RBC says to buy these 15 stocks as small companies keep dominating the market — and details why each is a top pick for 2021

  • RBC just updated its list of the highest-recommended small-cap stocks for the first quarter.
  • Small-company stocks have been on an enormous rally that included their best month ever in November.
  • Some experts say they still have a long way to go to catch up to the relative prices of large-caps.
  • Visit the Business section of Insider for more stories.

The smallest companies on Wall Street have had a remarkable run over the past few months, and they still have a long way to go to catch up with the stock market’s giants.

The companies with the largest market capitalizations ruled the world throughout the last bull market, which was historically long. But with a new cycle underway, a lot of experts think small- and medium-sized companies look more promising right now. It helps that after a bull market of more than a decade, they’re much less expensive.

That’s true even after the small-cap Russell 2000 index had its best month ever in November, followed by a very strong December, and kept right on going after that.

Even compared to a major index like the S&P 500, there are a lot of options in the small-company space. With that as a backdrop, RBC Capital Markets is updating its list of high-conviction small-cap ideas.

“The list is an opportunity to highlight companies that have either an attractive normalized growth story or strong durable growth characteristics,” the firm said.

Based on the views of 11 analysts, RBC lists 15 “Outperform”-rated companies valued at $5 billion or less. The group is highly optimistic about some names in the tech and healthcare sectors but also sees opportunities within the retail and financial sectors.

The stocks are ranked from lowest to highest based on how far they would have to rise to reach RBC’s 12-month price targets. Those upside figures were calculated using Thursday’s closing prices.

15. Goosehead Insurance

Ticker: GSHD

Sector: Financials

Market cap: $2.5 billion

Thesis: “Goosehead is an innovative player in the personal lines brokerage industry. Its fully integrated sales and service platform is a sizeable competitive advantage relative to other independent agents and captive agents and gives them a cost and efficiency edge which is likely to prove sustainable for some time.” — Mark Dwelle

Price target: $155

Upside to target: 3.7%

Source: RBC Capital Markets

14. Varonis Systems

Ticker: VRNS

Sector: Information technology

Market cap: $5.8 billion

Thesis: “We believe the company is in the early stages of penetrating a $47 billion market that includes fragmented competition.. Through a land, expand, and retain strategy, we believe Varonis has the opportunity to generate strong financial growth for several years … In addition, we believe the company is an attractive acquisition target for larger vendors seeking exposure to innovative big data solutions.” — Matthew Hedberg

Price target: $200

Upside to target: 7.2%

Source: RBC Capital Markets

13. Pacira Biosciences

Ticker: PCRX

Sector: Healthcare

Market cap: $3.1 billion

Thesis:  “We think PCRX is well positioned to drive continued growth from its flagship product, EXPAREL, with several expansion opportunities that can maintain momentum … 2021 termination of DPS agreement will remove royalty and accelerate operating margin inflection.” — Randall Stanicky

Price target: $78

Upside to target: 8.9%

Source: RBC Capital Markets

12. SailPoint Technologies

Ticker: SAIL

Sector: Information technology

Market cap: $5.3 billion

Thesis: “We believe SailPoint is well positioned for the fastest expanding areas of its TAM … in a world post COVID-19 that likely moves towards SaaS at a quicker pace, we believe SailPoint could be in a good position to help CIOs with an increasing governance risk for app usage and access.” — Matthew Hedberg

Price target: $68

Upside to target: 13.4%

Source: RBC Capital Markets

11. STAG Industrial

Ticker: STAG

Sector: Real estate

Market cap: $4.7 billion

Thesis: “The team has built a national portfolio that should deliver more stable results relative to traditional industrial REIT peers … believe The company is well positioned to navigate through this uncertainty with its solid balance sheet, and should be able capitalize on the industry’s strong secular tailwinds.” — Michael Carroll

Price target: $36

Upside to target: 14.8%

Source: RBC Capital Markets

10. Shift4 Payments

Ticker: FOUR

Sector: Information technology

Market cap: $3.6 billion

Thesis: “The company is tapped into the large and secularly growing payments market in the US, which when combined with its ISV and hospitality focus, provide a backdrop of growth that we forecast to be in the high single to low double-digit organic range.” — Daniel Perlin

