Looking at the FTSE All-Share stock index since 1926, the average length of a bull market has been seven years, with an average return of 507%.
By comparison, the average length of a bear market during this time was 1.7 years, with an average loss of 36.5%.
You won’t need us to spell out, then, that long-term investing has proven to be one of the most lucrative methods of growing wealth over the past century!
And small-cap stocks — while riskier investments than their larger peers — have some of the biggest runways to future growth during bull markets.
So without further ado, here are a few candidates that some of our contract writers are bullish on!
Agronomics
What it does: the company invests in early-stage growth firms in the cellular agriculture sector.
By Jon Smith. Agronomics (LSE:ANIC) is a very unique company with regards to being involved in cellular agriculture. Cellular agriculture is the production of agriculture products directly from cell cultures that would have otherwise been derived from traditional agriculture methods.
The portfolio is growing, including shareholdings in firms such as BlueNalu that makes cell-cultured seafood (meaning that no fish are killed in the process). BlueNalu raised $33.5m in funding in October.
It has 22 firms in the portfolio, many of which I expect to do well in the next bull market.
Investing in Agronomics stock allows me to get diversified exposure to this growth market. The main risk here is that the sector as a whole disappoints, or that the companies simply don’t get off the ground. Yet if just one of these businesses hits it big, the Agronomics share price could skyrocket.
Jon Smith does not own shares in Agronomics
Bioventix
What it does: A specialist manufacturer of sheep monoclonal antibodies used for human blood testing worldwide.
By Zaven Boyrazian. Bioventix (LSE:BVXP) is a pretty niche biotech enterprise specialising in sheep monoclonal antibodies (SMAs). Without going too far into the weeds, SMAs are used throughout a wide range of blood tests worldwide. And since demand for such tests hasn’t decreased, the firm is reporting solid growth while many of its peers have seen their financial performance go in the wrong direction.
While the sale of SMAs lies at the heart of the group’s business model, the bulk of revenue actually stems from license royalties from any diagnostic tests that make it to market using the group’s antibodies.
As such, most of the income being generated right now actually comes from contacts secured years ago. And with a new contract supply signed with Seimens, among others, demand looks like it’s ramping up despite cheaper alternatives from competitors. While the threat of rivals can’t be ignored, they appear to be struggling to disrupt Bioventix from its leading position.
Zaven Boyrazian does not own shares in Bioventix or Seimens.
Central Asia Metals
What it does: Central Asia Metals is an AIM-listed producer of copper cathode, lead and zinc.
By Paul Summers. It makes sense that a lot of mining stocks have proved unpopular in 2023. Base metals prices tend to fall when economies are struggling.
Since we can be pretty sure that a bull market will eventually kick in, however, I think this could be a great time to go hunting in the sector. My pick is Central Asia Metals (LSE: CAML).
While down nearly 40% in value year-to-date, the small-cap’s low-cost operations should mean it can withstand this period of market malaise. Positively, the company announced in October that it was on target to achieve its full-year guidance on production.
Central Asia Metals also boasts a strong balance sheet and a mighty 9.3% forecast dividend yield.
Analysts are predicting massive supply deficits in the years ahead. With the shares trading at just seven times earnings, I reckon this could be an excellent contrarian buy.
Paul Summers has no position in Central Asia Metals
IG Design
What it does: the company designs and makes celebration, stationary, creative play, gifting and not-for-resale consumable products.
By Kevin Godbold. IG Design’s (LSE:IGR) business is sensitive to general economic shocks and earnings collapsed along with the share price in the trading years to March 2022 and 2023. But economic times could be on the mend for consumers. And City analysts predict a massive earnings rebound ahead.
Estimates I’ve seen anticipate a return to pre-Covid profits as early as the next trading year to March 2025. Meanwhile, the share price languishes around 148p as I write compared to a peak above 760p pre-pandemic.
Meanwhile, the valuation looks undemanding with a forward-looking earnings multiple of just under five when set against expectations. And in October, the company issued an encouraging trading statement.
This is a racy choice with plenty of cyclical risk. Earnings could easily decline again if economic conditions remain tough. Nevertheless, the stock has the potential to soar in the next bull market if profits gain traction in the months ahead.
Kevin Godbold does not own shares in IG Design.
Yü Group
What it does: Yü Group supplies gas, electricity and water to small and medium-sized businesses (SMEs) across the UK.
By Harshil Patel. After several high-profile energy suppliers have gone bust in recent years, it might seem strange why I think this one is set to rocket in the next bull market.
But there’s a key difference. Rather than supplying households, Yü Group (LSE:YU.) focuses on businesses. Its Digital by Default strategy offers them a quick and easy way to sign up and monitor their usage and bills.
Most SMEs have tended to stick with one of the “Big Six” suppliers. But with soaring energy costs in recent years there is an opportunity for Yü to take market share.
The tech-focused strategy has already started to reap rewards. Sales and profits in the first half of 2023 jumped by 51% and 62% respectively. But I reckon there’s more growth to come.
Bear in mind that Yü isn’t risk-free. It relies on being able to hedge its energy exposure using a wholesale energy market counterparty. Any breach or removal of this agreement could have a material impact.
Harshil Patel does not own shares in Yü Group.
The post 5 small-cap stocks Fools think will soar in the next bull market appeared first on The Motley Fool UK.
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The Motley Fool UK has recommended Bioventix Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
