5 Small Cap Stocks That Popped 30% In Less than 10 Days

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The rotation to small caps stocks started on July 11th and hasn't let up yet. As of noon today, the small cap-focused Russell 2000 has outperformed the S&P 500 by 12% and the Nasdaq-100 by 16% over that period.

I looked for which stocks have done the best during this rally for clues where investors are piling into in preparation for new rate cuts from the Federal Reserve. Each stock in this article is worth at least $500 million, trades on U.S. stock exchanges, and is up 30% or more since July 11th. Let's take a look at what's rallying in the current market.

Why Are Investors Rotating to Small Cap Stocks?

If you're wondering why investors are rotating to small cap stocks, the primary reason is they may have more upside ahead. Simply put, many smaller companies have struggled across the past two years. This led investors to pile into stocks that were still seeing strong growth. Looking at Magnificent 7 tech companies, Meta has seen more than 100% profit growth across the past 12 months, Amazon is seeing accelerating growth, and NVIDIA 's profit has jumped more than 700%.

There just aren't many stocks seeing this level of success in small caps. So lower rate cuts may impact these smaller companies more favorably in several ways:

1. An economy that heats up after rate cuts could lead to more small cap profit growth compared to large tech stocks that are already seeing high growth and may not benefit as much from increasing consumer sales.
2. Lower rates also benefit companies that rely on debt. Think about a small company in the renewable energy space that's relying on debt and now has a path to rates decreasing by several percent in the coming years. Another example is home builders and companies in the residential value chain. Lower rates will likely lead to significantly more home buying.

One note of caution for investors, while individual small cap stocks have often gotten very "cheap," the indexes as a whole might not be as cheap as you expect. Here's a comparison of major indexes:

1.) QuantumScape (Nasdaq: QS)

• Return (7/10 to 7/23): 48.8%

After July 10th, many smaller EV stocks rallied while larger stocks like Tesla faded. QuantumScape aims to commercialize new battery technology in electric vehicles. On July 11th, the company announced a deal with Volkswagen that could lead to the production of its technology at scale.

QuantumScape is small and speculative. The company has about $1 billion in the bank but is currently losing about -$460 million per year. The company has been issuing new stock to raise more money, but as its share price falls that option is less attractive. So beyond the Volkswagen deal, a lower interest rate environment benefits the company and gives them more "runway" to commercialize their batteries at scale.

2.) Anywhere Real Estate (NYSE: HOUS)

• Return (7/10 to 7/23): 40.7%

Anywhere Real Estate traded for north of $50 per share in 2013. Even after its recent surge, it still trades for less than $5 per share. The company offers integrated real estate services (brokerage, title, and franchising).

The bad news? From 2019 to today, the company lost money in all but one year. The good news? In the most robust year for real estate in that span - 2021 - the company recorded $343 million in net income. Considering the company trades for only about a total value of $500 million, if 2025 real estate boomed after a series of rate cuts the company could see significant upside. This is once again a risky stock, but it does show the types of markets investors are flooding into.

3.) Hovanian Enterprises (NYSE: HOV)

• Return (7/10 to 7/23): 40.7%

Let's stick with real estate with our next stock. Hovanian is a residential home builder. Even after these recent gains, it trades for just 6.6 times earnings. The company is worth about $1.2 billion and made $205 million in fiscal 2023.

Hovanian also has a preferred stock that issues dividends which makes analysis of the company difficult. However, we can look at larger home builders and their performance across the past month for a look at how much enthusiasm is building in the industry:

• D.R. Horton (NYSE: DHI): Up 24%
• Lennar (NYSE: LEN): Up 13.9%
• NVR (NYSE: NVR): Up 12.8%
• PulteGroup (NYSE: PHG): Up 12.6%

4.) Cipher Mining (Nasdaq: CIFR)

• Return (7/10 to 7/23): 38.4%

Cipher Mining is a Bitcoin miner. Historically, rate cuts have been extremely positive for Bitcoin. When interest rates soared in 2022, Bitcoin's price collapsed. Now that expectations are building for rate cuts, Bitcoin is once again on the rise.

While not a small cap, another stock with impressive returns since July 10th is MicroStrategy (Nasdaq: MSTR). The company, which owns huge reserves of Bitcoin on its balance sheet, is far and away the best-performing stock with a market cap above $10 billion since July 10th. Another catalyst behind Bitcoin's price has been betting markets tilting toward Donald Trump winning the Presidency.

Trump has spoken positively about Bitcoin and other cryptocurrencies , and it's believed he'd reduce regulation in the space. Our opinion is that you're better off buying Bitcoin than companies like miners in the space. But, miners and other "picks and shovels" plays will likely outperform in times of euphoria.

5.) Fate Therapeutics

• Return (7/10 to 7/23): 78.5%

Many of the top performers in the past month were in the biotech space. Some other examples include (performance 7/10 to 7/23).

• Aveanna Healthcare Holdings: Up 76.7%
• IGM Biosciences: Up 65.5%
• Humacyte: Up 44.9%
• Anavex Life Sciences: Up 42.4%
• Pacific Biosciences of California: 42.3%
• Evolv Technologies Holdings: Up 42.2%

We could go on with this list. The key point here is biosciences is a space where runway is very important. These companies are pushing to commercialize new drugs and therapeutics, with an unknown timeframe. So, "cheaper money" in the form of lower rates is a huge positive for the industry in general.

Just be aware, any companies in this space will be highly speculative.

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