Small-cap investing does not work anymore. Everyone knows that. Small companies are unprofitable garbage, and most of those companies can barely pay their bills.
You need to own the big tech giants that are building the brave new world of tomorrow. Bigger is better. Everyone knows that.
Value investing is not even for old people anymore. All these value types are dead except for Warren Buffett, and he is 600 years old.
I cannot imagine a dumber way to invest than buying small stocks that trade for less than book value. You might as well throw your cash out the window or give it to the Flat Earth Society.
I need most of you to do me a favor. Please keep believing that.
Only buy stocks that have been mentioned on CNBC at least five times by 9 a.m. Sell any stock you own that is also owned by 75% of your coworkers.
Use any spare cash you have that you are not using to bet on 12-team parlays to buy options trading courses, and day trading systems. Dismiss with a sneer of the lip and a wave of the hand anything that challenges conventional wisdom. Please continue with these practices that allow you to lock in average returns and speculative mediocrity.
Never even stop to consider what happens if you approach the small-cap universe with a different mindset.
Or just maybe you could do all this a little differently
Instead of thinking like an index fund manager or buying the stocks your buddy Joe in shipping was talking about, approach the market like a trash man.
Get rid of all the garbage in the small-cap universe. Dump all the companies with too much debt. Get rid of the ones that are issuing stock to cover operating expenses.
Dump the ones where profits are declining every year.
Bad business plan? Dump it.
Shoddy products? Dumped. Shady accounting? Gone.
The trash man cometh.
I started with a database of roughly 5,500 companies.
Only 1,716 of them have a market cap less than $2 billion.
Just 216 of these survive the trash removal process.
On average, only about 24 trade for less than tangible book value.
On average, only about a dozen of these also have positive price momentum.
Owning these stocks has compounded at an extraordinarily high rate over the last 25 years. Investors who started using this strategy back in 2000 and rebalanced their portfolio every quarter would have 26 times as much money as those who bought an index fund.
While there are only a very small handful of candidates today, and many of them are too small to discuss in an open forum, here are three under-the-radar, high-quality small companies whose stocks have decent price momentum.
Oil States International (Ticker: OIS) is a small-cap energy services company that provides equipment and services for oil and gas drilling, completion, and production. The business operates across three segments: Well Site Services, Offshore/Manufactured Products, and Downhole Technologies. While the company is headquartered in Houston, it has a global presence with fabrication facilities and service locations strategically located in offshore and onshore oil-producing regions. The Offshore/Manufactured Products segment, which provides capital equipment for offshore drilling and production, has historically been the company’s margin driver. OIS is exposed to cyclical trends in drilling activity, but management has taken steps to diversify through international expansion and targeted technology offerings.
On the balance sheet front, OIS has made meaningful progress in reducing its debt load since the downturn in the oil market in 2015–2016. Total debt stands at approximately $132 million with no near-term maturities, and the company had over $42 million in cash at the end of the first quarter of 2025. The company continues to generate modest free cash flow, aided by disciplined capital expenditures and better cost absorption in manufacturing. Profitability is still recovering, with EBITDA margins in the high single digits, though improving year-over-year as energy capital spending rebounds. Its Piotroski F-score hovers in the 5 to 6 range, indicating moderate financial strength, but operating leverage and working capital swings remain key risks.
Shares of OIS trade at under 6.5 times forward EV/EBITDA and around 0.75 times book value, suggesting the stock remains attractively valued given the company’s cyclical recovery potential. Analyst sentiment has improved alongside higher offshore activity levels and more stable oilfield services pricing. While it may never reclaim its peak-cycle multiples, the firm appears reasonably priced for patient investors willing to ride the late-cycle tailwinds in oil and gas capital spending. Insider ownership remains modest but aligned, and continued margin expansion could catalyze further re-rating.
NACCO Industries (Ticker: NC) is a diversified holding company primarily known for its ownership of North American Coal Corporation, a provider of surface mining services to utility and industrial customers. The company also has smaller segments in specialty lift trucks and natural resources investments. NACCO’s coal contracts are long-term, cost-plus agreements, which provide some insulation from commodity price volatility and result in predictable cash flows. Despite operating in a declining coal environment, management has positioned the company as a low-cost operator with specialized mining solutions for power plants and industrial users.
From a balance sheet perspective, NACCO is extremely conservative. The company carries virtually no long-term debt and maintains a cash-rich balance sheet, with more than $100 million in liquidity relative to a market capitalization below $300 million. Cash flows are uneven due to lumpy mining development revenues and legacy asset monetization's, but profitability has been resilient. Return on equity has averaged in the high single digits, and the company generates respectable operating margins. Its F-score has consistently registered between 7 and 8, reflecting solid fundamentals. That said, long-term secular headwinds in coal and a dearth of new contracts limit top-line growth.
Valuation is compelling, with the stock trading at under 8 times trailing earnings and below tangible book value. The dividend yield is near 3 percent, and the company has a track record of occasional special dividends. With insiders owning over 30 percent of the stock, management is strongly aligned with shareholders and has historically taken a cautious capital allocation approach. Investors should be aware of the existential regulatory and demand risks to coal over time, but the downside appears modestly protected by balance sheet strength and contract durability.
Eagle Bancorp Montana (Ticker: EBMT) is a community bank holding company based in Helena, Montana, with roughly $2.1 billion in assets. The bank operates over 20 branches across the state and serves retail and commercial customers with a full suite of lending, deposit, and wealth management products. EBMT has pursued a consistent strategy of expansion through acquisition, having completed several deals in recent years to broaden its footprint. The loan portfolio is diversified, with meaningful exposure to commercial real estate, residential mortgages, and agriculture lending.
From a credit perspective, EBMT has maintained solid underwriting standards, though like many peers, it has experienced rising funding costs and modest pressure on net interest margins in 2024 and 2025. Nonperforming assets remain low at under 0.5 percent of total assets, and the allowance for credit losses is conservatively reserved. Tangible common equity stands at 8.4 percent of assets, and the bank has maintained dividend payments throughout the rate cycle. The fundamentals of the bank are excellent reflecting asset quality, earnings stability, and conservative capital management. Valuation is attractive at just 0.85 times tangible book value and around 8 times forward earnings. The dividend yield is above 4.5 percent, and the company has authorized share repurchases in prior years. Insider ownership exceeds 5 percent, and the board has shown willingness to pursue accretive M&A and prudent capital returns. As the rate cycle stabilizes and loan demand normalizes, EBMT could see its earnings multiple expand, particularly if credit quality holds and efficiency improves.
