When the stock market becomes ill, small-cap stocks often get the sickest of all. That's what's happened since the market swooned over worries about the impact of the COVID-19 pandemic. The iShares Russell 2000 ETF, weighted toward smaller stocks, is down 25% since the beginning of the year, compared with a 14% decline in the S&P 500.

But that decline spells opportunity for patient investors who are willing to wait out the current concerns, believing that the economy will return to normal in the long term. The volatility of small-cap stocks can cause the share prices to snap back in a recovery, as long as the underlying businesses have the financial strength to withstand the downturn.

Here are three stocks with depressed prices that should come out the other end of a business slowdown just fine, and they represent three different approaches to profiting from an economic recovery. Invitae (NVTA 2.68%) is a business that's not strongly linked to the overall economy; shares of Zuora (ZUO 0.66%) were cheap even before the downturn and are now cheaper; and YETI Holdings (YETI 2.65%) has been delivering high growth that should return when broader consumer demand picks back up.

Finger pointing to a hexagon that says, "Recovery"

Image source: Getty Images.

1. Invitae

Invitae specializes in genetic testing and is focused on a long-term vision of bringing down the cost of obtaining comprehensive genetic information so it becomes part of routine healthcare, even for healthy people. The realization of that vision is quite a bit down the road, but in the near term, the company is growing revenue rapidly by offering diagnostic and screening testing across a variety of disease areas.

Test volume increased by 60% in 2019, and the number of customer accounts grew 71%, resulting in revenue growth of 47% to $217 million. The company eventually wants to sell to mainstream clinicians and have brand recognition among patients. 

For now, it's scaling up by selling tests for procedures such as cardiovascular and cancer screening, diagnosis of genetic diseases, and non-invasive prenatal testing. The tests will enable specialists to make better-informed clinical decisions.

Bright blue test tubes with pictures of DNA.

Image source: Getty Images.

Invitae is investing in growth rather than profits, more than doubling its research and development expenses last year, and growing its selling and marketing expenses by 64%. It's also using cash to buy up small companies that will help it accomplish its long-term goal. It's made 10 acquisitions since early 2017, and plans to continue growing this way, having raised another $160 million in early April with a secondary stock offering.

Shares of Invitae are down 53% since mid-February, but they had gotten ahead of themselves, so we shouldn't expect quick gains of that magnitude. The stock is a long-term story, but now is a good time to buy for patient investors, and the company should continue to grow the top line even if the economy tanks.

2. Zuora

Last year wasn't great for Zuora's shareholders. The company sells a cloud-based software-as-a-service (SaaS) platform to enable companies to deliver products with a subscription model. The subscription trend remains strong, but Zuora had some growing pains and execution issues last year that resulted in the stock price tumbling 21%.

Growth in 2019 wasn't particularly bad, but it wasn't enough to match investors' expectations, and it was particularly disappointing compared to other SaaS businesses. For the full fiscal 2020, which ended Jan. 31, revenue grew 17% to $261 million, and subscription revenue, which comprises 75% of the total, rose 25%. Zuora is growing its base of large customers, up 19% from the year before; existing customers who have been buying the company's services for at least a year have increased their spending by 4%.

But last year, Zuora had to lower guidance when it became clear that newly hired sales representatives were being less productive than expected and that cross-selling between the company's two main products wasn't materializing as expected. The longer sales cycles required for products used to completely transform a customer's business to a subscription model means that investors will have to be patient about Zuora's growth.

The market's anticipation of a downturn caused by the pandemic has added to pressure on the share price, as did a disappointing quarter reported in March and the departure of the chief financial officer. But by this time, Zuora's shares are selling at an all-time low valuation.

Chart of Zuora price to trailing twelve-month revenue.

Zuora price-to-trailing twelve-month revenue. Data by YCharts.

Before last year's stumbles, the company was regularly selling for around eight times trailing revenue. That valuation fell to six times last year, but with the 36% decline in the stock price this year, shares are selling for less than four times revenue, far below its SaaS peers and a bargain given the growth still ahead for the company.

3. YETI Holdings

Any honest stock analyst should be telling you now that they really don't know how the U.S. consumer will be affected by the economic fallout from the COVID-19 pandemic. When stay-at-home orders lift and businesses reopen, will there be an unleashing of pent-up demand? Or will unemployment persist causing a recession to linger for months as consumers deal with economic uncertainty? No one knows the short term, but we do know that the consumer economy was in pretty good shape before the pandemic hit, and we can be certain that confidence will return eventually.

YETI, a seller of consumer goods with an outdoorsy lifestyle brand, was growing well last year and could regain its mojo when people start getting out again.

Green tent lit inside, at night.

Image source: Getty Images.

Sales in 2019 grew 17%, with fourth-quarter sales increasing an impressive 23%. The popular YETI brand commands premium pricing, and consumers haven't shown any hesitation to pay up. Gross profit was 52% of net sales in 2019, compared with 49.2% the year before. Part of the reason for improved margins is a robust direct-to-consumer business, which grew sales 34% last year to $386 million, about half of the total top line.

Its adjusted earnings per share rose 32% to $1.20. Before the novel coronavirus hit, analysts were expecting YETI to earn an adjusted $1.39 in 2020, with growth of 16%. Estimates for this year are falling, and shares have been hit hard.

The stock is down 40% from its all-time high set in February, and now sell for about 17 times the pre-pandemic consensus-earnings estimate. No one knows how the pandemic will affect earnings in the short term, but the stock is cheap now, compared with the company's earnings potential when the economy revives.