What Are Micro-Cap Stocks and How to Invest in Them?

microcap stocksWhat Is Considered a Micro-Cap Stock?

Those of you that discovered this article by Googling “microcap stocks 2017” may have been searching for penny stocks. You’re not alone. Many investors assume that our micro-cap stocks list will be crowded with $2.00 investments, but they will inevitably be disappointed.

There’s a world of difference between microcaps and penny stocks.

For one thing, penny stocks have low share prices, usually under $5.00, while microcaps stocks have no ceiling on their share price.

Microcaps are grouped by how much a company is worth, or to put it technically, the firm’s “market capitalization.”

Share Price x Number of Outstanding Shares = Market Capitalization

Opinions vary, but I’d say that microcap stocks are valued in the range of $50.0 million to $300.0 million. Here’s a chart to help you keep track.

Nano-Cap

< $50.0M

Micro-Cap

$50.0M < $300.0M

Small-Cap

$300.0M < $2.0B

Mid-Cap

$2.0B < $10.0B

Large-Cap

$10.0B < $200.0B

Mega-Cap

$200.0B <

What Is the Difference Between Microcap and Penny Stocks?

So when you hear TV pundits talking about micro-cap stocks, just know that they’re talking about stocks within a certain bandwidth. Investors could easily pay $20.00, $30.00, or $40.00 per share, because microcaps are not grouped together by share price.

Penny stocks are a whole other ball game. They could have a valuation of $3.0 billion, but a share price of $4.26. That would fulfill the requirements of being a penny stock, because the share price is under $5.00. But it would fail to pass the microcap test, because its market cap is over $300.0 million. Do you see what I’m saying?

Perhaps a concrete example would help.

Take a look at Bombardier, Inc. (TSE:BBD.B). As a manufacturer of airplanes, it’s not surprising that Bombardier is worth $4.52 billion. Of course it’s a mid-cap stock—it makes passenger jets, for goodness’ sake!

But that doesn’t mean that Bombardier stock needs to be expensive. Investors can pick up the stock for $2.05 a pop, which means it is squarely in the penny stock camp.

In other words, penny stocks are decided by share price. Micro-cap stocks are decided by market cap. Keep that in mind.

How to Invest in Microcap Stocks

Microcap stocks are available on all exchanges. Investors can buy them through any broker or trading platform. If this sounds like how you buy any other stock, it’s because microcap stocks are your average, garden-variety stocks. You buy them like you buy all other stocks.

That being said, micro-cap stocks require a shift in mentality. They are smaller companies than what you might be used to. They don’t make headlines every day, and their CEOs aren’t frequent guests on CNBC. Hence, you know less about them.

But they tend to fit a certain profile.

For instance, good micro-cap stocks often have:

  • Low trading volumes
  • Two to three business lines
  • Very little debt
  • Few to no institutional investors
  • A simple capital structure

These are the things I use to spot triple-digit winners. Subscribers to my 21st Century Technology Profits newsletter can attest to the impressive returns this strategy yields. Some stocks have doubled in less than six months!

There are companies like this at every level of the stock market. However, you’re more likely to find them in the microcap level. They’re like a pit stop on the road to success.

Think about it: small-cap stocks were once micro-cap stocks. The same stands true for large-cap and mega-cap stocks. All of them were once micro-cap stocks.

Now this doesn’t mean that you should pick micro-cap stocks blindfolded. Don’t shut your eyes and throw darts at a board. That’s always a bad idea.

Instead, maybe try investing in a few microcap stocks that meet the criteria listed above. Then you could “average up.”

Averaging up means investing more of your money in stocks that do well.

Oddly enough, most people do the opposite. They sell their winners to buy more of their losers, thinking that this will increase their gains in the long term.

Sorry, but that makes no sense. Why would you put more money in a bad stock?

Perhaps you’ll take a small hit on your losers, but the idea is to consolidate money in the few stocks that actually deliver gains. In other words, if a stock has proved itself to be a good investment, try doubling down.

You should, of course, make sure that your investment thesis is still solid before doubling down. That’s just common sense. But other than that, I think it’s more effective to bet on proven winners than proven losers.

Best Microcap Stocks 2017

While our best stock picks are reserved for the 21st Century Technology Profits newsletter, I think it’s important to show you how much money you’re NOT making each day.

Here are the top micro-cap stocks ranked by their performance this year. Some of these stocks have doubled since the start of 2017.

