While the major equity indices are trading near all-time highs, the rally has been primarily driven by large-cap tech stocks. This performance gap suggests that there are still plenty of quality stocks flying under the radar that can be picked up at lower valuations.
In particular, the possibility of multiple interest rate cuts in the next 12 to 18 months should act as a tailwind for small-cap stocks, as these companies tend to benefit more from the lower cost of debt relative to their larger, more established counterparts.
Here are three “strong buy” small-cap stocks you can consider buying now, highlighting industries uniquely positioned to benefit from lower rates - utilities, fintech, and energy.
Small-Cap Stock #1: American Superconductor
American Superconductor (AMSC), valued at $904.2 million by market cap, provides megawatt-scale power resiliency solutions globally. It has two primary business segments: Grid and Wind. The Grid segment offers products that enable electric utilities, industrial facilities, and renewable energy project developers to transmit and distribute power. Meanwhile, the Wind business designs wind turbine systems and licenses the designs to third parties.
In fiscal Q1 of 2025 (ended in June), American Semiconductor reported revenue of $40.3 million and adjusted earnings of $0.08 per share, compared to estimates of $40.3 million and $0.01 per share, respectively. While revenue rose by 33% year over year, the company also reported a positive free cash flow of $3.1 million, compared to a cash outflow of $2 million in the year-ago period.
Analysts tracking the stock expect its sales to rise from $145.64 million in fiscal 2024 to $206 million in 2025, with continued growth to $247 million in 2026. AMSC's adjusted earnings are forecast to expand from $0.02 per share in 2024 to $0.29 per share in 2025, rising to $0.49 per share in 2026.
Priced at more than 80x forward earnings, AMSC stock trades at a premium due to its stellar growth estimates. Each of the three analysts tracking AMSC has a “strong buy” recommendation. The average 12-month target price for the stock is $30.33, indicating an upside potential of over 26%.
Small-Cap Stock #2: Dave Inc.
Valued at $495.5 million by market cap, Dave Inc. (DAVE) is a fintech company that offers a suite of financial products and services through an online platform. Its portfolio includes a personal finance management tool, overdraft and short-term credit, a job application portal, and a digital checking and demand deposit account.
In the last 12 months, Dave has reported revenue of $293 million, up from just $76.2 million in 2019. This steady revenue growth has allowed the company to report a free cash flow of $77 million in the last four quarters, up from a free cash flow of $33.1 million in 2023.
Down 91% from all-time highs, Dave is forecast to end 2024 with adjusted earnings of $0.71 per share, indicating a forward earnings multiple of just 9x. All six analysts covering DAVE stock have a “strong buy” recommendation.
DAVE has already surged 386% on a YTD basis, but the average target price from analysts is $61.17, about 50% above the current trading price.
Small-Cap Stock #3: Kosmos Energy
Our final small-cap stock is Kosmos Energy (KOS), an oil and gas exploration and development company. Valued at a market cap of $1.98 billion, Kosmos Energy has increased its sales by 16.3% year over year to $1.9 billion in the last 12 months.
Two years ago, Kosmos Energy stated it plans to increase production by 50% based on the delivery of three important projects. During the Q2 earnings call, Kosmos noted that it is around halfway to achieving this target, which should drive future earnings and cash flow higher.
Kosmos Energy expects to end 2024 with 90,000 barrels of oil equivalent per day, which should help fuel a multi-year investment cycle. Its higher production and expansion plans are expected to generate over $100 million in quarterly cash flows, allowing Kosmos to lower its debt and shore up the balance sheet.
Out of the seven analysts covering Kosmos Energy, five recommend “strong buy” and two recommend “hold.” The 12-month average target price for the stock is $7.11, indicating an upside potential of 68.9% from current levels.
