The so-called Magnificent Seven - a group that includes mega-cap tech companies Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) - propelled stock markets to new highs in 2023, as investor enthusiasm over artificial intelligence (AI) propelled these names sharply higher. These companies collectively added a staggering $5.1 trillion in total market cap during 2023, and even inspired the creation of their own exchange-traded fund (ETF), in the Roundhill Magnificent Seven ETF (MAGS).
However, the Mag 7's collective momentum has cooled considerably in 2024. While MAGS is still narrowly outperforming the tech-heavy Nasdaq-100 Index ($IUXX) on a YTD basis, it's largely thanks to the outsized returns of NVDA and META, considering that three members of the group - TSLA, AAPL, and GOOGL - are underperforming the broader index by a considerable margin.
In the meantime, a handful of small-cap stocks from the benchmark Russell 2000 Index (RUT) have bested their Magnificent Seven counterparts by breaking out to considerable YTD gains that outpace even Nvidia's 81% return. After a lengthy period of large-cap outperformance, investors may want to consider these relatively overlooked RUT components, all of which are rated “Buy” or better by Wall Street analysts.
Small-Cap Stock #1: Viking Therapeutics (VKTX)
Established in 2012 and based out of California, Viking Therapeutics (VKTX) develops therapies for metabolic and endocrine disorders. Their primary interest lies in developing what they call "first-in-class or best-in-class" therapies. This means they're either creating entirely new medications for a particular condition, or improving upon existing treatments to be more effective or have fewer side effects.
Viking Therapeutics stock is up 276% on a YTD basis, pushing its market cap all the way up to $6.4 billion amid investor enthusiasm over positive data for its clinical stage weight-loss drug.
Overall, analysts have deemed VKTX stock a “Strong Buy,” with a mean target price of $99.11. This denotes an upside potential of about 40.9% from current levels.
Out of 10 analysts covering Viking Therapeutics, 9 have a “Strong Buy” rating and 1 has a “Moderate Buy” rating.
Small-Cap Stock #2: SoundHound AI (SOUN)
Founded in 2005, Santa Clara-based SoundHound AI (SOUN) develops voice AI and speech recognition technologies. It caters primarily to the automotive, IoT devices, restaurants, and customer service industries through its products - including the Voice AI developer platform, its voice-enabled digital assistant, SoundHound Chat AI, and its music recognition mobile app, SoundHound.
With a market cap of $2.14 billion, SoundHound AI stock has rallied 268% on a YTD basis, propelled in part by news of an investment from Mag 7 member Nvidia.
Wall Street analysts have deemed SOUN stock a “Strong Buy,” with a mean target price of $6.97 - a discount to the stock's current price. However, the Street-high target of $9 implies upside potential of 15%.
Out of 6 analysts covering the stock, 5 have a “Strong Buy” rating, and 1 has a “Hold” rating.
Small-Cap Stock #3: Apogee Therapeutics (APGE)
San Francisco-based Apogee Therapeutics (APGE) is a relatively new player in the biotech industry, having been founded in 2022. A clinical-stage biotechnology company developing "best-in-class" biologics to treat immunological and inflammatory disorders, their focus areas include atopic dermatitis (AD), chronic obstructive pulmonary disease (COPD), and other high-need areas in immunology and inflammation.
Currently, Apogee's market cap is $3.5 billion. The stock is up 149% on a YTD basis, having gapped higher in early March on positive trial results.
APGE stock is a unanimous “Strong Buy” among all 6 analysts in coverage, with a mean target price of $78.20. This denotes an upside potential of about 12% from current levels.
Small-Cap Stock #4: Fate Therapeutics (FATE)
Founded in 2007, San Diego-based Fate Therapeutics (FATE) is a clinical-stage biopharmaceutical company pioneering the use of induced pluripotent stem cells (iPSCs) to develop cellular immunotherapies to treat cancer and autoimmune disorders. iPSCs are adult cells reprogrammed to an embryonic-like state, allowing them to differentiate into various cell types for therapeutic purposes.
With a market cap of about $760 million, Fate Therapeutics stock has gained 109.8% on a YTD basis. The stock shot higher in late January on reports that Steve Cohen's hedge fund took a passive stake in the biotech.
Overall, analysts remain cautiously optimistic about Fate Therapeutics, which has a consensus rating of “Moderate Buy,” but a mean target price of $7.23 - a discount of nearly 8% to current levels. However, the Street-high target price of $12 indicates expected upside of about 52.6%.
Out of 21 analysts covering FATE stock, 6 have a “Strong Buy” rating, 13 have a “Hold" rating, 1 has a “Moderate Sell” rating, and 1 has a “Strong Sell” rating.
Small-Cap Stock #5: Hippo Holdings (HIPO)
Founded in 2015, Hippo Holdings (HIPO) is a property insurance company targeting homeowners insurance. They leverage InsurTech (insurance technology) to provide a streamlined online experience for getting quotes, purchasing coverage, and managing claims.
Hippo's market cap currently stands at $439.3 million, and HIPO stock is up nearly 111% on a YTD basis. The stock gapped sharply higher on March 6 after HIPO reported Q4 2023 earnings that beat analysts' expectations.
Overall, analysts have deemed Hippo Holdings stock a “Moderate Buy,” with a mean target price of $21.33, which indicates an upside potential of about 10% from current levels.
Out of 5 analysts covering HIPO, 2 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 2 have a “Hold” rating.
