These 3 Small-Cap Stocks Could be the Hidden Gems of 2025

Summary

With a potential drop in interest rates in 2025, small-cap stocks might shine. MarketBeat's analyst Chris Marot discusses three small-cap stocks with promising growth potential. These companies have struggled in the past due to rising interest rates, but the current market conditions may offer a chance for turnaround. Star Bulk Carriers, Evolved Technologies, and Central Garden & Pet are on the radar as potential stars in the small-cap universe, offering investors diverse opportunities from shipping to AI-driven security systems, and consumer goods.

Highlights

• Small-cap stocks could be the next big thing in 2025 as interest rates decrease! 📉
• Star Bulk Carriers is a top pick with notable growth in the shipping industry. Its strong presence in China makes it a stock to watch! 🛳️
• Evolved Technologies is revolutionizing security with its advanced AI-driven systems, showing strong stock performance recently! 🤖
• Central Garden & Pet stands out in the retail sector with strong pet and garden divisions primed for growth as discretionary spending rises! 🐾🌺

Key Takeaways

• Interest rates may fall, making small-cap stocks a hot pick for 2025! 📈
• Star Bulk Carriers looks promising with strong ties to China and a juicy dividend yield! 🚢
• Evolved Technologies gains traction with innovative touchless security solutions! 🔒
• Central Garden & Pet thrives with its focus on pet and garden supplies, even without pet food! 🌿🐶

Overview

As interest rates potentially fall in 2025, the appeal of small-cap stocks is on the rise. These stocks, which suffered during periods of high interest rates due to their reliance on debt, now find themselves in a favorable position. MarketBeat's Chris Marot outlines this scenario while highlighting three companies that could bring substantial returns.

Star Bulk Carriers emerges as a standout candidate, benefiting from increased shipping demand and Chinese market penetration. With analysts predicting a 28% upside and a strong dividend, it offers a compelling investment case. Meanwhile, Evolved Technologies leverages its AI-powered security systems, gaining momentum with substantial recent stock gains.

Central Garden & Pet, with a simple and effective business model, excels in garden and pet supplies. Its strong balance sheet and niche market approach make it a noteworthy small-cap to consider, especially as consumer spending is expected to heighten with potential interest rate declines.

Chapters

• 00:00 - 01:00: Introduction to Small Caps This chapter introduces the potential impact of declining interest rates on small cap stocks in 2025. The discussion focuses on three promising small cap stocks that may yield significant returns. Market Beat analyst Chris Marot explains the current trends and dynamics in the small cap industry, particularly how these stocks might benefit from the anticipated decrease in interest rates.
• 02:00 - 04:00: Star Bulk Carriers Overview The chapter discusses the challenges faced by small-cap companies, specifically focusing on how they rely on debt to finance their operations. Due to rising interest rates, this debt becomes more costly, impacting earnings and resulting in a decline in stock prices, particularly for companies that aren't profitable yet.
• 04:30 - 07:00: Evolved Technologies Overview The chapter explores the impact of lower interest rates on financial markets, suggesting that they reduce the cost of money, making it easier for companies to finance debt and potentially leading to stock price appreciation. There are differing opinions on this, but it is generally seen as a positive for small-cap stocks, particularly appealing to investors with a higher risk appetite.
• 07:30 - 10:30: Central Garden and Pet Overview The chapter discusses the use of a market beat stock screener to identify small cap stocks with potential for growth. It highlights the criteria of selecting stocks projected to have at least 10% earnings growth over the next 12 months. The focus is on understanding gain potential, using the example of Central Garden and Pet as the first pick.

