Investors are keeping a close eye on small-cap stocks that appear to be deeply undervalued at the moment. Speculation about potential rate cuts by the Federal Reserve is on the rise, with many expecting cuts to happen in the near future to support economic stability.
Small-cap growth stocks have faced challenges due to high interest rates, as many rely on debt financing which becomes more expensive when rates go up. Some of these stocks are currently trading at negative enterprise values, which is a rare occurrence. It’s difficult to predict how these stocks will respond to rate cuts, but a broad rally within this segment of equities is a likely outcome.
Here are four small-cap value stocks to watch for potential rebounds in response to rate cuts in 2024 or early 2025:
1. Archer Aviation (ACHR -1.16%): Specializing in electric vertical takeoff and landing (eVTOL) aircraft, Archer Aviation could see significant growth as urban air mobility gains traction. Despite a 37% decline in its stock year to date, the company is facing major catalysts that could lead to a rebound soon.
2. Joby Aviation (JOBY -1.85%): Another eVTOL player focused on air taxi services, Joby Aviation is well-capitalized and aims to revolutionize short-distance travel. With a potential trillion-dollar commercial opportunity in the eVTOL market, Joby stands out as a speculative buy.
3. Ginkgo Bioworks (DNA -0.66%): Specializing in synthetic biology and genetic engineering, Ginkgo Bioworks could benefit from a rebound in the biotech sector. Despite a 92% drop in its shares since going public, the company’s unique approach to creating custom organisms holds promise for patient shareholders.
4. Iovance Therapeutics (IOVA -2.76%): Focusing on cancer immunotherapies, particularly tumor-infiltrating lymphocyte therapies, Iovance Therapeutics recently received a regulatory approval from the FDA for Amtagvi as a treatment for certain forms of advanced melanoma. Growing sales and an improving financing landscape could lead to a turnaround for the company.
While these small-cap value stocks offer intriguing opportunities, investors should be aware of the volatility associated with small caps. It may be wise to consider buying baskets of these stocks or investing in a thematic exchange-traded fund (ETF) in the small-cap growth or value landscape to mitigate risk.