Investors are currently focused on major players in the market such as Apple, NVIDIA, and Amazon, especially during earnings season. However, there is an ongoing conversation about the untapped profit potential found in lesser-known stocks often overlooked by Wall Street.
Traders and investors are being urged to shift their attention toward smaller companies with low market capitalizations, subpar balance sheets, and questionable management practices. Despite initial appearances, these stocks can yield remarkable returns under the right market conditions, sometimes increasing by as much as 1,100% in a matter of days—far surpassing the performance of larger, well-established companies.
A notable example included two tech stocks: Stagwell Inc. (STGW), a larger firm with a market cap of over $1 billion, and MMtec Inc. (MTC), a smaller firm valued at only $80 million. While STGW experienced an 80% premarket spike on news of a partnership, MTC surged 1,100% despite lacking any significant news.
The explosive growth of lower-cap companies can be attributed to two primary factors:
- Stock Float: Smaller companies typically have fewer shares available for trade, which can lead to significant price increases when demand increases.
- Market Shorting: These ‘underperformers’ often draw short sellers, and when bullish momentum occurs, it can trigger a short squeeze, causing prices to skyrocket as short sellers scramble to cover their positions.
Traders are advised to focus on rapid momentum and specific trading patterns instead of traditional “good” stocks endorsed by Wall Street. The approach centers on capitalizing on small-cap stocks that exhibit signs of impending price spikes.
Why this story matters
- Highlights the potential for significant gains from overlooked small-cap stocks.
Key takeaway
- Under certain conditions, poorly performing companies can yield better short-term trading opportunities than larger, established firms.
Opposing viewpoint
- Long-term investors typically prefer stable, growth-oriented companies over those with questionable fundamentals.
