7 Safe Small-Cap Stocks to Buy Now

Let’s begin by defining the realm of small-cap stocks before we discuss those that appear to be strong, safe investments currently. As their name implies, small-cap stocks have lower market capitalizations than both mid-cap and large-cap stocks. The range of market cap defining the class is typically from $300 million to $2 billion. Large-cap stocks carry a market cap of at least $10 billion. Mid-caps bridge the difference.  

A point to remember is that investing in small-cap stocks is inherently riskier than investing in their mid-cap and large-cap counterparts. That volatility is intriguing to many investors.

But there are other reasons, outside of quick gains, to consider small-cap stocks. They aren’t all simply startup companies and fledgling investments. Some represent household names as well. And, according to Investopedia, they often perform as well or better than large-cap stocks over similar time horizons. 

Let’s take a look at seven safe small-cap stocks that investors should consider buying now.

Safe Small-Cap Stocks: Brookdale Senior Living (BKD)

Brookdale Senior Living (NYSE:BKD) stock, like many small-caps, is something of a gamble. However, the company benefits from a secular trend that is not slowing down: an aging U.S. population. 

A report from Grandview Research forecasts compound annual growth of 5.5% from 2022 to 2030 in the assisted living facility market. And the U.S. population of people 65 and over is expected to increase to 95 million by 2060. That’s up from 52 million in 2018. In short, companies like Brookdale Senior Living could just be hitting their stride. 

I won’t sugarcoat it, BKD hasn’t performed well in the past decade. But there are reasons to believe it has turned a corner. In Q1, resident fee revenue increased 10.3%. Earnings before interest, taxes, depreciation and amortization (EBITDA) was up 6.3%, and net income improved 7.7%. BKD stock is among the riskier picks on this list, but it has a lot of runway ahead.

Avanos Medical (AVNS)

Avanos Medical (NYSE:AVNS) stock represents an Atlanta-based medical equipment and supplies firm that is fairly young and looks to have turned a corner in Q1. The company was founded in 2014, so it’s much younger than many larger, more commonly known medical equipment firms in the equity space. 

But there’s a lot of evidence to suggest that Avanos Medical is just getting started. In Q2, the company reported a strong, if somewhat modest, 9% increase in revenues. Adjusted earnings per share (EPS) came in at 41 cents, compared to 21 cents a year ago.

Plus, the company, although young, has instituted and executed a stock repurchase program. In Q1, the company repurchased $19.3 million worth of shares, which completed a $30 million stock repurchase program.

Safe Small-Cap Stocks: Green Plains (GPRE)

Green Plains (NASDAQ:GPRE) stock represents a company that is shifting from traditional ethanol production toward becoming a sustainable biorefinery platform. That means that the company is shifting from producing ethanol, corn oil and distillers grain for animal feed into a company that is utilizing technology to evolve. 

The Omaha firm is pivoting to address high-demand markets, including protein production, renewable corn oil, clean sugar production for many end uses, and carbon capture sequestration. 

Green Plains anticipates that the conversion of its platform will be 50% finished by the end of this year. Overall, the company believes it will see a 50% increase in corn-oil yields as a result of the technological improvements it is investing in. It also anticipates it will be able to separate 20% of dried distiller grains (DDGS) into high-value ultra high-protein. That should see strong demand for uses in growing end markets, including pet food.

Smith & Wesson (SWBI)

On the one hand, Smith & Wesson (NASDAQ:SWBI) stock isn’t a particularly safe stock. Investors who compare the firm’s revenues for the three months that ended April 30 will quickly note that revenues decreased by more than $140 million on a year-over-year (YOY) basis. 

The $322.95 million in revenues that the gun manufacturer posted in Q1 of 2021 fell to $181.3 million in the same quarter this year. That led to net income falling from $89.04 million all the way to $36.14 million in the same period. 

So, that begs the question: Why would anyone want to invest in Smith & Wesson right now? Well, for one, its stock is above pre-pandemic levels despite its slowing performance. The reason for the seeming contradiction lies in gun-sale trends established in the 2008/2009 recession. 

It’s very easy to find reports of a sales spike in guns during that period. The feeling of economic unease simply leads consumers to buy more firearms overall. When the pandemic began in 2020, the same trend reemerged, leading to record sales in 2020. 2021 slowed, but only slightly. And now that another recession has technically begun, investors should expect sales to shoot back up again.  

Safe Small-Cap Stocks: Shutterstock (SSTK)

Shutterstock (NYSE:SSTK) is essentially a household name in the content-production space. It operates one of the best-known marketplaces for licensed content, including images, music and video. 

The creative economy is growing, and more and more firms are leveraging content to their benefit. That implies a strong secular trend that favors Shutterstock and should lead to improving top-line figures moving forward. Indeed, that is what happened when Shutterstock most recently reported earnings on July 26. Revenues reached $206.9 million, up 9% YOY. Further, adjusted EBITDA increased by 8% as well. 

The company anticipates that revenues will grow as much as 10% this year overall. It remains a buy according to analysts and possesses plenty of upside.

Magnachip Semiconductor (MX)

Magnachip Semiconductor (NYSE:MX) is a company that produces semiconductors with end applications across communications, the internet of things (IOT), consumer, industrial and automotive markets. 

Regarding Magnachip’s latest earnings report, as my colleague Stavros Georgiadis recently noted:

 “The EBITDA growth YOY is 48.84%, the EBIT growth YOY is 58.04% and the operating cash flow growth YoY is 940.38%. The EPS estimate is expected to increase from 79 cents for the fiscal year 2022 to $1.35 in the fiscal year 2023. Estimates for revenue also to increase, to $571.67 million in the fiscal year 2023 from $436.73 million in the fiscal year 2022.”

Georgiadis also noted that significant upside is baked into MX stock’s price targets. That’s a clearly strong sign. Additionally, the company owns an intellectual property portfolio with 1,150 patents and has operated for more than four decades.

Safe Small-Cap Stocks: ACM Research (ACMR)

ACM Research (NASDAQ:ACMR) stock represents another firm in the semiconductor space. The company develops what is called wet processing technology and has a particular focus on cleaning technologies for advanced semiconductor devices per its website. 

One reason to believe in the safety of ACMR stock is its beta of 0.69. That suggests the shares don’t move with the volatility of an average stock. 

But the company is certainly growing. Consensus estimates are that the firm will see sales increase 46% this year and another 30.5% in 2023. 

Those factors all contribute to the strong buy rating that analysts have given the stock, which also boasts nearly 100% upside based on current prices. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.