Top 3 small-cap leaders positioned for substantial growth

They may not be household names like Meta Platform Inc. NASDAQ: META or preferred by investors as Nvidia Corp. NASDAQ:NVDAbut several small stocks, such as Ultra Clean Holdings, Inc. NASDAQ: UCTT, Powell Industries Inc. NASDAQ: POWL AND AdaptHealth Corp. NASDAQ:AHCO they are outperforming the major indices.

With the dominance of the big names artificial intelligence stocks leading the market higher, small-caps have underperformed their larger counterparts, as you can see if you compare SPDR S&P 600 Small Cap ETF Portfolio NYSEARCA: SPSM with the SPDR S&P 500 ETF Trust Fund NYSEARCA: SPY.

Small-cap stocks have underperformed larger ones for the second longest period since 1926, according to research by asset manager Pinnacle Associates.

However, there are some signs that small caps may be ready to emerge from the crisis.

For starters, smaller stocks trade at attractive valuations, relative to the S&P 500 Index.

Compelling valuations for small-cap stocks

According to data compiled by Yardeni Research, the S&P 500’s forward P/E ratio is 20.5, while the S&P 400 Midcap’s forward P/E is 15.7 and the S&P 600 Small Cap Index has a P/E of term of 14.6.

“The bull case for investing in small-cap stocks, considering recent underperformance and attractive valuations, is compelling,” Pinnacle said.

“Historically, when small-cap performance is this bad, a long period of high returns follows,” Pinnacle analysts added.

Here are three little-known small-cap stocks that are outperforming broader markets and could offer early opportunities for investors hoping to uncover hidden gems.

Ultra clean stock cleaning along with semiconductors

Ultra Clean, with a market capitalization of just over $2 billion, provides components, cleaning and analytical services to the chip industry.

Its two largest revenue customers in fiscal years 2021, 2022 and 2023 were Applied Materials, Inc. NASDAQ: AMAT AND Lam Research Corp. NASDAQ: LRCXeach of which accounted for more than 10% of total revenue in those three years.

Wall Street expects Ultra Clean’s earnings to grow 154% this year, to $1.42 a share. In 2025, earnings are expected to grow 118% to $3.11 per share.

THE Ultra Clean Chart shows that the stock has extended after a 55.28% rally over the past three months.

A pullback to the moving average may offer the next potential buying opportunity.

Powell Industries is aiming higher and higher

The maker of electrical substation equipment returned 34% in January and 56% in February.

Behind big price movements are windfall earnings reports; MarketBeat Powell Industries Earnings data shows the company has exceeded top- and bottom-line views for the past two quarters. Analysts expect earnings to grow 71% this year, to $7.69 per share.

Powell has a market capitalization of just $1.8 billion and just 9.2 million shares in the float, meaning analyst coverage is sparse. Lack of analyst coverage can limit market visibility and investor confidence, potentially leading to undervaluation. However, with few shares available for trading by institutions, interest among large investors will naturally be muted.

However, Wall Street’s lack of attention can also present opportunities for contrarian investors or those who are willing to dig in a little.

THE Powell Industries Chart reveals the stock is in a buy range, having fallen from its March 1 high of $197.87.

AdaptHealth returns to profit

Pennsylvania-based AdaptHealth provided home health care equipment and services, primarily in the areas of sleep therapy, diabetes treatment, post-operative care after hospital discharge, oxygen and chronic therapies related and other services such as urology and wound care.

Revenue comes largely from Medicare, Medicaid and commercial insurance payers.

The stock has a market capitalization of $1.4 billion and 78.4 million shares in the float. The stock has a beta of 1.69, meaning it is more volatile than the broader market.

THE Adapt the health chart clearly illustrates such volatility: recent performance has been strong, with gains of 46.09% and 32.68% in the past month and three months respectively.

However, the stock has struggled before, with a one-year decline of 21.45%.

This is another small stock that seems to have a lot of room to grow: MarketBeat’s AdaptHealth analyst forecasts shows coverage from eight analysts. The consensus price target is $12.10, an upside of 10.91%.

Analysts expect earnings of 82 cents per share this year, with a return to profitability after a loss in 2023. In 2025, earnings are expected to grow 27% to $1.04 per share.

Before you consider AdaptHealth, you’ll want to hear it out.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and AdaptHealth wasn’t on the list.

While AdaptHealth currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here