- The Fed went big this week and delivered a 50-basis point rate cut, with more easing on the horizon.
- Small caps tend to outperform the most during easing cycles, especially when the economy manages to avoid falling into a recession.
- Investors seeking undervalued, high-growth small-cap stocks in a favorable macroeconomic environment should consider adding these two names to your portfolio.
- Looking for actionable trade ideas to navigate the current market volatility? Unlock access to InvestingPro for less than $8 a month!
In the wake of the Federal Reserve’s recent 50 basis point rate cut, the spotlight is on small-cap stocks, which often thrive during easing cycles—especially when the economy skirts recession.
Historically, these nimble companies have outperformed when interest rates fall, benefiting from cheaper borrowing costs and increased investor appetite for risk.
With the Fed striving for a delicate soft landing—slowing inflation without triggering an economic downturn—this environment presents a unique opportunity for select small caps.
Source: Investing.com
Using the Investing.com ‘Small-Cap Growth Rockets’ stock screener—which has returned 16.3% in the past three months—I identified Purecycle Technologies Holdings (NASDAQ:PCT) and Nuscale Power (NYSE:SMR) as two promising companies that deserve your attention.
Both stocks have surged ahead of the broader market recently, driven by strong industry tailwinds, and are poised for even greater upside.
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Now, let's delve deeper into why these two lesser-known small-cap winners mentioned below should be on your radar.
1. Purecycle Technologies Holdings
- Current Price: $9.28
- Fair Value Price Target (NYSE:TGT): $10.12 (+9.1% Upside)
Purecycle Technologies is leading the charge in the plastic recycling industry. The company’s proprietary technology transforms polypropylene waste, one of the most commonly used plastics, into high-quality recycled resin.
This process offers a sustainable solution for industries such as consumer goods, automotive, and healthcare, all of which are under increasing pressure to adopt greener practices.
With its leadership in a rapidly growing market and increasing demand for recycled plastics, Purecycle is positioned for continued success.
PCT stock ended Thursday’s session at a fresh 52-week high of $9.28, a level not seen since August 2023. Purecycle Technologies has a market cap of $1.5 billion at its current valuation. Shares have more than doubled this year, rising 129% year-to-date.
Source: Investing.com
Key Growth Catalysts:
- Sustainability Megatrend: As global regulations around plastic usage tighten, demand for recycled materials is expected to skyrocket. Purecycle is uniquely positioned to capture this growing demand with its breakthrough technology, which produces ultra-pure recycled plastic.
- Scaling Up Production: Purecycle’s first commercial plant in Ohio is on track to scale production, with further expansion plans in place. This increase in capacity will drive future revenue growth as the company meets the rising need for recycled materials.
- Strategic Partnerships: The company has already secured high-profile partnerships, including with Procter & Gamble, giving it a significant edge in commercializing its technology at scale.
Fair Value Upside:
Despite being up more than 100% year-to-date, Purecycle remains deeply undervalued. According to AI-powered models from InvestingPro, PCT has an estimated 9.1% upside, with a Fair Value target of $10.12.
Source: InvestingPro
Given its leadership position in the plastic recycling revolution and the immense demand for sustainable solutions, Purecycle is well-positioned to deliver outsized returns in the months ahead.
This makes it a compelling buy for investors looking to capitalize on the sustainability megatrend while the stock remains under $10.
2. Nuscale Power
- Current Price: $9.61
- Fair Value Price Target: $11.51 (+19.8% Upside)
Nuscale Power is at the forefront of the next generation of nuclear energy, developing small modular reactors (SMRs) designed to provide cleaner, safer, and more scalable energy solutions.
As the world seeks to reduce its dependence on fossil fuels, Nuscale’s technology offers an efficient alternative to traditional nuclear power plants.
With the increasing demand for clean energy solutions, Nuscale is well-positioned to capture market share in this growing sector.
SMR stock closed at $9.61 last night, earning the Portland, Oregon-based company a market cap of $2.3 billion. Shares have gained a massive 192% in 2024.
Source: Investing.com
Key Growth Catalysts:
- Clean Energy Revolution: As global governments push for greener energy solutions, nuclear power is undergoing a resurgence. Nuscale’s SMRs provide a cleaner, more efficient method of generating nuclear energy, making them a vital part of the renewable energy landscape.
- Regulatory Wins: Recently, Nuscale achieved significant regulatory milestones, including the approval of its SMR design by the U.S. Nuclear Regulatory Commission. This green light paves the way for commercialization and wider adoption of its groundbreaking technology.
- Global Expansion: With agreements in place to deploy its reactors in key international markets, Nuscale is poised for robust growth as the demand for reliable, clean energy solutions intensifies worldwide.
Fair Value Upside:
Nuscale’s stock has soared in 2024, yet it remains significantly undervalued compared to its long-term potential. According to InvestingPro, SMR has a 19.8% upside potential, with a Fair Value estimate of $11.51.
Source: InvestingPro
As governments around the world continue to prioritize clean energy, Nuscale is set to benefit from increasing investments in nuclear power. With its stock still trading under $10, this is an attractive entry point for investors looking to tap into the next wave of the clean energy revolution.
Conclusion:
Both Purecycle Technologies and Nuscale Power offer compelling investment opportunities in the aftermath of the Fed’s aggressive rate cut. Historically, small-cap stocks like these have outperformed during easing cycles, and both companies are benefiting from powerful industry tailwinds that are expected to drive substantial growth in the months to come.
With Purecycle poised to capitalize on the global push toward sustainability and Nuscale positioned to play a key role in the clean energy revolution, these stocks offer significant upside potential.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF, and the Invesco QQQ Trust (NASDAQ:QQQ) ETF. I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.