The Russell 2000 Index, often called the small-cap index, is up about 19.6% in 2024. Much of that gain has come in the last six months, and the clarity after the U.S. presidential election is stirring animal spirits in the sector.
The bull case for small-cap stocks comes from lower interest rates and the hope that the Trump tax cuts will be made permanent. Many of these companies are still in the growth phase and rely on borrowing to fuel that growth.
When interest rates were at 20-year highs, it became more difficult for companies to access capital. Many of these companies would face devastating consequences if the corporate tax rate went higher.
Now that conditions appear more favorable, it’s a good time to look at small-cap stocks. Here are three that stand out.
This Biopharma Company Is a Leader in Gene Therapy
Rocket Pharmaceuticals Inc. (NASDAQ: RCKT) is a leader in the field of gene therapy with a focus on rare, devastating diseases, particularly in children, which account for 50% of rare disease patients. According to Global News Wire, the rare disease treatment market is expected to grow from $161.4 billion in 2020 to $547.5 billion by 2030 at a compound annual growth rate of 13.1%.
Rocket Pharmaceuticals' multi-platform approach allows it to choose the most practical gene therapy for the disease being targeted. While the promise of gene therapy is real and immense, many gene therapy companies are still in the pre-revenue stage. Rocket is no different.
But that could be changing. The company has over six programs in clinical trials, with two of those candidates quickly approaching the regulatory filing and launch stage. That’s the “rocket fuel” that has analysts giving RCKT stock a Moderate Buy rating with a $51 price target—over 260% above the stock’s price as of November 26, 2024.
This Canadian Miner Is Ready to Capitalize on the Growing Demand for Lithium
Lithium Americas Corp. (NYSE: LAC) is the next company on this list of small-cap stocks poised for strong growth in 2025. The lithium market has been impacted by supply and demand in 2024. Specifically, there’s too much supply and not enough demand.
But when it comes to lithium’s role in America’s supply chain, it’s not hard to see why this pure-play North American lithium miner is expected to see a reversal of fortunes in 2025. Many U.S. companies are racing to ensure they have a reliable source of lithium.
To that end, in October 2024, General Motors Co. (NYSE: GM) announced it would contribute a combined $625 million in cash and letters of credit to a new joint venture with the company’s Thacker Pass project. That’s in addition to a $2.26 billion loan from the U.S. Department of Energy (DOE) that will allow Lithium Americas to build processing facilities capable of producing 40K Tonnes of battery-grade lithium carbonate on an annual basis.
Since that announcement, many basic materials stocks are up and LAC stock is up approximately 9.5%. However, Lithium Americas is still in the pre-revenue stage and that means that analysts still give the stock a consensus Hold rating. However, the $5.63 price target is over 45% above the stock’s price on November 26, 2024.
An Investment in AI and the Gig Economy
Fiverr International Ltd. (NYSE: FVRR) is an international marketplace that allows freelancers to market their services to employers. The company went public, fortuitously, in 2019, right before the remote work explosion due to the global pandemic. FVRR stock was part of the meme stock movement and is down significantly from its high price of over $320 per share.
However, heading into 2025 there are some key reasons to watch FVRR stock. The first is AI. That is, the freelancers on the platform are becoming more sophisticated and specialized in the services they offer, particularly as demand for AI services is growing. At the same time, there are larger businesses making up its key buyer base.
Another reason to believe in Fiverr is that the gig economy is not likely to go away. According to a Lending Tree survey, many Gen-Z employees are now committed to the gig economy, with over half of the demographic having at least one side gig.
The company has plenty of competition, but it also has a healthy market share. At over $33 per share and up more than 21% in 2024 as of November 26, FVRR may look priced to perfection. However, with earnings per share set to nearly double in the next year, Fiverr is one of the small caps to watch.