3 Small-Cap Stocks to Buy and Hold for the Long Haul

Small-cap stocks to buy and hold don’t have the same appeal as their blue-sip counterparts. Blue-chip stocks provide stability to the portfolio with low-beta stocks that also offer cash dividends.

However, an investor can’t dream of being a millionaire just by investing in blue-chip stocks. Multibagger returns come from growth stocks and small-cap stocks. Investing in small-cap stocks might be risky as global economic uncertainties prevail, but some of the best small-cap stocks to buy and hold are available at seriously undervalued levels during challenging times.

It, therefore, makes sense to create a portfolio of small-cap stocks to buy and hold. Possibly 15% of the portfolio can be allocated to these stocks. The small-cap stocks discussed come from diversified industries that have long-term tailwinds.

Let’s look at the reasons that make these small-cap stocks attractive.

BORR Borr Drilling $4.35
TLRY Tilray Brands $3.26
RIOT Riot Blockchain $3.80

Borr Drilling (BORR)

Borr Drilling (NYSE:BORR) stock has surged by 120% in the last 12 months. BORR stock however remains undervalued and is among the small-cap stocks to buy and hold.

It seems likely that energy stocks will continue to perform well with oil remaining firm. Borr Drilling has witnessed robust order intake in 2022 as offshore drilling activity accelerated.

For year-to-date Q3 2022, the company has been awarded 22 new contracts. These orders represent a potential revenue backlog of $1.36 billion. As order intake remains robust, cash flow visibility will swell and the stock will trend higher.

Another point to note is that the new orders have a relatively higher day rate. As these orders are executed, Borr will witness EBITDA margin expansion. In 2023 and beyond, Borr is likely to see an improvement in key credit metrics. That’s another catalyst for stock upside.

Tilray Brands (TLRY)

There have been a few instances in the last few years when Tilray Brands (NASDAQ:TLRY) stock has delivered multi-bagger returns at the blink of an eye. Each time the surge has been on hopes of cannabis legalization. Of course, with delays on that front, TLRY stock has cooled off.

However, the surge indicates the potential one event holds for triggering a massive stock rally. With fresh hopes of cannabis legalization at the federal level in the United States, TLRY stock is a buy-and-hold.

Besides the legalization catalyst, Tilray has positive business development triggers. The company expects all business units to be free cash flow positive in the current financial years. Further, with the acquisition of two brewing companies in the United States, Tilray has established a strong strategic infrastructure.

Another point to note is that Tilray has a strong presence in the medicinal cannabis segment. In Germany, the company is the market leader in medicinal cannabis. With President Biden recently signing the medical marijuana research bill, the outlook for this segment is positive.

Riot Blockchain (RIOT)

Riot Blockchain (NASDAQ:RIOT) stock looks attractive among the small-cap stocks to buy and hold. Sentiment is extremely bearish for cryptocurrencies. I would take some risk at this point and consider exposure to crypto stocks.

It’s important to note that the Bitcoin (BTC-USD) halving is due in March 2024. In all previous instances of Bitcoin halving, the cryptocurrency has surged. Even if Bitcoin doubles from current levels, Bitcoin mining stocks have significant upside potential.

Specific to Riot, the company reported hashing capacity of 7.7EH/s as of November. The company aims to increase capacity to 12.5EH/s by the first half of 2023. With strong capacity addition, the company’s Bitcoin assets will continue to swell. I expect valuation adjusted on the upside once sentiments reverse for Bitcoin.

I also like Riot from a fundamental perspective. As of Q3 2022, the company reported a cash buffer of $255 million. Additionally, the company had 6,897 Bitcoin in the balance sheet. With zero debt, the company is positioned to survive the extended crypto winter.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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