An Inefficient Market Is Creating Opportunities in Small Stocks: 9 to Watch
This name illustrates how an underfollowed stock can offer big profits.
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The market is under pressure on Thursday following a not-so-dovish Jerome Powell and a poor earnings response from Meta (META) and Microsoft (MSFT) . The indexes bounced back from a gap-down open, but breadth is negative with 45% of stocks in negative territory and only 130 names hitting new highs as I write this.
The Magnificent Seven (MAGS) names are down 2.1% but the good news is that Russell 2000 (IWM) is up 0.4%. This is not a broad-based index selloff. There is selective selling primarily in technology stocks that had the highest expectations. It was an ideal setup for a "sell the news" reaction to news, but it is very positive that it is happening on an individual stock basis and not an index basis.
That is my long-winded way to say that this remains a good market for stock picking. Money is rotating into new names rather than everything being dumped and everyone heading for the sidelines. When indexes are being sold, it is not unusual for 80-90% of the stocks in the Nasdaq 100 (QQQ) to be in the red. Thursday morning, only about 33% of the names in the group are down, but since Meta and Microsoft are such big weightings, the QQQ is down 0.9%.
Based on this, it is pretty clear that we should be looking for the stocks that are acting well and in the green rather than worrying about the indexes, which are a jumbled mess because of a few big-caps.
In the next few weeks, there will be hundreds of earnings reports from smaller stocks, which are my trading vehicle of choice. A good example of one such name is Emergent BioSolutions (EBS) , which I have mentioned many times here on TheStreet Pro. EBS reported blowout earnings of $1.08 per share, but it has so little analyst coverage that no one saw it coming. The stock is up more than 30% on the news, and I believe it is still an exceptional value.
EBS is trading with a trailing P/E of just 5. The 2025 EPS estimate is now at $1.21 and expected to jump 45% to $1.75 in 2026. With a forward P/E of just 10, this stock would be $17.50 and still would be cheap. The current price is around $12.50.
This sort of thing is why I focus on smaller stocks that often have little coverage. There are tremendous pricing inefficiencies, and often the market is very slow in recognizing real value.
Some stocks that I’m following that have earnings coming up in the next few weeks are Xeris Biopharma ( (XERS) ), Flotek Industries (FTK), Electrovaya (ELVA), CorMedix (CRMD), TeraWulf (WULF) , Harrow (HROW) , ADMA Biologics (ADMA), and Mereo BioPharm (MREO).
There is no guarantee that they will post strong numbers, but a volatile response may create a good trading opportunity. I believe all these names have good fundamentals, and an inefficient market can help create good entry points, both higher and lower.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider many of these names to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Rev Shark was long EBS, XERS, FTK, ELVA, CRMD, WULF, HROW, ADMA and MREO.
