The lure of investing in microcap stocks can be strong for growth-minded investors. The main reason is because while larger companies typically have more limited growth potential, smaller companies usually have room for massive expansion.

It also doesn’t hurt that microcap stocks have smaller prices than large companies, where just a single share can often be out of a beginning investor’s price range.

Of course, counteracting the growth potential and low price of microcap stocks is their high risk. These are companies that can literally be here one day and gone the next.

So How Do You Find Quality Microcap Stocks?

Here are some quick investment tips:

Specialize –

If you trade over several industries, you are likely relying purely on technical analysis for the advice you need to make a move. While relying on technical analysis is not a bad thing, you could miss out on other valuable information that could allow you to act on a moment’s notice within a specialty.

In other words, if you specialize in one or two industries, for example semiconductors or electronics, you are more likely to have your finger on the pulse of what is happening so you can make better and faster investment decisions.

Avoid Getting Overwhelmed –

There are so many stocks out there it can be very hard to know which one is the right one! At times, especially at the beginning, it may feel like guesswork.

One way to solve that problem is to select a specific group of stocks to follow. The reason this is a good strategy is because otherwise you could spend all day looking for stocks to trade without ever buying one because it may feel like a better one is always just around the corner.

This strategy is like specializing but it’s even more restrictive. Ultimately, the idea is to get to know select stocks intimately so that you’ll be able to cash in on movements quickly due to you being so familiar with them. 

Combine Specialization and Fundamental Analysis –

All companies and industries go through four phases: Emergence, Growth, Maturity, and Renewal or Decline. As a trader, you can use this knowledge to your advantage. Emerging companies and industries can have wild swings in stock prices. Companies at the Growth or Maturity stage have less volatility but usually rising stock prices. Finally, companies in the declining stage may be shorted by the wise trader.

Microcap Stocks to Watch:

For those interested in the semiconductor sector, here are three microcap stocks that enjoyed a strong 2021 and are looking for even bigger gains in 2022.

Axcelis Technologies (ACLS)
Returns by Oct. 2021 – 72%. Market cap: 2.71B

Camtek (CAMT)
Returns by Oct. 2021 – 79%. Market cap: 1.39B

SiTime Corp. (SITM)
Returns by Oct. 2021 – 88%. Market cap: 5.18B

 

Photo by Vishnu Mohanan on Unsplash