10 of the Best Small-Cap Stocks to Buy Today

Small-cap stocks are staging a mini-rally: The Morningstar US Small Cap Index has gained nearly 3 percentage points more than the Morningstar US Large Cap Index during the trailing three months as of Oct. 11, 2024. That’s a small victory for long-suffering small-cap stock investors, though: Large-cap stocks have outperformed small-cap stocks during the trailing one-, three-, five-, and 10-year periods by sizable margins.

Are Small-Cap Stocks Good Investments Today?

After such significant underperformance over such a long period of time, small-cap stocks could certainly have more room to run. In fact, Morningstar US Market Strategist Dave Sekera points out in his fourth-quarter stock market outlook that small-cap stocks looked significantly undervalued heading into the fourth quarter while large-cap stocks looked overvalued. “We advocate an overweight in small-cap stocks, market-weight in mid-cap stocks, and underweight in large-cap stocks,” he noted in his report.

The small companies on Morningstar’s list of 10 of the best small-cap stocks to buy share a few qualities:

• The stocks are from companies that all earn Morningstar Economic Moat Ratings of wide or narrow; these companies have advantages that should allow them to keep competitors at bay.
• The management teams at these companies earn a Morningstar Capital Allocation Rating of Standard or Exemplary, suggesting that the balance sheets and investment decisions at these companies are well-managed.
• These stocks look undervalued, which means they’re trading below Morningstar’s fair value estimates.
• These stocks land in the small-cap portion of the Morningstar Style Box.

10 Best Small-Cap Stocks to Buy Now

Here are the most undervalued stocks covered by Morningstar analysts that land in the small-cap portion of the style box, earn economic moat ratings of narrow or wide, and garner Standard or better capital allocation ratings as of Oct. 11, 2024.

1. Lithium Americas (Argentina) LAAC
2. Adient ADNT
3. Hanesbrands HBI
4. Bath & Body Works BBWI
5. Etsy ETSY
6. Sirius XM Holdings SIRI
7. Compass Minerals International CMP
8. FMC FMC
9. Ionis Pharmaceuticals IONS
10. Sensata Technologies ST

Notably, most of the names on our list of the best small-cap stocks to buy today have High or Very High Morningstar Uncertainty Ratings. The higher a company’s uncertainty, the less predictable its cash flows are. By their very nature, smaller companies are more likely to have higher uncertainty. To compensate for this, it’s especially important to buy small-cap stocks at prices that are well below what they’re worth—and to invest in them for the long term.

Here’s a little more about each of the top small-cap stocks to invest in. Data is as of Oct. 11, 2024.

Lithium Americas (Argentina)

• Price/Fair Value: 0.18
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Morningstar Capital Allocation Rating: Standard
• Industry: Other Industrial Metals & Mining

Lithium Americas (Argentina) tops our list of the best small-cap stocks to buy; the cheap stock is trading a stunning 82% below our fair value estimate of $20. Lithium Argentina is a pure-play lithium producer that was created as a result of the former Lithium Americas separation, which split the firm’s Argentina and North America businesses. The company’s first project entered production late last year. Lithium prices are at multiyear lows today, but we expect prices to rise in 2025, spurred by cuts in supply, explains Morningstar strategist Seth Goldstein. “For all lithium companies, we view the rise of lithium prices as the largest and most important catalyst that should send shares closer to our fair value estimates,” he argues.

Read Morningstar’s Analyst Report about Lithium Americas (Argentina).

Adient

• Price/Fair Value: 0.33
• Morningstar Uncertainty Rating: Very High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Narrow
• Industry: Auto Parts

Adient is the leader in the automotive seating market. Seating isn’t a commodity market, as some might expect, says Morningstar strategist David Whiston. In fact, Adient has just one significant global competitor. Low customer production in Europe hurt results last quarter and led management to cut its revenue guidance, but we think Adient stock is extremely undervalued and a top small-cap stock to buy for the long term, as it trades 67% below our $68 fair value estimate.

Read Morningstar’s analyst report about Adient.

Hanesbrands

• Price/Fair Value: 0.46
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Morningstar Capital Allocation Rating: Standard
• Industry: Apparel Manufacturing

The second of four consumer cyclical stocks on our list of the top small-cap stocks to buy for the long term, Hanesbrands stock is 54% undervalued according to our metrics. A market leader in basic innerwear, the company made headlines during the summer when it announced plans to sell its Champion brand to Authentic Brands. “We think the sale of Champion will have a positive effect on long-term profit margins as innerwear is generally more profitable than Champion, and the sale should allow management to focus on the innerwear brands,” says Morningstar senior analyst David Swartz. We assign the stock a $15.80 fair value estimate.

Read Morningstar’s analyst report about Hanesbrands.

Bath & Body Works

• Price/Fair Value: 0.47
• Morningstar Uncertainty Rating: High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Narrow
• Industry: Specialty Retail

Known for its specialty home fragrances and fragrant body care products, Bath & Body Works is facing headwinds as consumers pull back on spending. But we think shares of this small company look 53% undervalued. “Although the near term could prove spotty for consumer demand, we don’t think current trends are indicative of long-term fundamentals for this business,” argues Morningstar senior analyst Jaime Katz. Katz expects promising long-term growth in the company’s retail, digital, and international channels. Bath & Body Works is among Morningstar analysts' top undervalued stocks for fourth-quarter 2024. We think shares of this overlooked small-cap stock to buy are worth $67.

Read Morningstar’s analyst report about Bath & Body Works.