Price target: $86

Upside to target: 15.2%

Source: RBC Capital Markets

9. Jamf Holding Corp.

Ticker: JAMF

Sector: Information technology

Market cap: $4.5 billion

Thesis: “Jamf is in a strong position to leverage the growing preference for Apple in the enterprise. In addition to a TAM that is likely to expand more quickly than previously expected in a post-COVID world, the company’s financial profile is unique given rapid growth and high profitability. — Matthew Hedberg

Price target: $45

Upside to target: 16.6%

Source: RBC Capital Markets

8. Agios Pharmaceuticals

Ticker: AGIO

Sector: Healthcare

Market cap: $3.6 billion

Thesis: “AGIO’s wholly-owned pyruvate kinase deficiency (PKD) franchise is one of its most valuable assets but a controversial potential blockbuster.” — Kennan MacKay

Price target: $59

Upside to target: 16.9%

Source: RBC Capital Markets

7. Rapid7

Ticker: RPD

Sector: Information technology

Market cap: $4.5 billion

Thesis: “Rapid7 is a cyber-security vendor with a unique data- and analytics-driven approach … The company has multiple product drivers over multiple years that should help sustain durable growth and measured operating margin expansion.” — Matthew Hedberg

Price target: $105

Upside to target: 17.4%

Source: RBC Capital Markets

6. American Eagle Outfitters

Ticker: AEO

Sector: Consumer discretionary

Market cap: $4.0 billion

Thesis: “Growth driver Aerie continues to have runway ahead on the road to management’s $2B 2023 target and beyond … we expect Aerie’s momentum is unlikely to fade – with its emphasis on body positivity, wellness, and social awareness likely to resonate even further on the other side of the pandemic. — Kate Fitzsimons

Price target: $30

Upside to target: 20.8%

Source: RBC Capital Markets

5. Tabula Rasa HealthCare

Ticker: TRHC

Sector: Healthcare

Market cap: $1.3 billion

Thesis: “Tabula Rasa’s (TRHC) solutions aim to reduce the financial and medical burdens associated with adverse drug events, which are costly to treat and, worse, are now a leading cause of death. … Although the pandemic is causing some near-term challenges, we believe it will ultimately be a net tailwind and TRHC will return to its pre-COVID organic revenue growth rate of 20%+.” — Sean Dodge

Price target: $70

Upside to target: 31.0%

Source: RBC Capital Markets

4. Rackspace Technology

Ticker: RXT

Sector: Information technology

Market cap: $4.4 billion

Thesis: “Current valuation only gives credit to where the company is today in its transition, but does not underwrite the positive mix shifts that are occurring in the underlying business. … we believe the stock can re-rate higher to fit a superior growth model.” — Daniel Perlin

Price target: $29

Upside to target: 33.6%

Source: RBC Capital Markets

3. SelectQuote

Ticker: SLQT

Sector: Financials

Market cap: $4.1 billion

Thesis: “We view SelectQuote as an attractive play on the aging U.S. demographic and growing penetration of Medicare Advantage, but without any medical underwriting exposure. We also view the stock as one of the few ways to gain exposure to the healthcare sector with little to no impact from COVID-19.” — Frank Morgan

Price target: $33

Upside to target: 35.7%

Source: RBC Capital Markets

2. Dicerna Pharmaceuticals

Ticker: DRNA

Sector: Healthcare

Market cap: $1.8 billion

Thesis: “We believe current stock price substantially underappreciates: 1) a de-risked technology (RNAi has been shown safe/effective in multiple indications … 2) a differentiated pipeline … and 3) an undemanding valuation at a 10x discount vs ALNY” — Luca Issi

Price target: $35

Upside to target: 35.9%

Source: RBC Capital Markets

1. Global Blood Therapeutics

Ticker: GBT

Sector: Healthcare

Market cap: $3.1 billion

Thesis: “We continue to see the value of Oxbryta in the long term with peak global sales potential of over $1.6B in age 12+ in the late 2020s with potential additional sales opportunities from label expansion.” — Gregory Renza

Price target: $75

Upside to target: 49.8%

Source: RBC Capital Markets

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