Investing in small companies: 4 top small cap stocks to watch in 2022 – London Business News
Maxim Manturov, Head of Investment Research at Freedom Finance Europe, explores the growing popularity of small cap stocks and the top stocks to watch in 2022.
Investing in small businesses can be a good decision. Despite their size, some organizations will punch above their weight and generate substantial returns.
However, investors looking to capitalize on small cap stocks should be aware that this type of investment often involves risk. For example, smaller companies tend to trade less frequently than larger companies, which means stocks can be difficult to sell.
With that in mind, Maxim digs deeper into the growing popularity of small cap stocks and why traders should do their research before choosing to invest. It also highlights some of the top small cap stocks that are likely to gain traction this year.
What are small cap stocks?
Small cap stocks are shares of a company with a total market value between £300 million and £2 billion. Like large market players, investing in a small organization can have substantial growth prospects. However, they tend to offer long-term returns, as they currently lack the resources of larger capitalization companies.
This can make them more vulnerable to bearish investor sentiment, as well as negative developments. These vulnerabilities, in turn, can increase the volatility of a small cap company. Investments in these companies are particularly risky during economic downturns, as issuers are unprepared for a sharp decline in market demand.
It is therefore imperative for any investor looking to buy shares in a small organization to do their research and diversify their investments wisely. Small cap stocks are definitely something to consider, but they shouldn’t make up your entire portfolio.
Top 4 Small Cap Stocks to Watch
- PDC Energy (PDCE) is an independent oil and gas producer developing the Wattenberg field (Colorado) and the Delaware Basin (Texas). In 2021, crude oil prices posted their strongest annual rise since 2009 and the sector continues to recover in 2022. S&P Global Market Intelligence said PDC Energy received a strong consensus buy recommendation from 15 Wall Street analysts.
The average target price for PDC Energy stock is £60.7 (around 41% higher). Market participants are positive about this small-cap company’s asset base, as well as its ability to generate FCF well above its weighting.
- Tenable Holdings (TENB) develops software for the new category of cybersecurity, Cyber Exposure. Tenable is changing the way we think about data protection by providing customers with insight into the surface of a potential attack. In doing so, the vulnerabilities extend not only to typical enterprise network servers and infrastructure, but also to assets such as cloud infrastructure, Internet of Things (IoT) devices, and data technology. (OT), including industrial control systems.
A holistic approach to cybersecurity will help enterprise customers make effective strategic decisions in this area, as well as prevent and eliminate threats. Tenable Holdings has an average target price of £58.8 (around 57% upside).
- Coinbase (COIN) is a cryptocurrency exchange that looks more like a mid-cap company. It makes sense to bet on it for the long term because blockchain technology deserves approval. In the short term, however, Coinbase Global stock is one such asset that is “suffering” right now, despite being the largest digital asset platform in North America.
An investment in Coinbase can be a kind of diversification investment in the digital economy. In other words, if there are digital assets left, the COIN stock is a reasonable passive bet on the cryptocurrency market as a whole. The average target price for Coinbase shares is £294 (around 93% higher).
- DigitalOcean (DOCN) is an open source cloud infrastructure provider based in the United States. The company is showing steady earnings growth: For the first three quarters of 2021, DigitalOcean’s revenue nearly matched 2020. Additionally, DOCN’s operating cash flow is growing rapidly, while its losses are shrinking to a substantial rhythm.
DigitalOcean now has a global network of 8 data centers located in major data centers including Frankfurt, Bangalore, New York and San Francisco. The provider is positioned to be easy to use, unlike competitors such as Amazon’s Amazon Web Services. The average target price for DigitalOcean shares is £92.4 (around 107% higher).