3 Small Cap Stocks That Could Make You Rich
IIt doesn’t take a big investment to make serious money if you own the right small cap stocks from the start. Here’s why I’m optimistic Silvergate Capital (NYSE:IF), Bike3D (NYSE: VLD)and ZipRecruiter (NYSE:ZIP).
1. Silvergate Capital: $3 Billion Market Cap
Silvergate is a very small, discreet bank. What makes it remarkable is that Silvergate was the first to provide banking services to the crypto industry. Many years ago, when crypto exchanges traded coins 24/7, they had a very specific problem: the banking system has limited opening hours. Silvergate saw this problem as an opportunity. The bank created the Silvergate Exchange Network (SEN) to facilitate the movement of dollars around the clock.
As a result, most major players in the crypto universe now deposit dollars with Silvergate. The bank has nearly 1,600 customers, consisting of crypto exchanges, hedge funds, and institutional customers who want to be able to trade crypto around the clock. In the second quarter, $191 billion in transactions passed through the SEN. Silvergate collects a small portion of the fees on these transactions (nearly $9 million in the second quarter).
Overall, the bank had revenue of $80 million in the quarter. Silvergate reported $13.8 billion in deposits in the second quarter. Most of its money comes from the interest income the bank earns on all its deposits. Silvergate does not pay any interest, as these are crypto trading accounts. So a rise in interest rates (as we see in 2022) is pure profit for that bank.
Silvergate has also started providing loans to customers, using crypto as collateral. This is largely a new opportunity, as the vast majority of banks are new to crypto. Last year, Silvergate worked with Metaplatforms (NASDAQ:META) to issue a stablecoin. When Meta pulled out, Silvergate decided to pursue the coin on its own. Although no date has been set for the release, when this coin is launched, it could significantly increase deposits with the bank.
I am very bullish on Silvergate. The management showed tremendous foresight, which gave this small bank a head start in the world of finance. Silvergate is extremely profitable (45% profit margins) and continues to grow rapidly (88% revenue growth in its last quarter). And this is in a year where crypto valuations have plummeted.
2. Velo3D: $675 million market cap
So far, 3D manufacturing has been a disappointment for investors. Several years ago I made a small investment in 3D systems (NYSE: DDD), one of the first stocks in this disruptive industry. The investment was a washout, and eventually, I bailed out.
The idea of 3D printing (also called additive manufacturing or AM) is very promising. You design a part in your computer and the lasers fabricate the part out of aluminum, titanium or the metal of your choice. You can consolidate manufacturing by creating a complex part, reducing time and cost.
While that was the dream, in reality companies often had to redesign parts to facilitate 3D manufacturing. Worse still, the parts would degrade over time, requiring the addition of supports to prevent part failure. So while many companies have taken an interest in AM, large-scale adoption rates have been slow.
A company called Velo3D has made a breakthrough, making this stock a potential powerhouse. The company says its Sapphire machines can replicate legacy parts without requiring a redesign. And there is no performance degradation, so no additional support is needed.
Velo3D got a major hit when the company landed SpaceX as its first customer. Elon Musk liked the technology so much that he wanted to buy the company. Luckily for us, Velo3D chose to go public instead. The company is currently in high growth mode, with sales jumping 900% in the last quarter. My family made small investments in July.
3. ZipRecruiter: $2 Billion Market Cap
Right now, sales are skyrocketing for ZipRecruiter. The company uses artificial intelligence (AI) to help companies find the ideal candidates. Revenue jumped 81% in the first quarter, bringing in $281 million. And yet, the market is shockingly pessimistic about this company, giving it a paltry multiple of twice sales.
I’m very optimistic about ZipRecruiter’s growth trajectory. The company does not charge job seekers anything. Invoices are paid by the hiring companies. ZipRecruiter finds the best candidates for open positions. This is one of the best aspects of this business model. By aligning with employers, ZipRecruiter can cement relationships with HR departments and drive continued and growing revenue.
In Q1, ZipRecruiter had 150,000 paying employers under its AI umbrella (up 31% from a year ago). It derives 71% of its revenue from flat-rate subscription plans. And 29% comes from performance-based pricing plans (cost per click).
When a job posting is posted on the ZipRecruiter site, the artificial intelligence software (named “Phil”) contacts the best job matches in the network and invites them to apply. Employers can assess candidates as they come in. As the AI learns what the employer wants, it invites similar candidates to apply for the position. So the AI gets smarter as it gets more data.
Placement is a huge $205 billion market in the United States alone, and I think a lot of that activity will move online. And ZipRecruiter, with its active marketplace and AI assistant, is growing remarkably, even in a slowing economy. I think this stock is a good bet to outperform over the next decade. And its cheap stock price of around $20 is an added bonus.
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Taylor Carmichael holds positions at Silvergate Capital Corporation, Velo3D, Inc., and ZipRecruiter, Inc. The Motley Fool recommends Silvergate Capital Corporation and Velo3D, Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.