Contrarian investing: 5 smallcap stocks with an upside potential of more than 23%

Investing in small cap stocks is one of the toughest challenges for any investor. However, if an investor gets his decision right, the returns on investment on getting (ROI) are high. ET screener powered by Refinitiv’s Stock Report Plus lists down stocks from small cap space with high upside potential over the next 12 months, having an average recommendation rating of “Buy” or Strong Buy and also meeting some parameters like net margins and return on equity.

Reality of small cap stocks. Investor’s desire to own them “highest”. Their ability to find good quality stocks is “very low” and on top of it understanding the risk of investing in small cap “ lowest”. All these three things are relevant at this point of time. Everyone wants to buy small cap stocks, but they don't understand that the valuations are extremely high and so are the risks. For all those who still want to take exposure to them, in such times, it would be better to be cautious in selecting the stocks, better to go with buying in smaller quantities and keep some cash allocated for the stocks, but only to be used on the day when there is absolutely chaos on the street. Refinitiv’s Stock Report Plus which lists stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy .

These small cap companies have shown returns of more than 10 percent in the last 3 months at a time when markets have been overwhelmed by news and other developments. Also, their overall scores have improved from their three months prior score. ET screener powered by Refinitiv’s Stock Report Plus lists down stocks with high upside potential over the next 12 months, having the average recommendation of Strong Buy .

The recent performance of small caps has brought them in the category of stocks where the desire to own them is “highest”. But the fact which gets ignored in such conditions is that “risks” are also at the highest. The reason, valuation across the board are expensive and corrections in small caps are probably the most brutal ones. Just jog your memory back to October 2021. For all those who still want to take exposure to them, in such times, it would be better to be cautious in selecting the stocks, better to go with buying in smaller quantities and buy stocks where the underlying business has good macro fundamentals. Refinitiv’s Stock Report Plus which lists stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy .

These small cap companies have shown positive returns in the last one month at a time when markets have been overwhelmed by news and other developments. ET screener powered by Refinitiv’s Stock Report Plus lists down stocks with high upside potential over the next 12 months, having an average recommendation of “buy” or strong buy .

When investing in small caps, there are two challenges which investors face. First, finding the right stock and second when the stock does not perform for some period of time, holding it in the portfolio. When investing in small caps one should be aware that they are the riskiest place to take espouse when it comes to equity, so the holding period of that stock might get extended due to overall market conditions. So a space with the highest risk and highest reward. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate the stock market.

Even as nifty corrects, more small cap stocks are joining the party and on a number of days the breadth of the small cap segment is better than large caps. Coming on the list is auto ancillary unit to logistic company. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate the stock market.

In a period where small-cap stocks underperformed significantly, leading to a situation where large investors were calculating their losses in their small-cap holdings, there would be a group of steadfast enthusiasts who continue to see potential in small caps. Investing in these stocks, even amidst turmoil, can be sensible for those prepared to maintain their investment for three to five years. However, it's crucial to recognize the distinction between high-quality and poor-quality businesses across the small, mid, and large-cap spectrums, as well as the difference between the intrinsic value of a stock and the overall value of the company. Certain niche small businesses may still generate significant returns over time if they are held long enough. On the other hand, if one's approach to small-cap investments is merely based on the absolute value of a stock with hopes of a tenfold increase, then it's a misconception. Stock market investing, whether in small, mid, or large caps, should not be driven by unrealistic expectations; otherwise, it leads to nothing but undue stress, rather than substantial returns.

As Nifty comes closer to form a new high, more small cap stocks are joining the party. Right from a logistic company of a large industrial house to a diagnostic major to quick service restaurant players are coming on the list. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate the stock market.