With the Federal Reserve recently cutting interest rates by an oversized half-percentage point, small-cap stocks are positioned to outperform. Lower rates make borrowing cheaper, particularly benefiting companies with high levels of floating-rate debt. This dynamic has already started to lift small-cap indexes, like the Russell 2000, which rose 2.1% in the past week alone. We’ve identified three small-cap stocks that not only have significant upside potential but also stand to gain the most from this new rate environment due to their high debt loads and solid analyst support.
Civitas Resources (NYSE: CIVI) Undervalued Energy Stock with Cash Return Potential
Civitas Resources is an energy producer that has faced some challenges in 2024, with the stock down about 21% year-to-date. However, the company’s fundamentals remain solid, and nearly all analysts covering Civitas are optimistic about its prospects—94% rate it as a buy. The company’s total debt stands at 79% of its equity, positioning it to benefit from reduced borrowing costs as rates decline.
Analysts see Civitas trading at a discount compared to its peers, which could mean significant upside ahead. JPMorgan recently initiated coverage with an overweight rating and set a price target of $67, implying a potential 23% gain from current levels. One of the key attractions of Civitas is its revamped cash return program, which now prioritizes share buybacks, potentially boosting the stock’s valuation and providing a pathway for further gains.
Chart Industries (NYSE: GTLS) Energy Equipment Manufacturer Poised for a Rebound
Chart Industries, a manufacturer of engineering equipment for the energy sector, has seen its stock fall 10% this year, but the outlook remains positive. The company’s debt load—1.4 times its equity—makes it a prime candidate to benefit from the recent rate cuts. Analysts are upbeat, with 74% rating the stock a buy and forecasting an average upside of 49%.
Morgan Stanley recently upgraded Chart Industries to overweight, highlighting its attractive valuation and strong positioning in the natural gas, energy transition, and renewables markets. Analyst Devin McDermott sees the stock climbing to $175, which would represent a 43% increase from current levels. Chart’s exposure to high-growth energy sectors and its ability to benefit from lower interest rates make it an intriguing pick for investors looking to capitalize on the evolving energy landscape.
Sarepta Therapeutics (NASDAQ: SRPT) Biotech with Big Upside on New Drug Launch
Sarepta Therapeutics, a biotechnology company specializing in gene therapies, is one of our top picks in the small-cap space. The stock has gained 32% this year, and analysts see even more potential ahead. Sarepta’s total debt is currently more than one-and-a-half times its equity, meaning it stands to benefit significantly from lower interest rates.
Analyst sentiment is highly favorable, with four out of five analysts rating it a buy, and a consensus price target suggesting a potential upside of 52.5%. A key catalyst for Sarepta is its recent launch of Elevidys, a gene therapy for Duchenne muscular dystrophy. While expectations for the drug’s ramp-up have been adjusted to 2025 and beyond, Evercore ISI recently upgraded Sarepta, citing a good entry point for the stock. Analyst Gavin Clark-Gartner set a price target of $179, approximately 41% higher than current levels, underscoring Sarepta’s potential as a strong growth story in the biotech sector.