BEST MICRO-CAP STOCKS 2017

Symbol Company Price YTD Return
AQB AquaBounty Technologies, Inc. $7.85 +4,719.28%
CTIC CTI BioPharma Corp $4.06 +898.53%
PTIE Pain Therapeutics, Inc. $4.64 +714.63%
WHLR Wheeler Real Estate Investment Trust Inc $11.70 +588.24%
HNR Harvest Natural Resources, Inc. $6.62 +503.84%
COOL Polarityte Inc $12.14 +274.69%
PTX Pernix Therapeutics Holdings Inc $6.77 +248.97%
CGIX Cancer Genetics Inc $4.20 +211.11%
INNL Innocoll Holdings PLC $2.12 +207.25%
BLPH Bellerophon Therapeutics Inc $1.58 +203.85%

As you can see, investing in microcap stocks could have turned $10,000 into $481,928 in just five months!

Don’t kick yourself, though, because there are always new winners climbing up the ranks of the stock market. Many of them go public at the microcap level before skyrocketing into the billions.

The point is to catch them before they get there.

What Are the Best Microcap Stocks in the Technology Sector?

Some of you may have noticed that my “best microcap stocks list” was open to all sectors. You may also have noticed Profit Confidential is devoted to tech investing.

Both of these things are true.

But rest assured, I didn’t craft the list in order to hide. I just wanted to show that micro-cap stocks are incredibly active as a group.

I’ll gladly measure the technology sector against any other. Those of you who follow my writing know how confident I am in the power of innovation. I believe that technology firms are eating into the rest of the economy.

They are entering almost every industry—and dominating!

So here is a second chart, this time showing microcap stocks in the technology sector. You may notice something else this time…

BEST TECHNOLOGY MICRO-CAP STOCKS 2017

Symbol Company Price YTD Return
AQB AquaBounty Technologies, Inc. $7.85 +4,719.28%
CTIC CTI BioPharma Corp $4.07 +898.53%
PTIE Pain Therapeutics, Inc. $4.64 +714.63%
COOL Polarityte Inc $12.14 +274.69%
PTX Pernix Therapeutics Holdings Inc $6.77 +248.97%
CGIX Cancer Genetics Inc $4.20 +211.11%
INNL Innocoll Holdings PLC $2.12 +207.25%
BLPH Bellerophon Therapeutics Inc $1.58 +203.85%
GALT Galectin Therapeutics Inc $2.87 +192.86%
IOTS Adesto Technologies Corp $5.25 +183.78%

Note: For some strange reason, biotech stocks are classified as healthcare rather than technology. So I cross-checked the “top technology microcap stocks 2017” with “top NASDAQ microcap stocks 2017” to arrive at this list. One or two non-tech stocks had to be removed from the list, but otherwise this presents a clear picture of which technology-related stocks outperformed in 2017.

Compare the two lists. Only two stocks are different. The rest of them are biotech stocks—they outshone everything other micro-cap stock on the market!

Here are the two that got nixed from the first list:

  1. Harvest Natural Resources, Inc. (NYSE:HNR) didn’t make the second list because it’s explicitly not a technology stock. It is (or should I say was?) a petroleum exploration and production company. The company is now “in the process of dissolution and winding up,” which may help explain why its share price is surging. One final dividend payment of $5.75 will be made before the shares cease trading. (Source: “Harvest Natural Resources Confirms Payment Of Dividend, Termination Of Trading, And Time Of Dissolution,” PR Newswire, May 3, 2017.)
  2. Wheeler Real Estate Investment Trust Inc (NASDAQ:WHLR) also didn’t make the jump from “best microcap stocks” to “best technology microcap stocks,” despite being listed on the NASDAQ Stock Exchange. I removed this one by hand because, well, it’s not a technology stock. It is a commercial real estate fund with 74 properties across the United States. Don’t get me wrong: I think it’s impressive that Wheeler has successfully leased 94% of its total leasable square footage, but that’s neither here nor there.

Replacing these two were another pair of biotech stocks: Galectin Therapeutics Inc (NASDAQ:GALT) and Adesto Technologies Corp (NASDAQ:IOTS), which had returned 192.86% and 183.78%, respectively, at the time of writing.

So when all’s said and done, the entire list of technology-based micro-cap stocks hailed from the biotech space. You’d have more than doubled your money even if you picked the 10th stock on the list. How many other sectors can boast such impressive returns?

Should You Invest in Microcap Companies?

As always, dear reader, I leave the final decision to you.

I’m only a humble analyst.

My job is to wade through a sea of data and financial jargon so I can point you in the right direction. To that end, I think that investing in micro-cap stocks could have made investors a lot of money this year. The data is unequivocal about that.

But are these also the microcap stocks to watch in the months to come?

Sorry, but for that you’ll have to subscribe to my paid newsletter. Otherwise it’s not fair to my paying readers. It’s possible that we’ll be adding some biotech stock picks soon.