The broad market is expensive, driven by concentration in a handful of high-flying technology stocks. Value investors have been suffering as these hot companies continue climbing higher and higher. But this creates opportunity for those willing to look beyond the AI narrative to find quality businesses trading at genuine discounts.
Three small-cap stocks represent compelling value plays overlooked by the market’s obsession with artificial intelligence and mega-cap technology. Each trades at single-digit or low double-digit multiples of earnings while offering genuine business quality and growth catalysts that suggest significant upside potential.
Understanding Small-Cap Value Opportunities
Small-cap stocks—companies with market capitalizations typically between $300 million and $2 billion—often trade at significant discounts to larger companies with similar quality. This discount reflects several factors: less analyst coverage, lower institutional ownership, higher volatility, and reduced liquidity.
But for patient investors, these characteristics create opportunity rather than risk. When quality small-cap businesses trade at steep discounts, the potential for outperformance is substantial once the market eventually recognizes their value.
The current market environment—where investor attention is concentrated almost entirely on artificial intelligence and mega-cap technology—has created a vacuum of capital flowing toward overlooked sectors and smaller companies. Throughout investment history, this pattern repeats: excessive concentration in hot sectors eventually ends, and capital rotates to undervalued areas that have been ignored.
Value investing requires discipline and patience. It means owning businesses that may not capture headlines but generate consistent earnings, serve essential needs, and trade at prices that leave substantial margin of safety. The three small-cap stocks discussed here exemplify this approach.
Covista Inc. (CVSA) trades around $126 and has gained 20% this year despite broad market concentration in mega-cap technology. The company operates as a for-profit education platform focused primarily on educating doctors and nurses.
Throughout the world, there’s a critical shortage of nurses and doctors. Healthcare systems across developed nations face staffing crises that constrain their ability to provide care. For-profit education companies like Covista that can bring professional medical education at scale address a structural, long-term need that’s not going away.
Covista’s business model capitalizes on this shortage by providing focused, efficient education for healthcare professionals. Rather than competing with traditional four-year universities, Covista targets professionals seeking specialized training and certification. This focused approach creates higher-margin, faster-delivery education compared to traditional institutions.
The company’s leadership has done a fabulous job of getting operations on track and executing strategically. Management has demonstrated the ability to scale operations efficiently while maintaining quality, a crucial requirement for for-profit education companies that face regulatory scrutiny and reputation risk.
Despite strong fundamentals and a 20% year-to-date gain, Covista remains relatively unknown to most investors. The stock still offers room to run as more investors recognize the secular tailwinds of global healthcare workforce shortages and the value of focused professional education.
The valuation appears reasonable for a company operating in a growth market with demonstrated operational excellence. As the market eventually recognizes the secular opportunity in medical education and workforce development, Covista should continue attracting investor interest.
Lazard, Inc. (LAZ) trades around $40 and has tumbled 16% in 2026 alongside broader weakness in financial services. The stock has been beaten down despite the company being a premier investment banking company with a significant money management subsidiary.
In the current macroeconomic backdrop—where deals are getting done constantly and will happen even more in a deregulated environment—Lazard’s investment banking and advisory business should thrive. M&A activity creates revenue and opportunity for firms like Lazard that can advise on major transactions.
The company’s leadership deserves credit for bringing fresh perspectives and strategic direction. Management has made deliberate choices to strengthen the firm’s advisory capabilities and market position. The company has attracted and retained talent that positions it well for increased dealmaking activity.
Within the financial services sector, many stocks have gotten incredibly cheap. Trading at 9-10x times next year’s earnings, Lazard offers a historically very inexpensive valuation for a premier investment banking company. This valuation creates a substantial margin of safety for investors.
The deal environment should continue benefiting companies like Lazard. As dealmaking activity accelerates, advisory fees should increase, driving earnings growth. The valuation leaves room for significant appreciation once sentiment shifts and investors recognize the value available at current levels.
The Carlyle Group Inc. (CG) trades around $41 and has declined 29% in 2026 amid pressure on the broader private equity industry. Headlines about private equity have discouraged many investors, creating a buying opportunity for those willing to look past near-term sentiment.
The stock is now trading at 9-11x next year’s earnings—historically very, very cheap for a leading private equity firm. This valuation represents genuine value available at depressed prices driven more by sentiment than fundamental deterioration.
Carlyle operates as a major global investment manager with expertise across private equity, real assets, and other alternative asset classes. The firm manages substantial capital on behalf of institutional investors, pension funds, and high-net-worth individuals seeking exposure to private markets.
The long-term tailwind supporting private equity remains intact. Institutional investors continue allocating capital to alternative assets because of the potential for superior returns compared to public markets. The current negative sentiment creates opportunity for value investors, as the temporary headline risk has compressed valuations far below intrinsic value.
With shares now trading at single-digit earnings multiples, downside risk appears limited while upside potential is substantial. Once sentiment shifts—and historically it always does when valuations become this depressed—investors will recognize the value trapped in private equity stocks.
Comparing Three Value Approaches
These three small-caps offer different value characteristics suited to different investor profiles.
Covista represents a secular growth opportunity—a company benefiting from long-term healthcare workforce shortages while trading at reasonable valuations. The company offers both growth and value characteristics, appealing to investors seeking quality businesses at fair prices rather than distressed situations.
Lazard represents a financial services play positioned to benefit from increased M&A activity in a deregulated environment. The company trades at a steep discount to historical valuations based on temporary sentiment rather than fundamental deterioration. As dealmaking accelerates, Lazard should benefit substantially.
Carlyle represents the deepest value opportunity—a quality asset manager trading at historically cheap valuations driven entirely by sector sentiment. The company’s long-term positioning in private equity remains sound despite near-term headlines.
All three offer the combination investors should seek in overlooked small-caps: genuine business quality, reasonable to cheap valuations, and catalysts that should drive upside over time.
The Value Investing Thesis in Today’s Market
The current concentration of investor attention on artificial intelligence and mega-cap technology has created a classic environment for value investing. Every major bull market eventually sees concentration in a limited number of hot sectors, followed by rotation as those valuations become excessive.
Throughout investment history, this pattern repeats with remarkable consistency. Investors focus excessively on what’s working, driving prices higher until valuations become unsustainable. Meanwhile, overlooked sectors and smaller companies trade at discounts that eventually attract capital flows.
The three small-cap stocks discussed here represent that opportunity. They’re not headline-grabbing artificial intelligence plays. They’re quality businesses trading at prices that leave substantial margin of safety and upside potential.
Investing in overlooked small-caps requires patience and conviction. These stocks won’t necessarily outperform month-to-month. But over multi-year periods, as markets eventually recognize the value available at current prices, the potential for significant outperformance is substantial.
