7 Top Small-Cap Stocks to Watch in 2021

Some traders just aren’t interested in small-cap stocks … and they could be missing out.

These companies may not be household names, but there’s a lot of potential in some of them.  

The year’s been off to a hot start. We’ve seen many small caps in hot sectors break out. 

Electric vehicles, e-sports, 3D printing, stay-at-home plays — there are so many sectors with breakout potential. I keep tabs on it all and send out a weekly watchlist. Sign up to get my picks in your inbox every Sunday for no cost!

Read on to find out about seven small-cap stocks worth watching in 2021 and why I think they could be on their way to breaking out. I’ll also answer some frequently asked questions about small caps. Let’s go.

Small-Cap Stocks: Definition

A small-cap stock is a stock with a market capitalization between $100 million and $2 billion.

Market capitalization — market cap — is the value of a company’s outstanding shares. It’s calculated by multiplying the share price by the number of shares.

What Is Considered a Small-Cap Stock?

Any stock with a market cap of less than $2 billion could be considered a small-cap stock. It doesn’t matter what sector the company’s in.

Characteristics of a Small-Cap Stock

Small-cap stocks are mostly smaller, up-and-coming companies. Some are penny stocks. 

These stocks usually have lower liquidity than larger-cap stocks. They’re also considerably more volatile. That means trading them can be riskier.

But there’s also more growth potential and a greater chance for big moves. That’s what makes them attractive to traders.

Why Should You Trade Small-Cap Stocks? 

Trading small-cap stocks can be riskier than trading well-established stocks. Make sure a small-cap stock fits in with your trading goals, and that you understand the risk and have a solid trading plan.

If you’re a high risk/high reward kind of trader, then trading small-cap stocks might be for you. But make sure you have a good trading plan with an entry/exit strategy — and stick to it.  Do your research.

Small-Cap Companies

Small-cap companies may have good growth potential … But because they can be risky, it’s important to find out as much as you can about them. Do your research. Check their website. 

What does their financial performance look like? Have there been any management changes? Do their press releases have real news, or are they just fluff? Do you see any red flags?

Some of these companies won’t have the greatest financials or earning reports. That’s OK — as long as you have a plan to trade them. That means setting reasonable goals while setting levels for your risk. These stocks tend to be better for day trading. Make sure you’re prepared.

7 Top Small-Cap Stocks to Watch in 2021

Let’s get to the meat of what you came for — top small-caps to watch in 2021. I’ll get to the list, but first I have to say that this is a watchlist only. These picks are not in any way a recommendation to buy.

Use this list as your inspiration to build your own watchlist. Learn from these picks to better understand how you can find stocks to trade for your strategy.

#1 Aeterna Zentaris Inc. (NASDAQ: AEZS)

AEZS is a biotech stock with a history of running.

In February, it jumped from the 80-cent area to almost $4 in just a couple of days on new product news.

Biotech companies in general are reaching new highs. Keep an eye on this stock and watch for news catalysts.

With the right news, AEZS could run again…

#2 Entera Bio Ltd. (NASDAQ: ENTX)

ENTX is another biotech stock that’s a former runner.

This stock began running in early March with a HUGE surge in trading volume…

Average volume went from less than 10 million shares a day to more than 350 million shares … ENTX is one to keep an eye on when volume spikes.

#3 Ocugen Inc. (NASDAQ: OCGN)

Yep, it’s another biotech company with a history of running.

If you’ve been tuning in to my Pre-Market Prep sessions, you know I’ve talked about this stock a lot.

OCGN went on a run in December 2020, jumping from 20 cents to $3 on high volume. Then in January, it went up to $6 … and on to $15 in February. 

With this pick, look for news or some sort of catalyst…

#4 Phunware Inc. (NASDAQ: PHUN)

PHUN develops products for the remote learning and telehealth industries. In January, the stock went on a run from the $1.30 range to almost $3.50 in just a few days.

Since making the pivot to not just one, but TWO hot sectors, this stock is one to watch this year…

#5 Super League Gaming Inc. (NASDAQ: SLGG)

SLGG is in one of the hottest sectors of the year so far: e-sports.

This is a multibillion-dollar industry. 

SLGG ran from $3 to almost $10 in early March. It’s one to add to your watchlist as the sector continues to grow.

#6 Spectrum Pharmaceuticals Inc. (NASDAQ: SPPI)

Noticing a trend here? SPPI is another biotech runner…

The stock has had many big moves in the past. In the fall of 2020, it ran from the $3 area to close out the year at about $5.25.

Look for a news catalyst to send this one running. 2021 may be the year of biotech…

#7 Staffing 360 Solutions Inc. (NASDAQ: STAF)

STAF focuses on developing technology in the work-from-home sector.

The sector took off in 2020. In the fall, STAF ran from the 50-cent area to about $3.40. 

