this index always includes 2,000 companies, the valuations may sometimes fall outside the definition of small-cap. In fact, the index includes the companies ranked from number 1,001 to number 3,000 among the 4,000 largest publicly traded companies.

Like the rest of the market, the Russell 2000 has had a tough year so far. On Jan. 3, 2022, the index was trading at $2,272.56, but by June 30, 2022, its value was $1,707.99. Of course, not every stock in the index fared badly, but a market like this one indicates that you want to do your homework before you invest.

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What Are Some Small-Cap Stocks?

Small-cap stocks are usually young companies. After all, the goal of a small-cap company is to someday become a large-cap company. So, many small-cap stocks may be companies you’ve never heard of. But keep in mind that Apple, Google and Microsoft were once small-cap companies too.

Here are some small-cap companies you have probably heard of:

  • Green Dot Corporation (NYSE:GDOT), provider of reloadable prepaid debit cards
  • American Eagle Outfitters (NYSE:AEO), clothing retailer
  • Genworth Financial (NYSE:GNW), insurance company
  • Big Lots (NYSE:BIG), general merchandise retailer
  • Allbirds (NASDAQ:BIRD), footwear and apparel retailer

What Are the Best Small-Cap Stocks To Buy Now?

Small-cap stocks can produce big returns, but they can also produce big losses. They are volatile even in relatively stable markets, so a market like the current one requires additional caution. That said, there’s money to be made and including small-cap stocks in your portfolio is a good way to diversity.

Here are some small-cap stocks to consider.

Independent Bank Group (NASDAQ:IBTX)

Independent Bank Group has seen five-year annualized dividend growth of 30.60%. Of the eight analysts currently following the stock, one considers it a strong buy, six rate it a buy and one recommends holding the stock, for a recommendation rating of 2.1 out of 5.

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Best for: Those seeking dividends.

Griffon Corporation (NYSE:GFF)

Griffon Corporation is a conglomerate comprised of wholly-owned subsidiaries in the consumer and professional building products sector. The stock traded at $26.08 on July 8, 2022, but has a one-year target estimate of $44.80. It also has a forward dividend yield of 1.38%. Four of the five analysts who follow it, rated it a strong buy in June and the fifth rated it a buy.

Best for: Those willing to hold the stock long-term — one year or more.

Dycom Industries (NYSE:DY)  

As of July 8, 2022, Dycom Industries stock was trading at $95.60, with a one-year target estimate of $120.75. The company has a recommendation rating of 1.7 on a scale of one to five, with one being a strong buy. Of the ten analysts following the stock, five rate it a strong buy, four rate it a buy and one recommends holding.

Best for: Investors looking for price appreciation rather than dividends.

OptimizeRX Corporation (NASDAQ:OPRX)

OptimizeRX Corporation supports medical prescribers and patients with a single platform for point-of-care. Trading at $30.13 as of July 8, 2022, OPRX has a one-year price target estimate of $59.25. Four out of five analysts rate it a buy, and the fifth rates it a strong buy.

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Best for: Investors looking to hold for the long term.

First Bancorp (NASDAQ: FBNC)

First Bancorp is the parent company of FirstBank, and a regional banking corporation. It recently announced it will acquire GrandSouth Bank, as the banking landscape continues to consolidate. The company’s one-year price target estimate is $47.40, up from its July 8, 2022 closing price of $35.08. Seven analysts follow the company, and in July, four of them rated it a buy, one rated it a strong buy and two recommended holding the stock, for a recommendation rating of 2 out of 5.

Best for: Investors with a relatively low tolerance for risk, looking for a dividend stock.

Which Companies Are Small-Cap?

A small-cap company is defined as one with a market capitalization between $300 million and $2 billion. The number of small-cap companies varies as valuations change, but the Russell 2000 index is comprised of 2,000 companies that have valuations in or around this range.

Companies move in and out of the small-cap category as they grow or shrink, so a company that is a small-cap company today may be a mid-cap or even a large-cap company in a few years.

How Do I Find New Small-Cap Stocks?

You evaluate small-cap stocks the way you would any other position. Be sure you understand the business they are in and how they match up against their competition. Look at their price-to-earnings, or P/E ratio, compared to other companies in their industry. Review their history and consider what the analysts who follow the company have to say, and how that assessment compares to other stocks you can consider.

If you want to add small-cap exposure to your portfolio but are hesitant about the risks, consider a small-cap index fund. These funds mimic the small-cap universe, protecting you from the volatility of individual stocks. Here are some small-cap index funds to consider:

  • The Vanguard Small-Cap ETF (VB.IV) tracks the performance of the CRSP US Small Cap Index.
  • Fidelity Small Cap Index Fund (NASDAQ:FSSNX) tracks the total return of U.S. small-cap companies, with at least 80% of its investments in companies in the Russell 2000 index.
  • iShares Russell 2000 Growth ETF (NYSE:IWO), as its name would suggest, tracks the Russell 2000 equity index.

Small-cap stocks can be an important part of your portfolio, providing an upside as the market hopefully begins to recover. By carefully evaluating your choices in this large and diverse universe, you’ll be in a good position to benefit from any upcoming rally.

Information is accurate as of July 5, 2022.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

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About the Author

Karen Doyle is a personal finance writer with over 20 years’ experience writing about investments, money management and financial planning. Her work has appeared on numerous news and finance websites including GOBankingRates, Yahoo! Finance, MSN, USA Today, CNBC, Equifax.com, and more.

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