Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
MSC Industrial (MSM)
Market Cap: $5.82 billion
Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE: MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors
Why Do We Pass on MSM?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.9% annually over the last two years
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
MSC Industrial is trading at $104.28 per share, or 22.4x forward P/E. Dive into our free research report to see why there are better opportunities than MSM.
Lincoln Financial Group (LNC)
Market Cap: $6.90 billion
Founded in 1905 by a group of Fort Wayne, Indiana businessmen who named the company after Abraham Lincoln, Lincoln National Corporation (NYSE: LNC) provides insurance, retirement plans, and wealth management products through its subsidiaries, operating under four main segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services.
Why Are We Hesitant About LNC?
- Net premiums earned plateaued over the last five years, signaling weak incremental demand for its insurance policies
- Annual book value per share declines of 14.1% for the past five years show its capital management struggled during this cycle
- Below-average return on equity indicates management struggled to find compelling investment opportunities
At $35.81 per share, Lincoln Financial Group trades at 0.6x forward P/B. To fully understand why you should be careful with LNC, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
Affiliated Managers Group (AMG)
Market Cap: $8.04 billion
Using a partnership approach that preserves entrepreneurial culture at its portfolio companies, Affiliated Managers Group (NYSE: AMG) is an investment firm that acquires stakes in boutique asset management companies while allowing them to maintain operational independence.
Why Are We Positive On AMG?
- Share repurchases over the last two years enabled its annual earnings per share growth of 18.6% to outpace its revenue gains
- ROE punches in at 21.3%, illustrating management’s expertise in identifying profitable investments
Affiliated Managers Group’s stock price of $302.64 implies a valuation ratio of 8.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum - both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week's Strong Momentum stocks - FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