As remote work becomes more common, keep an eye on this stock.

Potential Benefits of Trading Small-Cap Stocks

Trading small-cap stocks may be risky, but there are potential benefits.

The lower prices make them attractive to newer traders and those with small accounts. That means more people can trade them. More buyers mean higher trading volume — and higher trading volume means more volatility. That means more chances for price swings.

Example of a Small-Cap Stock

Let’s look at SLGG, one of the companies listed above. It’s currently trading in the $6s and $7s and has a market cap of over 150 million shares. 

SLGG trades an average of more than 8 million shares a day — that’s a decent amount of trading volume. It spiked in early March from the $5 area to almost $9 on a surge in volume, meaning this stock has a history of good price action and volatility.

This is a prime example of what many day traders look for in small-caps. 

How to Analyze Small-Cap Stocks

There’s not always a lot of readily available information on small-caps. Analysts and investors may not pay much attention to them. This can leave traders to fill in the gaps.

But you can scan for these stocks and so much more with the StocksToTrade platform. It has beautiful charts, built-in scanners — even for small-caps — and so much more! Get a 14-day trial for just $7 here. 

And if you want to know how top traders get the news that can move stocks fast, check out the StocksToTrade Breaking News Chat add-on feature. Two Wall Street pros scan the markets and news to find the catalysts that can supercharge stock runs. 

Get StocksToTrade + the Breaking News Chat add-on in a 14-day trial — it’s just $17.

Risks of Trading Small-Cap Stocks

Of course there are risks with these stocks. There’s risk in all trading. So if you trade small-cap stocks, you need a solid approach for your risk management. That starts with knowing your risk tolerance…

But with small-caps, you also have to consider more volatility. It’s not unusual to see greater price fluctuations in lower-priced stocks. This can be great if you’re ready for it, but it can also be stressful. Prices can fluctuate so quickly, you may miss an exit point in the blink of an eye.

You can practice trading them to get used to the fast, wild moves with paper trading or by trading small positions.  

That’s how you learn why it’s so important to stick to your trading plan and manage your risk. And if you trade these stocks, consider setting stop-loss orders and limit sell orders to help protect your account. 

Where to Find Small-Cap Stocks

Finding small-cap stocks to trade has never been easier. It all starts with a great scanner.

Scanning can be easy with StocksToTrade’s built-in scans and point-and-click scanner. Get a 14-day trial for StocksToTrade for just $7 now! Or add the game-changing Breaking News Chat add-on for $17. I tell ya … It’s easy to get used to having two market pros on your team. They sift through the news and alert you to the items that have the potential to spike stocks. 

Frequently Asked Questions About Small-Cap Stocks

You’ve got more questions, and I have more answers. Let’s get into the super nitty-gritty.

Are Small-Cap Stocks Good?

For some traders, yes … For others, no. It depends on the size of your account, your trading plan, goals, and risk tolerance. While small-caps’ lower prices may be attractive to traders with smaller accounts, they may be riskier trades. 

You must be ready. Start with your education right here on the STT blog. Or you can join the SteadyTrade Team where you get access to twice-daily webinars and a full archive of educational content. You don’t have to go it alone in the markets!

What Is the Best Small-Cap Stock?

There are many! It depends on your criteria. Use the list above as a starting point for a watchlist, and find the stocks that fit your trading plan and your trading goals.

Is It Better to Trade Small Caps or Large Caps?

Again, it’s all about your trading goals. Do you want to play it safer with stocks that may make smaller gains and losses over time? Or are you more interested in a higher risk/higher reward style of trading? You decide what fits you best — then focus on learning all you can about your go-to strategy. 

Are Small-Cap Stocks Right for You?

If you aren’t sure if trading small-cap stocks is right for you, try paper trading first. Paper trading allows traders to gain market experience without risking their capital. It’s a way to develop your trading skills and gain confidence — without risking a dime…

Try it with your 14-day StocksToTrade trial for just $7! It includes a great paper trading feature.

Small-Cap Stocks: The Bottom Line

Trading small-caps isn’t for everyone. 

Before you trade, be sure to understand your position, what you’re willing to risk, and what your trading goals are. Where will you set your stop … and what kind of order will you place with your broker? You have a lot of decisions to make every day as a trader — do your best to prepare for it all. 

Always make a trading plan and stick to it. And know that you can always go at your own pace.

There’s a lot to consider when researching trading opportunities. Figuring out a company’s market cap is just one of them. Smart traders always look at the big picture … That’s what helps them find the top trading ideas.

When you’re starting out, it helps to have a team that keeps track of the market every day … like the SteadyTrade Team. You get hands-on mentorship twice a day, plus a great community to share ideas with. I hope to see you there!

What do you think of small-cap stocks? Do you trade them? Leave a comment below!