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My Top Small-Cap Stocks to Buy Before the End of the Year

By Keith Noonan - Dec 27, 2020 at 9:35AM

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These small but growing companies can deliver massive returns.

Small-cap companies typically aren't as resource-rich as their larger competitors, but they can also offer uniquely compelling opportunities for investors. Because of their relatively small size, it's often easier for small-cap companies to grow quickly and deliver sizable returns. Another point worth considering is that small-caps have historically outperformed large-cap stocks when the economy emerges from a recession. 

These characteristics, among others, prompted me to focus much of my investing capital and research into small-cap companies over the last year. Read on for a look at my top stocks in the category to buy before 2020 is over. 

Tablet displaying 2020 sign with lightbulb as the first zero in 2020

Image source: Getty Images.

1. Impinj

Impinj (PI 2.01%) is a company that specializes in radio-frequency identification (RFID) tags, sensors, and software. The semiconductor specialist has a market capitalization of roughly $1 billion, and its stock offers attractive upside for investors willing to embrace some risk in order to benefit from what could be a huge growth market.

The retail industry is currently the main market for Impinj's technologies with RFID tags and sensors being used as a more advanced, more versatile version of the barcode system. Major retail brands including Zara and Macy's count on the company's solutions to bring up pricing information and cut down on theft, but the functions that the RFID systems enable extend far beyond those applications.

Impinj's technologies enable the process of taking inventory to be automated, making it faster and more accurate. RFID tags can also store a much greater amount of information than barcodes, and they can be updated to store new data.

Gathering and analyzing data to drive improved efficiency and better meet and predict consumer demand across a variety of sales channels will become increasingly crucial to retail success. In light of that growing need, adoption of the technology could see dramatic growth in other industries as well. There's some speculation involved in charting Impinj's trajectory, but risk-tolerant investors should be watching this stock.

2. Zuora

Zuora (ZUO 1.98%) is a fintech company that provides software that makes it easy for companies to adopt and scale subscription-based business models. The growth of the subscription economy has been one of the biggest trends in technology and consumer goods over the last decade, but this transformation is still just getting started. 

Zuora has a market capitalization of roughly $1.7 billion, and its forward price-to-sales ratio of roughly 5.5 looks pretty low in the context of the company's potential for dramatic long-term expansion. The company's share price has slid 60% from the all-time high that it hit in the summer of 2018, but the stock has a good shot at climbing well above current levels. 

While many digital commerce companies actually saw strong tailwinds from the pandemic, the backdrop in 2020 was more challenging for Zuora. Businesses are typically hesitant to make substantial operating shifts and adopt new software during periods of economic uncertainty, and this year's unprecedented challenges meant that Zuora had a harder time signing up new customers. 

The fintech company should post better performance once the world moves closer to a state of normalcy, and it will have plenty of opportunities to continue benefiting from continued momentum in the subscription economy. Zuora has huge room for growth as it brings more large customers on board to its subscription platform and takes a commission on total payment volume, and the stock is still trading at levels that leave room for plenty of upside. 

3. Glu Mobile 

The video game industry is hotter than ever and looks primed for long-term growth. Glu Mobile (GLUU) stands out as one of the space's most promising stocks. In fact, with a market capitalization of $1.7 billion as of this writing, it is the last publicly-traded Western gaming publisher that's still in small-cap territory.

The company focuses on making mobile games that appeal to a casual audience, and it has a stable of dependable franchises that includes Design Home, Covet Fashion, Tap Sports Baseball, and Kim Kardashian: Hollywood. Glu is able to keep players engaged and extend the life cycles of its core properties by releasing downloadable content updates, and games that go on to enjoy substantial longevity can be very profitable. 

Glu management expects that bookings for its current lineup of games will actually increase between 8% and 10% next year, which indicates that its core franchises are still quite healthy. However, the company also plans to launch four new titles next year.

Strong performance for just one or two of these games would likely be enough to power continued gains for Glu Mobile stock. The company is also experimenting with in-game e-commerce stores and expects to make acquisitions in the near future, so it has multiple avenues to beat expectations going forward.

Small-cap companies can post explosive growth from wins that might barely register for their larger peers, and they can deliver life-changing returns for shareholders who stick around for a rise to the top. Each of these companies has the right combination of strengths and growth opportunities, and investors who take a buy-and-hold approach will like what they see from this group of stocks. 

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Stocks Mentioned

Glu Mobile Stock Quote
Glu Mobile
Impinj, Inc. Stock Quote
Impinj, Inc.
$43.56 (2.01%) $0.86
Zuora Stock Quote
$9.25 (1.98%) $0.18
Macy's, Inc. Stock Quote
Macy's, Inc.
$19.25 (9.31%) $1.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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