3 Small Cap Strong Buys

Historically, small cap stocks have outperformed their large cap counterparts.

However, small caps haven’t outperformed in 2025 — in fact, whereas the Russell 2000 is up by 10.10% on a year-to-date (YTD) basis, the S&P 500 has rallied by 14% in the same timeframe. 

In fact, large caps have been outperforming for the past five years. 

That disparity in performance, however, could be on the way out. 

In early September, our Editor-in-Chief Steve Reitmeister noted two important factors:

1. Just how overvalued mega cap and large cap stocks are — and how undervalued small caps are
2. That small-cap stocks started outperforming again in August

The small-cap rally hasn’t abated since — in fact, last week, the Russell 2000 reached a new all-time high (ATH) for the first time in….four years.

Investors tend to react quite strongly to technical signals such as these — and the promise of a reversal to the mean in terms of returns, coupled with attractive valuations, could serve to bridge the gap between small caps and large caps for the first time in half a decade. 

As Steve noted, there’s still a ways to go till small caps catch up — so now is the perfect time to position yourself and get in at a good price.

Investing in small caps seems like a no-brainer, right? 

There’s just one unique risk we have to contend with first. Your household mega cap stocks — your Apples, Microsofts, and Nvidias have thousands of eyes pointed at them at all times. 

The amount of professional research that’s conducted regarding these stocks is staggering — and it’s also quite useful, as it generally leaves no stone unturned. There are generally not many unknowns or blind spots with these hulking titans.

That isn’t the case for small cap stocks — the smaller the market cap, the less coverage there is, the more risk that in owning each stock. 

So how does one enjoy the excess return in small caps without the downside risk? 

The next section provides the answers…

Small Caps Stock Strategy

Thankfully, Zen Ratings, our proprietary quant rating system, provides a unique edge when it comes to small cap stocks. 

The system uses a framework of 115 unique factors when evaluating stocks — and that applies to small market-cap equities in the same way it applies to their large-cap counterparts.

You can think of it as a 360 degree review of everything from growth to value to momentum as well as deep insight on the financials, Wall Street sentiment and even AI insights. 

This leads to 230 stocks getting our coveted Strong Buy (A rating) each day. 

That is a good starting point…but still leaves us with plenty of stocks to evaluate. Thus, if you want a more focused, refined approach, then consider turning to our Zen Strategies.

We have 11 finely-tuned strategies for you to choose from. Each consists of 7 stocks that have been rigorously selected for increased performance.

As it happens, the Small Caps strategy is our best-performing one on a YTD basis, securing a 56.29% return since the start of the year. Remember — the S&P has rallied by 14% in that timeframe, while the Russell 2000 has made a 10.10% gain.

With all of this in mind, we’ve selected 3 small cap stocks from this strategy that provide a compelling mix of growth prospects combined with attractive valuations.

Allient (ALNT)

Allient builds precision motors, motion controllers, and complex power systems. It looked like a business in crisis two years ago — now, it’s looking a lot more like a bargain.

The company’s Simplify to Accelerate NOW initiative was meant to cut costs, streamline processes, and improve operational efficiency and profitability. Calling the initiative a success would be a serious understatement.

On August 6, the company held its latest earnings call — it was the fourth consecutive earnings per share (EPS) beat. Highlights include operating margins expanding from 3.5% a year ago to 8.3% now, and a 138.5% increase in YoY operating profit.

Wanna know the best part about this bold new direction? They’re not done yet — management still sees millions in spending that can be cut, and the business is in the middle of a shift toward high-margin sectors such as defense, aerospace and data centers.

When it comes to its Zen Rating, Allient has an overall rating of A, equivalent to a Strong Buy rating. In fact, it’s currently rated 2nd overall out of the roughly 4,600 stocks that we track.

What makes it so great? Growth prospects, for one. Earnings per share are expected to grow by 43.54% this year — more than double that of the industry average. When it comes to Growth, Allient shares rank in the 96th percentile of stocks.

The company’s stellar turnaround has caused ALNT to surge by a whopping 91.10% since the start of the year. That puts it in the top 3% of equities with regard to Momentum. The opportunity hasn’t passed yet, however — as ALNT is also in the top 11% in terms of its Value Component Grade rating.

Buying these shares before their next earnings call on October 29th may be a very wise move. 

Arena Group Holdings (AREN)

Arena Group Holdings maintains and runs a diverse portfolio of digital media brands. You might be familiar with some of them — TheStreet, Parade, Men’s Journal, and Men’s Fitness, among others.

This is a newcomer to the Russell 2000, having only joined the index in late June. After swinging to profitability in late 2024, it has now strung together two consecutive triple-digit EPS growth quarters. 

Just like our previous entry, AREN has a Zen Rating of A. However, it isn’t rated 2nd overall — Arena Group Holdings’ current placement is a lowly 7th overall.

The stock is trading at a measly price-to-earnings (P/E) of 1.98x — fresh off of two quarters where EPS grew by 102.05% and 208.33% on a YoY basis. It ranks in the 87th percentile in Growth — and the top 9% in Value. 

Management clearly thinks that’s a steal — they authorized a 3M share buyback in July.

The only thing left to see is whether or not the rate of growth will moderate — and we’ll be able to get an answer to that question from the company’s next quarterly report, due November 12.

Bk Technologies (BKTI)

Our last entry for today is BK Technologies, which manufactures two-way radio communications equipment for first responders and government agencies.

Let’s cut to the chase. BKTI is trading at a P/E of 23.38x. It ranks in the top 1% when it comes to Value. We also have a pretty decent price-to-earnings growth (PEG) ratio of 1.16x. Insiders clearly like what they’ve been seeing — management has been scooping up shares, as 40.07% of the insider transactions tied to the stock in the past 12 months have been purchases.

Once again, we have a string of earnings beats on our hands — in this case, 3 quarters back-to-back-to-back, at an EPS YoY growth of 221.05%, 126.67%, and 136.36%. Looking at Growth, BK Technologies is in the top 18%. 

Federal orders have also been on the uptick — the company secured $17.8 million worth of deals in July alone, and introduced a new portable repeater kit that is already seeing interest from sheriff’s officers across the country.

Solid growth trajectory? Check. Confidence from management? Check. Attractive valuation? Check.

BKTI shares have surged by 132.47% — but if the business manages to sustain its current trajectory, the stock could easily command a significantly higher price.

Interested In More Great Stock Picks?

The 3 stocks that we showcased above are just a fraction of what you get from our tried-and-tested Small Cap stock strategy.

That’s because each day our system recalibrates — and Zen Strategies members get access to the 7 top Small Cap stocks based on 115 different factors. 

See Top 7 Small Cap stocks here >

However, maybe small caps are too risky for you. So perhaps you would to see all 11 of our market beating strategies. Each featuring the top 7 stocks. 

We spell it all out in this timely presentation below:

77 Best Stocks NOW! >

Want to get in touch? Email us at news@wallstreetzen.com.