Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.
Two Small-Cap Stocks to Sell:
Cognex (CGNX)
Market Cap: $5.06 billion
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ:CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Do We Think CGNX Will Underperform?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.2 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Cognex is trading at $30.15 per share, or 33.4x forward P/E. If you’re considering CGNX for your portfolio, see our FREE research report to learn more.
Lake City Bank (LKFN)
Market Cap: $1.51 billion
Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ:LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.
Why Does LKFN Give Us Pause?
- Annual net interest income growth of 4.8% over the last four years was below our standards for the bank sector
- 21.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the company’s willingness to accept lower yields to defend its market position
- Annual tangible book value per share growth of 2.5% over the last five years was below our standards for the bank sector
Lake City Bank’s stock price of $58.92 implies a valuation ratio of 2x forward P/B. Dive into our free research report to see why there are better opportunities than LKFN.
One Small-Cap Stock to Buy:
Sterling (STRL)
Market Cap: $6.17 billion
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ:STRL) provides civil infrastructure construction.
Why Will STRL Beat the Market?
- Impressive 11.9% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Free cash flow margin grew by 13.9 percentage points over the last five years, giving the company more chips to play with
- Improving returns on capital reflect management’s ability to monetize investments
At $202.66 per share, Sterling trades at 25.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today