These 3 Small-Cap Stocks Could be the Hidden Gems of 2025 Transcription

• 00:00 - 00:30 could the drop in interest rates make  2025 the year of the small caps let's dive in here to talk about three small cap stocks  you maybe haven't heard of but could bring   some really good returns this year is Market beat  analyst Chris marot Chris uh let's start with why   small caps what's going on with that industry  right now well there's some feeling that with   interest rates going down uh it could be  a good year for small caps they've it's
• 00:30 - 01:00 been terrible to own small caps over the last  couple of years because many of these companies   uh rely on debt to finance their operations  they're not profitable yet and so in a rising   interest rate Market that debt becomes more  expensive to carry therefore the stock price   generally goes down because that impacts earnings  especially if the companies aren't profitable yet
• 01:00 - 01:30 so the thinking is that high that lower interest  rates excuse me will make the cost of money lower   it'll allow this company to finance their debt  easier and therefore it should lead to some stock   price appreciation there are differing opinions  about it but in general the idea is if you that   small caps may be one area that investors  may want to look at especially if they have   a little bit of a speculative taste well that  speculative taste usually leads to some pretty
• 01:30 - 02:00 good gains at least good gain potential and  that's what we see with your first pick let's   go into the the first stock that you have on  your list of three small cap stocks that are   poised for some good growth this year right so  the first one I uh I was looking at I was using   the market beat stock screener by the way when I  was doing this so the stock screener is a great   tool to use I did it for this one I was looking  in particular for stocks that were going to have   at least 10% projected earnings growth over the  next 12 months and just to see where it led me
• 02:00 - 02:30 my first pick is star bulk carriers now this is  a dry bulk shipping company so the Port strike   is fresh on every Investor's mind uh you know the  importance of these companies in terms of getting   uh goods and services into our ports and therefore  into the broader economy what I found interesting   about star bolk is not only are they the biggest  US listed carrier in terms of Fleet size they have   like 160 vessels but one of their primary Market  markets is China and that got me looking at them a
• 02:30 - 03:00 little bit closer and one of the things that they  said in their most recent earnings report is that   they were noticing a 7.6 increase in shipments  into China through July of 20124 the significance   of that for me at least was that was before  China announced these massive stimulus measures   that they just announced so I would expect that  you're going to start seeing more Imports into   China especially in the areas of iron iron ore  because China is one of the leading providers
• 03:00 - 03:30 of Steel still regardless of any tff situation  so I would expect that to go up then you have to   look at valuation at 6.9 times forward earnings  analysts give the stock about a 28% upside and   that goes along with a 12.2% dividend yield again  the valuation itself may not mean much but when   you combine it with positive analyst sentiment  and a great dividend yield star buul is one
• 03:30 - 04:00 that investors may want to take a close look at  that's very interesting as you said this company   definitely got hit the last couple of years with  the stock going down a little bit when there was   less of you know just the interest rate situation  and things like that any concern that it's not   yet back to those uh historic highs the biggest  concern I would have with star buul at this point   would be Energy prices we're already starting to  see an up ticket oil prices and ironically there
• 04:00 - 04:30 were some people that said well you don't have to  worry about oil prices going higher because China   demand is down well now China demand is up and so  that means oil prices are likely to keep going up   that would be maybe my one concern here with the  stock but otherwise I still think this is a good   play right now because I think there's going to  be increased demand that'll make up for that any   for any upside in oil prices let's move on to your  second pick Chris and this one is on your list for
• 04:30 - 05:00 not the best reason right so we've talked about  evolved Technologies before on the channel and um   one of the reasons why it it's on my list right  now is unfortunately we did have another school   shooting and those are becoming all too common  and um this isn't the place to talk about the   reasons why or reasons to prevent that but one of  the things I've noticed about evolved Technologies   is the Stock's up about 59.9% in the last 90 days  and I can't help but think there's not a that's
• 05:00 - 05:30 not a coincidence um this company manufactures  touchless um security systems so it's the next   generation of metal detectors it allows people  to pass through the system very quickly without   having to open bags or raise your hands over your  head or do any of that stuff and it's AI driven   they use AI as the backbone for their entire  system it's turning out to be very effective
