5 Best Small-Cap Stocks to Buy in July 2021

Small-cap stocks can be multibaggers if you can spot quality names early. Good quality small-cap stocks eventually grow into midcap and some even get into the large-cap category. What’re the five best small-cap stocks that you can buy in July 2021?

By definition, small-cap stocks have a market capitalization between $300 million to $2 billion. Companies between $2-$10 billion market capitalization are termed as mid-cap companies.

1. Tenneco (NYSE: TEN)

Tenneco is involved in the manufacturing and marketing of automotive products for original equipment manufacturers and aftermarket customers. The stock has gained 66% so far in 2021 but has dropped over 25% from its 52-week highs and is in a bear market territory. The stock has risen amid the strong demand for used cars. The automotive industry is witnessing a supply crunch amid the global chip shortage and a lot of buyers have turned to used cars.

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Tenneco looks like a good small-cap stock to buy

Looking at the technicals, Tenneco stock trades above the 100-day and 200-day SMA (simple moving average) which is a bullish indicator. The stock has been facing resistance at the 50-day SMA and trades below the level. The 14-day RSI (relative strength index) of 42.6 is a neutral indicator and indicated neither overbought nor oversold positions.

Tenneco trades at an NTM (next-12 months) PE multiple of only 4.2x which looks attractive. The company has four business segments which are Clean Air, Motorparts, Performance Solutions, and Powertrain. Last week, it announced that its “Powertrain business group is partnering with key academic and industry experts to examine the technical possibilities and commercial feasibility of synthetic fuels as a key technology to help the industry transition to climate-neutral transportation.”

Wall Street analysts meanwhile are not very bullish on TEN and its median target price of $16 implies a downside of 6.3% over the next 12 months. However, the stock’s highest target price of $25 implies a 46% upside over the period. The stock has three buys, four holds, and one sell rating.

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2. Sundial Growers (NYSE: SNDL)

Sundial Growers is a small-cap cannabis company. Along with the cannabis operations, it also has flourishing investment operations. The company raised a lot of cash earlier this year by selling shares and is now investing the money in other cannabis companies.

SNDL has completed the acquisition of Spiritleaf cannabis retail network in a cash and stock transaction. Earlier this month, it also announced that it has increased its commitment to SunStream Bancorp Inc to 538 million Canadian dollars. The joint venture is looking at opportunities in the cannabis sector. These investments would be a long-term value driver for the company. In the first quarter of 2021, the company posted a positive EBITDA due to the income it earned from these investments.

While the core cannabis operations haven’t been doing well, they should improve in the future. The company has rationalized its product offerings and is focusing on value-add products. It has also written off a lot of inventories.

SNDL looks like a good small-cap stock

SNDL has a market capitalization of just about $1.6 billion which makes it a small-cap stock. However, it has over $900 million as cash and investments on the balance sheet. The stock looks attractive after having crashed sharply from the peaks.

Looking at the technicals, SNDL has fallen below the 200-day SMA. It also trades below the 50-day and 100-day SMA. The 100-day SMA was a key resistance for the stock. That said, SNDL is a good play on the massive cash that it is holding. If the management can invest the money wisely, SNDL stock could deliver strong returns in the medium to long term.

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3. Aurora Cannabis (NYSE: ACB)

Staying within the cannabis industry only, Aurora Cannabis looks like another good small-cap stock to buy in July 2021. The stock is down 25.6% so far in 2021. While 2021 started on a good note for cannabis companies as the Democrats took control of the Senate, they have since looked weak. Marijuana still hasn’t been legalized at the federal level in the US even as markets expected the Biden administration to move quickly on the legalization.

ACB looks like a good small-cap cannabis stock

That said, the slump in ACB stock looks like a good buying opportunity. The stock trades at an NTM EV-to-sales multiple of 6.7x which does not look high. Meanwhile, Wall Street analysts are not too bullish on ACB and its median target price of $6.54 implies a downside of 7.4% over the next 12 months.

ACB is also looking weak on the charts and trades below the 50-day, 100-day, and 200-day SMA. However, the stock is now getting near the oversold zone with a 14-day RSI of 33.6.

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4. Boqii Holdings (NYSE: BQ)

Boqii Holdings is a Chinese pet-focussed platform with a vision to connect people and pets. The company runs its online sales platform Boqii Mall where pet owners can purchase pet-related things. It also sells on third-party e-commerce platforms. The market for pet care is growing fast. While the risk of investing in Chinese companies has increased after China’s crackdown on its tech giants, companies like BQ might not be much affected.

BQ stock has fallen 25% so far in 2021 and is getting near the 52-week lows. The stock is looking bearish on the charts also and trades below the 50-day and 100-day SMA. However, looking at the valuations, BQ trades at an NTM EV-to-sales multiple of 1.8x which is almost the lowest since it went public.

Wall Street analysts are also bullish on BQ stock and its average target price of $8 is a 102% premium over current prices. The stock has one buy and one hold rating. Overall, BQ looks a good play on the growing pet care market in China. The stock’s tepid valuations make it an even attractive buy.

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5. Danaos (NYSE: DAC)

Danaos is a shipping company and holds 65 container vessels. Five of these are owned by Gemini Shipholdings Corporation which the company recently acquired. The outlook for shipping companies are looking strong and the uptrend in the global economy.

Earlier this month, it announced that it has entered into an agreement to acquire six 5,466 TEU container vessels for $260 million. “We are very pleased to announce an immediately accretive acquisition of a modern fleet at a fraction of the newbuilding cost and considerably lower than its charter free market value. The purchase price and contracted revenue associated with the vessels significantly reduce the residual risk of this transaction,” said the company in its release.

DAC looks like a good small-cap stock to buy

DAC found support at the 100-day SMA but failed to cross above the 50-day SMA. If the stock can break above the 50-day SMA it will signal a technical uptrend. Meanwhile, looking at the valuations, DAC seems attractive with an NTM PE of 4.7x. The stock is a good way to play the uptrend in the global economy.

DAC has a median target price of $76 which is a premium of 13.4% over current prices. Its lowest target price of $65 is a discount of 3% while the street high target price of $90 implies a possible upside of 34.2% over the next 12 months. Of the four analysts polled by CNN Business, three rate DAC as a buy while one analyst has a hold rating.

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