Etsy

• Price/Fair Value: 0.50
• Morningstar Uncertainty Rating: Very High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Wide
• Industry: Internet Retail

The only wide-moat stock on our list the best small-cap stocks to buy, Etsy looks 50% undervalued relative to our $100 fair value estimate. “Etsy is one of the few companies poised to emerge as one of e-commerce’s long-term winners,” maintains Morningstar senior analyst Sean Dunlop. Etsy’s marketplace features nontraditional, unique, customizable, and artisanal inventory, which enjoys a competitive edge from a network that grows more valuable as additional buyers and sellers join the platform. Moreover, the firm has developed search algorithms that would be tough to replicate. While a challenging sales environment has damped growth this year, we think Etsy is an attractive long-term investment.

Read Morningstar’s analyst report about Etsy.

Sirius XM Holdings

• Price/Fair Value: 0.50
• Morningstar Uncertainty Rating: Medium
• Morningstar Capital Allocation Rating: Exemplary
• Morningstar Economic Moat Rating: Narrow
• Industry: Entertainment

Sirius XM Holdings is composed of two businesses, SiriusXM and Pandora. This small company has faced subscriber growth headwinds and slowed revenue growth this year, which has driven down its stock price. But Warren Buffett’s Berkshire Hathaway has been buying more of the stock in 2024, recent regulatory filings show. We don’t expect growth to revive significantly: We forecast total revenue to increase at an average annual rate of less than 1% from 2024 through 2028, says Morningstar analyst Matthew Dolgin. Even so, this small-cap stock looks cheap, trading 50% below our $50 fair value estimate.

Read Morningstar’s analyst report about Sirius XM Holdings.

Compass Minerals

• Price/Fair Value: 0.50
• Morningstar Uncertainty Rating: Very High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Narrow
• Industry: Other Industrial Metals & Mining

Compass Minerals stock trades 50% below our $25 fair value estimate. This small company produces salt and specialty potash fertilizer, and its portfolio of cost-advantaged assets is “enviable,” according to Morningstar’s Goldstein. In January, Compass Minerals saw a change in CEO; we expect the leadership change to signal a renewed focus on cost reduction and drive free cash flow generation, says Goldstein. To that end, the company cut its dividend entirely in May, directing all free cash flow toward debt reduction over the next several years.

Read Morningstar’s analyst report about Compass Minerals.

FMC

• Price/Fair Value: 0.55
• Morningstar Uncertainty Rating: High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Narrow
• Industry: Agricultural Inputs

This undervalued small-cap stock trades 45% below our $110 fair value estimate. FMC is a pure-play crop chemical producer and one of the five-largest patented crop-protection companies globally. A pipeline of new premium products should allow FMC to continue producing new crop chemicals as older products roll off patent, says Morningstar’s Goldstein. Challenges posed by inventory destocking appear to be a thing of the past; Goldstein expects FMC to generate double-digit profit growth by the fourth quarter of 2024 and in 2025. FMC is among Morningstar’s top analyst picks for fourth-quarter 2024.

Read Morningstar’s analyst report about FMC.

Ionis Pharmaceuticals

• Price/Fair Value: 0.56
• Morningstar Uncertainty Rating: High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Narrow
• Industry: Biotechnology

The only healthcare company on our list of the small-cap stocks to buy, Ionis Pharmaceuticals stock trades 44% below our fair value estimate of $69. A leader in RNA-based therapies, Ionis’ proprietary antisense technology that has led to several approved RNA-based drugs and a steadily growing pipeline supports the firm’s narrow economic moat, explains Morningstar director Karen Andersen. This small company has also established partnerships with bigger concerns, including Astra Zeneca, Roche, Biogen, and Novartis (among others), which fund its operations.

Read Morningstar’s analyst report about Ionis Pharmaceuticals.

Sensata Technologies

• Price/Fair Value: 0.56
• Morningstar Uncertainty Rating: High
• Morningstar Capital Allocation Rating: Standard
• Morningstar Economic Moat Rating: Narrow
• Industry: Scientific & Technical Instruments

Sensata Technologies rounds out our list of the best small-cap stocks to buy. A global supplier of sensors for transportation and industrial applications, Sensata should benefit from secular trends toward electrification, efficiency, and connectivity, explains Morningstar analyst William Kerwin. We expect macro headwinds to persist into 2024 but to alleviate in 2025, he adds. This cheap small-company stock trades 44% below our $64 fair value estimate.

Read Morningstar’s analyst report about Sensata Technologies.

What Do Morningstar’s Stock Ratings Mean?

Here’s a rundown of the Morningstar ratings and metrics we considered when compiling the list of the top small-cap stocks to buy for the long term.

The Morningstar fair value estimate represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

The Morningstar Capital Allocation Rating is an assessment of how well a company manages its balance sheet, investments, and shareholders’ distributions. Analysts assign each company one of three ratings—Exemplary, Standard, or Poor—based on their assessments of how well a management team provides shareholder returns.

The Morningstar Economic Moat Rating gauges how likely a company is to keep competitors at bay for the foreseeable future. Companies that we expect to maintain their competitive edge for two decades or more are assigned a wide moat rating; those we expect to remain competitive for at least a decade earn a narrow moat rating; and those that have yet to carve out competitive advantages earn a moat rating of none.

How to Find More Small-Cap Stocks to Invest In

Of course, there are many other criteria that investors can use to find small-cap stocks to buy for the long term. Here are some tools to find more ideas to research further:

• Investors can use the Morningstar Investor screener to create their own list of small-cap stocks that meet their specific criteria. Set the Investment Type to stocks, and then choose what market capitalization threshold you’d like in the Criteria section. You can then refine your search for small-cap stocks even further by adding valuation, profitability, and/or other requirements. You can also screen your list of small-cap stocks by Morningstar Rating or economic moat.
• Investors who’d rather invest in small-cap stocks through a managed product can review our list of The Best Small-Cap Funds.