Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.

Two Small-Cap Stocks to Sell:

Cognex (CGNX)

Market Cap: $5.06 billion

Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.

Why Do We Think CGNX Will Underperform?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.2 percentage points
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Cognex is trading at $30.15 per share, or 33.4x forward P/E. If you’re considering CGNX for your portfolio, see our FREE research report to learn more.

Lake City Bank (LKFN)

Market Cap: $1.51 billion

Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ: LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.

Why Does LKFN Give Us Pause?

1. Annual net interest income growth of 4.8% over the last four years was below our standards for the bank sector
2. 21.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the company’s willingness to accept lower yields to defend its market position
3. Annual tangible book value per share growth of 2.5% over the last five years was below our standards for the bank sector

Lake City Bank’s stock price of $58.92 implies a valuation ratio of 2x forward P/B. Dive into our free research report to see why there are better opportunities than LKFN.

One Small-Cap Stock to Buy:

Sterling (STRL)

Market Cap: $6.17 billion

Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ: STRL) provides civil infrastructure construction.

Why Will STRL Beat the Market?

1. Impressive 11.9% annual revenue growth over the last five years indicates it’s winning market share this cycle
2. Free cash flow margin grew by 13.9 percentage points over the last five years, giving the company more chips to play with
3. Improving returns on capital reflect management’s ability to monetize investments

At $202.66 per share, Sterling trades at 25.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today