Any time you yearn for investing excitement, just look to the small-cap sector.

Because of their size, small-cap companies (those with market cap valuations between $300 million and $2 billion) can often be inventive and nimble in decision-making, leading to rapid operational changes and, ultimately, stock price volatility. If investors can recognize up-and-comers in the right place at the right time, that spells opportunity.

Both of the companies outlined below report earnings in the next couple of weeks. Neither are overvalued, and both have catalysts in place to drive the businesses -- and the stock prices -- higher.

1. Callaway Golf: This company's agility surprises the market

Callaway Golf (MODG 0.42%) is writing a great story of transforming along with its industry and leveraging the changes to its advantage.

a golfer is shown in mid-swing while wearing Callaway Golf apparel

Callaway Apparel features Swing Tech engineering for better performance. Image source: Callaway Golf

Over the past couple of years, Callaway Golf has invested heavily in artificial intelligence and machine learning to aid in golf club design. The technology allows Callaway to differentiate itself in the market by adding non-intuitive designs to the clubs that have never been seen before. Golf Digest -- the avid golfer's reference publication -- ranks Callaway clubs at the top of every category of clubs for 2020.

Recognizing that traditional golf doesn't appeal to everyone, the company diversified. Callaway Golf owns 14% of the millennial favorite, party-themed golf range Topgolf, which is laying plans for IPO in 2020 at a $4 billion valuation.

According to Stephens analyst Daniel Imbro, Callaway's ownership is not appropriately reflected in its stock price at current valuation. Imbro maintains that, at Topgolf's estimated IPO valuation of $4 billion, the valuation and capital structure of Callaway's stake in Topgolf is worth about $5 per Callaway share, as opposed to the sum-of-the-parts $4 per Callaway share that is currently reflected in Callaway's stock price. Simply put, Callaway's stock price should be $1 higher than it is currently to correctly reflect an IPO valuation of $4 billion for Topgolf.

Callaway Golf's adaptability is helping solidify its leadership in the leisure industry. Golfers -- often less price-sensitive than your average consumer -- are always looking for an edge, and the company is using technology to maximize equipment efficiency and spur new purchases. While they are picking out a few new clubs, golfers may check out Callaway's Jack Wolfskin apparel line and decide to update their look. And Topgolf offers an opportunity for a twist on a social day or evening out while still enjoying a favorite sport. Callaway's diversification is paying off.

With a P/E ratio of 26 versus the Leisure Products industry average PE of 140, and considering all the right moves Callaway is making, this small-cap company looks undervalued and could be a great stock to pick up this month. Fourth-quarter 2019 earnings are expected on Thursday, Feb. 6. It's possible Callaway will surprise to the upside, especially considering the unusually warm weather much of the U.S. experienced in the last three months.

I think Callaway will be off to the races after earnings without looking back for a long time to come.

2. NMI Holdings: The right market conditions to ensure a company boost

NMI Holdings (NMIH -0.10%), a mortgage insurance firm, turned in solid results in 2019, and will next report earnings on Tuesday, Feb. 11. Favorable monetary policy, strong employment, and real estate demand are providing strong tailwinds.

Smiling couple reviewing papers.

Image source: Getty Images.

Mortgage insurance companies aren't very flashy, but they are super interesting from an investment point of view because NMI Holdings is the definition of a solid company enjoying some very favorable conditions right now.

NMI Holdings differentiated itself in the mortgage insurance industry by rolling out a new risk-based pricing platform in June 2018, called Rate GPS. A variety of loan characteristics are evaluated on the platform to more closely align NMI's premium rates to the risk associated with individual loans. The November 2019 Investor Presentation revealed more than 95% of NMI's lenders use the platform, and that more than 85% of third-quarter new insurance written volume was delivered through the engine. The success of Rate GPS has already shown up in the numbers.

Earnings growth is a key evaluation metric, and NMI Holdings doesn't disappoint. For the most recent quarter, NMI Holdings was expected to post earnings of $0.62 per share but reported $0.71 per share instead, an upward surprise of 14%. For the previous quarter, the consensus estimate was $0.55 per share, while it actually produced $0.59 per share, a surprise of 7.9%.

NMI Holdings' projected 12-month EPS growth rate is an impressive 31.9%. Estimates of EPS growth for the company over the next three to five years are a mouth-watering 128.2%.

The company's current P/E ratio stands at 15, versus the Thrifts and Mortgage Finance industry's average P/E of 22.3. 

NMI Holdings' Rate GPS product is helping insurers make more profitable insuring decisions, real estate demand is strong, interest rates are low, and lending standards are tighter than ever. Shares, which trade at 10.1 times fiscal 2020 earnings, are a rare bargain among the best small-cap stocks to buy. Adding these shares to your portfolio before the next earnings report pushes the shares higher makes sense for growth investors.