3 US Small Cap Stocks Set Up for Success in 2024

Rate cuts in 2024 could be the turning point. These three stocks could be good buys.

2023 was marked by the “Magnificent Seven” drive, joined by NVIDIA Corporation (NASDAQ:NVDA) in May after crossing the $1 trillion market cap milestone. The mega-caps attributed to over half of the S&P 500 gains for the year.

Alongside AI hype and tech growth, the high-interest rate environment pushed investors into these companies with strong fundamentals, deep pockets, and diversified business models. However, 2024 looks to be a macro turning point, with the first rate cut priced in fed fund futures at 65% in March and 93% probability in May.

Small-cap stocks are bound to recover with the rate hiking regime on the out. Year-over-year, the Russell 2000 small-cap index gained 9.57% returns, following a steady rise from November. Over the last 30 days, RUT outperformed the S&P 500 at 5.32% vs 2.90% respectively.

If this trend continues into the expected rate cuts, which small caps are best positioned to ride the rally?

Universal Stainless & Alloy Products, Inc.

Following the worsening relations with China, the Inflation Reduction Act integrated the “Buy American” provision. The US has implemented tariffs on China’s imports in both the automotive and steel sectors. This not only protects Tesla (NASDAQ:TSLA) from cheaper Chinese EVs, but also Universal Stainless & Alloy's (NASDAQ:USAP) manufacturing of specialty steel products.

These range from tool steel and stainless steel to nickel alloys and miscellaneous alloyed steels for plates, slabs, ingots, bars, and wire. They are demanded across the power and oil sector, heavy equipment, aerospace, and defense.

Over the last year, USAP stock jumped 166% accordingly, with a 21% boost in the last 30 days alone. As of the Q3 earnings report, the company’s revenue grew 38.71% year-over-year with a price-to-sales (P/S) ratio of 0.68. This means investors pay 68 cents for every $1 of revenue generated, above the sector average.

Based on one analyst input pulled by Nasdaq, USAP stock is a “strong buy.” The average USAP price target is $19 vs. the current price of $20.45.

Duolingo, Inc.

Duolingo Inc (NASDAQ:DUOL) is another small-cap stock with triple-digit performance in 2023, gaining 196% in value. Like Netflix (NASDAQ:NFLX) became synonymous with online entertainment, Duolingo became synonymous with accessible and effective language learning.

Language learning is in high demand because of ever-increasing international worker flows and remote work. Duolingo demonstrated this demand with 500 million global users, having raised paid subscribers by 60% year-over-year in the Q3 2023 earnings report.

Likewise, Duolingo generated 43% more revenue from a year-ago quarter to $137.6 million and a total net income of $2.8 million. This is a significant improvement compared to a $18.4 million net loss in the year-ago quarter. In November, Duolingo boosted its app capability with math and music courses, including optional private lessons up to $400 per session.

Not to be left behind the AI train, Duolingo integrated its model “Birdbrain,” based on ChatGPT, to generate personalized language lessons with AI-powered feedback. For 2023, the company raised full-year guidance between $525 million and $528 million in revenue.

Based on 12 analyst inputs pulled by Nasdaq, DUOL stock is a “buy.” The average DOUL price target is $188.83 vs the current $211. The high estimate is $217, while the low forecast is $140 per share.

VirTra, Inc.

The smallest of the three, VirTra Inc (NASDAQ:VTSI) skyrocketed in the last three months, gaining 112% in value. The company occupies a unique market niche in training law enforcement, military and civilians in combat scenarios with virtual reality (VR) and augmented reality (AR).

Even though VR headsets are commercially available, the same cannot be said of environmental setups that sync virtual environments with natural human motion. VirTra employs high-fidelity realism to utilize VR technology and fully immerse trainees in realistic simulations.

In addition to the razor and blade business model, VirTra relies on a subscription training equipment program (STEP), delivering a recurring revenue stream. As of the latest Q3 earnings call, the company reported $2.4 million net income, a 54% year-over-year uptick. VirTra plans to further scale its customer experience with the V-XR training solution.

In 2024, VirTra is projecting this rollout to bring consistent recurring revenue to 30% of total revenue. Additionally, the company is integrating AI to drive analytics, user feedback, and content creation for simulations.

Based on two analysts’ inputs pulled by Nasdaq, VTSI stock is a “strong buy.” The average VTSI price target is $13 vs current $11 per share.

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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

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