Market capitalization matters to many stock investors, because companies whose sizes are more than $2 billion or more can endure economic downturns. However, you can also take positions in microcap stocks or companies with market caps below $300 million for increased diversification.
Sometimes, their price-appreciation potential is much more than large- or even mega-cap stocks. Today, you can keep an eye on three up-and-coming microcap stocks.
Acadian Timber (TSX:ADN) and Gear Energy (TSX:GXE) have positive gains year-to-date and should rise further. Westport Fuel Systems (TSX:WPRT) is way ahead of the recovering market, but the upward momentum continues in March 2023.
The busiest season is coming
Acadian Timber owns vast tracts of freehold timberlands in New Brunswick and Maine. Apart from selling softwood & hardwood sawlogs, pulpwood, and biomass by-products to regional customers, it provides timber services. You can earn two ways from the stock: capital gains and dividends.
At $16.09 per share (+7.52% year to date), the $272.8 million company pays a juicy 7.24% dividend. Its president and chief executive officer Adam Sheparski said 2022 was a challenging operating year for Acadian Timber. While sales volume declined 13.6% to $917.8 million versus 2021, net income rose 90% year over year to $35.5 million.
Sheparski added, “As we enter our busiest season, we have already begun to increase contractor capacity with expectations of improvement in 2023.” Expect Acadian to take advantage of the opportunities in the current regional market conditions.
Oil value growth
Gear Energy flies under the shadows of larger sector peers. However, it has rewarded investors with an impressive 381.16% overall return in three years, translating to a compound annual growth rate (CAGR) of 68.74%. Moreover, at only 1.31 per share (+0.93% year to date), you can partake of the 6.31% dividend (monthly payout).
This $292 million oil-focused company aims to achieve diversified oil value growth. Management’s mandate is to grow funds from operations, production, reserves and asset value through a balanced model of exploration, development, and strategic acquisitions.
Gear’s net income last year reached $74.9 million compared to $80.5 million in 2021. However, funds from operations and cash flows from operating activities jumped 72.5% and 73% year over year to $93.7 million and $89.7 million. Besides the strong balance sheet after 2022, it has a deep inventory of future drilling opportunities.
High-growth stock
Westport Fuel Systems is an absurdly cheap high-growth stock that outperforms the broader market by a mile. At $1.65 per share, investors enjoy an incredible 58.65% year-to-date gain versus the TSX’s +5.83%. Market analysts covering this auto parts stock have a 12-month average price target of $6.21 — a 276.4% return potential.
The $282.6 million gaseous fuel industry leader operates in the global transportation industry. It supplies advanced fuel delivery components and systems for clean, low-carbon fuels such as natural gas, renewable natural gas, propane, and hydrogen.
Management said the demand for more climate-friendly vehicles with favourable fuel price economics is growing. However, the global shortage of semiconductors and raw materials is a business threat, creating bottlenecks and impacting automotive manufacturing.
Second-liners
The featured companies are ideal second-liners for their money-making potential. Still, keep in mind that microcap stocks have higher risk profiles and are vulnerable to price shocks.