• 05:30 - 06:00 in detecting guns and detecting small uh knives  uh anything that would be potentially used as a   weapon and they've got every professional sports  league has at least one if not more franchises   using it they've got um churches schools hospitals  using it the concern that some people might have   about the stock is until the last quarter it  wasn't profitable but it did turn a profit in
• 06:00 - 06:30 its last quarter and that's expected to continue  but it's something to watch for the other thing   that some investors are concerned about is does  this company have a moat in other words there   are competitors there other companies that are  trying to get into this field um but I think one   thing that investors could look at is the annual  recurring revenue for evolve continues to grow   and that means that they're not losing customers  once they get them and that's a very positive so
• 06:30 - 07:00 Chris how much growth opportunity could there be  for their stock especially considering it just   had a near 60% runup yeah that's that's kind  of an interesting point here because despite   that runup um analysts are still believing that  you could still see another about 51% upside to   the stock that would be a price target of about  $5.75 and it's still down about 177% for the year   despite the runup so there are gains to be made  here again it's a speculative stock but it's one
• 07:00 - 07:30 that you might want to keep your eye on especially  if you're looking at that convergence of small   cap and AI all right all good information now  let's move on to your last pick of the day Chris   what are you going with so this is a company  that quite honestly Bridget it was new to me   it's called Central Garden and Pet and the uh the  ticker symbol is senta c n ta very simple company   business model in terms terms of if you just look  at the name they have two business verticals one
• 07:30 - 08:00 is garden supplies one is pet supplies um they  interestingly I noticed they don't really it from   what I saw on their website they don't really  get into the pet food area a lot it's more of   the the treats and the toys and other peripheral  items that pet owners might have but what I did   notice is they've noticed that the pet their  pet business is very strong because of the um
• 08:00 - 08:30 the willingness of consumers to pay a premium to  keep their pets happy and healthy and the Garden   business is doing well and so it seems to me that  you've got two business verticals that consumers   are willing to spend money on so I looked at the  stock a little bit closer and I said okay well   okay what's the opportunity here and the stock is  up 7 and a half% in 2024 which okay that might not   be that much but it's not bad for a for a quote  unquote retail stock absolutely and you know I
• 08:30 - 09:00 just adopted a new dog I we've had him about three  weeks and I'm like yes pet owners are willing to   spend all kinds of money to keep their pets happy  right right exactly U but there are a lot of pet   companies out there there's lots of these kinds  of products what sets this company apart you know   I think one of the things that sets this company  apart is just the fact that it's really focused   on its back balance sheet it really seems to kind  of know where its Niche is and staying in its Lane
• 09:00 - 09:30 uh it's got a strong e-commerce business which is  good for it and I think that's really what you're   looking at you're looking for a company that's  that's fundamentally sound has a solid balance   sheet and just it has a niche in this market and  it's playing in that Niche very well as far as   growth potential why would this industry this  very consumer discretionary stock have so much   growth potential in the next 12 months well I  think it's again you're seeing interest rates
• 09:30 - 10:00 go down and eventually that's going to trickle  into the consumer who has already shown even with   higher interest rates they were willing to spend  in these categories so you'd have to imagine that   that spending is just going to increase as the  discretionary dollars become more available and   analysts seem to agree with that on Market beat  the price target for the stock is $43 and that's   an increase of about 40 40 to 45% above where  it's at now again a stock like this is kind of
• 10:00 - 10:30 speculative but if you're looking for something  in a retail space that's that's a hard upside to   ignore oh yeah I had definitely not heard of that  company before may have been new to some of our   listeners as well so thank you for bringing that  one out to our attention and kind of giving us a   deep dive into three small cap stocks that have  some great potential right now you can find more   about all of these stocks right on market beat.com  and we do a lot of coverage of other stocks just   like this that maybe you haven't heard of that  could have a really strong upside keep watching
• 10:30 - 11:00 our content on marketbeat media and stay with  us until next time as always happy investing