Over the past 12 months, merger and acquisition activity has increased across various sectors, <a href="https://seekingalpha.com/news/4158335-stronger-ma-activity-among-small-caps-will-boost-their-performance-analyst">notes</a> Jefferies U.S. small- and mid-cap strategist Steven DeSanctis. This bodes well for the small-cap segment, since most deals involve smaller companies and improve their efficiency and performance.

Pickup in M&amp;A activity bodes well for small caps — Jefferies analyst

Small-cap stocks — companies with a market capitalization of between $250 million and $2 billion — can be a valuable addition to many portfolios, as they sometimes produce outsized returns, <a href="https://www.fool.com/investing/2024/10/13/the-best-small-cap-tech-stocks-to-invest-1000-in-r/">points out</a> the Motley Fool in an article highlighting three smaller companies worth investing $1,000 in right now.

The Motley Fool spotlights three small caps to invest in right now

The dominance of the so-called "Magnificent Seven" stocks — the major tech companies that fueled the equity market's growth in 2023-2024 — appears to be coming to an end. The main reason, <a href="https://www.barrons.com/articles/small-cap-stocks-buy-sell-06ebd942">according</a> to Mark Sherlock, who runs a U.S. small- and mid-cap fund at Federated Hermes in London, is overinflated expectations around large-cap stocks. He has identified four companies that investors should consider as alternatives to Big Tech names. These companies vary in size but share a key feature — "the power of low expectations."

Federated Hermes analyst names four alternatives to Big Tech stocks

For high returns, investors should <a href="https://kz.kursiv.media/2024-09-19/mrdr-smallcaps-2/">look for</a> small-cap investments with the potential to grow into the mid-cap or even large-cap segment. Georgiy Timoshin, a financial analyst at Freedom Finance Global, highlights two undervalued companies that he believes could do just that.

Freedom Finance analyst spotlights two small caps with big potential

Now may be the right time to invest in small-cap stocks, says Antony Creighton, director and head of strategy for Asia ex-Japan at Lazard Asset Management, which oversees more than $205.2 billion in <a href="https://www.lazardassetmanagement.com/about">assets</a>. The segment has likely hit bottom in terms of relative valuation, but with the Fed easing cycle getting started, small caps are now at an "inflection point," Creighton explains. At the same time, he stresses the importance of carefully picking where in the segment to invest.

Lazard strategist says small caps at an ‘inflection point’ amid Fed pivot

The fair value of Soligenix, a micro-cap pharmaceutical company, is estimated to be 800% higher than the current share price, according to a recent report by Zacks Small-Cap Research (Zacks SCR). Soligenix is developing several products, chief among which is a vaccine for the deadly, hemorrhagic-fever-causing Marburg virus. It is in the spotlight following a recent outbreak in Rwanda.

Zacks SCR sees massive upside in vaccine maker Soligenix amid Marburg virus outbreak

Small caps turned out to be some of the most profitable investments in the third quarter of 2024. The iShares Russell 2000 ETF (which tracks the performance of the Russell 2000 index) reported an 8.87% return versus 5.43% for the large-cap S&amp;P 500, points out Georgiy Timoshin, a financial analyst at Freedom Finance Global. He has spotlighted five stocks from the Russell 2000 that delivered third-quarter returns of over 100%.

Freedom spotlights five small-cap stocks with third-quarter returns over 100%

Wells Fargo analysts <a href="https://www.investing.com/news/stock-market-news/now-its-time-for-a-nearterm-smallcap-trade-wells-fargo-3640462">believe</a> that the tight U.S. presidential race, combined with favorable economic conditions, presents an attractive opportunity for a near-term small-cap trade. They expect a 5-10% outperformance by small caps versus the market if Trump wins.

Wells Fargo sees ‘compelling opportunity’ for near-term small-cap trade 

Freedom Broker has highlighted six small caps that investors should consider, with upside reaching 400%. Meanwhile, they caution that portfolios should be diversified to minimize risks.

Freedom Broker spotlights small-cap stocks to look at

Zacks Small-Cap Research has released a report on Tonix Pharmaceuticals, which is developing a monkeypox vaccine, <a href="https://s27.q4cdn.com/906368049/files/News/2024/Zacks_SCR_Research_09092024_TNXP_Bautz.pdf">valuing</a> the stock at $4 per share, nearly 26 times the last closing price. The company's current market capitalization is around $3.3 million.

Micro-cap Tonix Pharmaceuticals massively undervalued amid monkeypox outbreak — Zacks

The global shift toward digitalization is creating opportunities across various markets as companies integrate AI, machine learning, and blockchain technologies. Zacks has <a href="https://www.zacks.com/commentary/2332562/3-stocks-to-buy-from-the-flourishing-technology-services-market">fingered</a> three stocks that could benefit from the rapid growth in what it calls the technology services market: the small caps Byrna Technologies and Climb Global Solutions, as well as the giant Spotify Technology.

Zacks spotlights three stocks poised to benefit from booming tech services market

The consulting firm Grand View Research expects the global AI market to grow from less than $200 billion in 2023 to $1.8 trillion by 2030. Against this backdrop, the tech giants driving AI adoption are Wall Street favorites, making it increasingly difficult to find stocks with untapped potential. Insider Monkey compiled a <a href="https://www.insidermonkey.com/blog/7-most-popular-ai-penny-stocks-under-5-1339722/6/">list</a> of the seven AI stocks priced under $5 that are most popular with "elite" hedge funds.

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