Small-cap stocks are considered riskier than large caps or even mid caps. Of course, this means that smaller stocks have greater potential to make profits for investors.

This does not mean that you should buy risky stocks randomly. Some due diligence will help you find winners that can overcome the risks to move higher and provide you with good returns.

We have selected four top small-cap stocks that are already winners and that look like they offer a good possibility for more growth. Let's look at these four stocks more closely to see what is driving their prices. All figures are current as of Oct. 5, 2018.

Axcelis Technologies, Inc. (ACLS)

This is a semiconductor company that sells equipment to manufacturers of semiconductor chips. The stock dropped precipitously in November 2016 but recovered immediately and began to march higher.

Axcelis has a product called Purion that is finding great demand. In September 2017, the stock price skyrocketed in response to the company obtaining large orders for its Purion systems from several top chipmakers, and the stock's significant gains continued through October 2017. The stock price ticked downward at the end of November and into December, and it continued its decline in the first three quarters of 2018, possibly owing to profit taking after the strong performance. However, the company's solid positioning suggests a chance for renewed upside, and the recent launch of the Purion Power Series could give the company a foothold in additional markets.

  • Average Volume: 329,253
  • Market Cap: $645.492 million
  • P/E Ratio (TTM): 5.15
  • EPS (TTM): $3.88
  • Dividend and Yield: N/A (N/A)

The Brink's Company (BCO)

This is the famous armored car company. Apparently, transferring cash has been earning cash for Brink's. Of course, the company performs more high-tech tasks than merely driving sacks of money around. It also provides "intelligent" safes, offers cash management services, processes bill payments and designs security systems. Brink's recently agreed to acquire rival Dunbar Armored Inc. for roughly $520 million, and along with positive guidance issued by the company, news of the deal sent the shares rocketing higher in the final days of May 2018.

Although the stock price has moved downward from the high set in early July, the recent gains for Brink's shares continue a confirmed uptrend that is part of an already existing uptrend that began in July 2016. With a solid growth outlook driven by management's plans to build on its success in emerging markets, it may be a good time to buy Brink's shares, particularly if the stock is subject to a continued low-volume pullback in the coming weeks or months that provides a more attractive entry point. 

  • Average Volume: 375,906
  • Market Cap: $3.538 billion
  • P/E Ratio (TTM): N/A
  • EPS (TTM): -$2.31
  • Dividend and Yield: $0.60 (0.85%)

Lithia Motors, Inc. (LAD)

This company is an automobile retailer. It earns its living selling new and used cars, as well as warranties, parts, insurance and maintenance services. The company operates in three divisions – imports, luxury cars and domestic vehicles – and it offers more than 30 brands of automobiles. The stock is trying to leave the small-cap category as it moves upward, giving the company a market capitalization of $1.881 billion.

After a drop in February through April 2017, the stock started climbing again in a high-volume breakout. Following a brief downturn in October 2017, the stock headed upward again, reaching a high of nearly $128 in January 2018 before posting steep declines throughout the year to current levels of $77.69. After an extended period with the 50-day moving average exceeding the 200-day moving average, the 2018 downturn saw the long-term moving average cross above its shorter-term counterpart in April, which suggests that investors should be cautious of additional declines. However, the company's solid return on equity and attractive valuation continue to make Lithia Motors a potentially strong small-cap pick.

  • Average Volume: 325,704
  • Market Cap: $1.881 billion
  • P/E Ratio (TTM): 7.67
  • EPS (TTM): $10.12
  • Dividend and Yield: $1.16 (1.40%)

Spectrum Pharmaceuticals Inc. (SPPI)

Spectrum is a biotech company, so there is added risk here. Biotech stocks can soar or sink based on a single product. Spectrum Pharmaceuticals has six products, none of which you may have heard of because they are for the treatment of cancer and some exotic diseases. The company also has some significant licensing agreements, and it collaborates on products with other drug companies.

This small-cap stock had a high-volume breakout in November 2016, and after moving sideways for a while, it moved sharply higher. The stock price soared again at the end of September 2017 on news that lung cancer drug poziotinib showed success in early clinical trials. More positive news on the drug sent the stock even higher in October. After these 2017 gains and a rather volatile performance in the first three quarters of this year, this biotech play could still be a winner in the remainder of 2018 for investors who believe that the stock has more room to run. A Bloomberg report this summer indicated that the company is considering a sale. The stock is currently trading at $16.99.

  • Average Volume: 1,459,807
  • Market Cap: $1.783 billion
  • P/E Ratio (TTM): N/A
  • EPS (TTM): -$0.50
  • Dividend and Yield: N/A (N/A)

The Bottom Line

Too often, investors see a stock with a long winning streak and assume that they missed the time to get in. However, buying small caps that are trending upward over the long term can be a winning strategy. Stocks that have been moving upward for an extended period and then experience a pullback – as is the case for several small-cap stocks on our list – may present even more lucrative buying opportunities. 

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