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Little Lions: America’s Top 100 Small Stocks For 2022

Tucked next to Lululemon and Sephora stores on the main thoroughfare in Hoboken, New Jersey, one of The Joint’s 666 locations across the U.S. serves as a refuge to customers aching from 20 months of working from home slouched on their living room couches peering into laptop screens. Its storefront advertises a “Back Friday” sale—buy 10 chiropractic adjustments, get two free—and advertises a $29 new patient special.

Based in Scottsdale, Arizona, this franchise chain of walk-in chiropractic clinics bringing pain relief to suburban strip malls has been one of the pandemic’s great hidden gems for investors. The Joint Corp’s stock has surged 500% since the beginning of 2020, and its growth puts it at the top of Forbes’ list of America’s Best Small Companies, up from No. 13 last year. While most brick-and-mortar businesses suffered sales declines or were forced to close for portions of 2020, the weary work-from-home clients of The Joint kept coming back for more.

“You may give up your cup of coffee in a health scare or a recession, but pain is a really powerful driver,” says CEO Peter Holt. “You’re going to take care of yourself and try to alleviate that pain.”

The Joint doesn’t take appointments and doesn’t accept insurance, charging a flat fee of $39 for a single visit and $69 for a subscription that includes four adjustments per month. In 2020, the chain performed 8.3 million adjustments on patients generating $260 million in system-wide sales. Total revenues, including franchise fees, to The Joint will amount to less than $100 million in 2021, so it’s no surprise that its lofty $1.3 billion market cap has attracted short-sellers. Still, The Joint’s stock remains resilient and Holt is hoping to have 1,000 locations by the end of 2023.

For every trillion-dollar mega-cap grabbing headlines daily, there are hundreds of under the radar companies like The Joint trading at market caps most institutions ignore that offer high-return opportunities for diligent stock-pickers. To rank the top 100 performers, Forbes analyzed more than 1,000 companies with market capitalizations between $300 million and $2 billion based on stock returns, return on equity, sales growth and earnings growth over the last five years, with more weight given to data from the last 12 months.

Most of our top companies are little-known, but they represent every major industry from tech and healthcare to retail to construction. Despite a decade of underperformance, history suggests that small capitalization stocks will prevail in the long run—so long as investors are willing to weather volatility. Research by Yale professor Roger Ibbotson and financial consultancy firm Duff & Phelps shows that from 1926 through 2020, small caps returned 11.9% annually, while large caps returned 10.3%. Compounded over nearly a century, that means $1,000 invested in small caps at the end of 1925 would have turned into nearly $42 million by the end of 2020, compared with $11 million if it was invested in large companies.

“It’s the beauty of the economic system that we’re in that allows individual entrepreneurs and small companies to thrive and disrupt markets where competition may get a bit overly complacent,” says Darren Chervitz, portfolio manager of the small and micro-cap focused Jacob Discovery Fund.

One of those disruptors that has played an outsized role in the global recovery from Covid-19 is Retractable Technologies Inc., a syringe and needle manufacturer based in the Dallas suburb of Little Elm, Texas, which is in the top five of our list for the second year. Founder and CEO Thomas Shaw, trained as a mechanical engineer, began work on designing safer syringes after he saw a news segment in 1989 about a doctor who had contracted HIV from an accidental needlestick.

Retractable, which launched in 1994, ensures that the needle retracts back into the syringe at the end of an injection. In 2019, it turned profitable after generating $41.8 million in revenue. Then the pandemic hit and the U.S. government came calling. Business exploded.

Since May 2020, Retractable has agreed to contracts with the U.S. government worth a total of almost $240 million to ramp up production capacity, cover freight costs and deliver hundreds of millions of syringes for the Covid-19 vaccine effort. Of its $92.6 million in sales in the first half of 2021, $65.1 million came from the government. Retractable caught the government’s attention both for its safety and its efficiency, with its syringes designed so that six doses of the vaccine can be extracted from a standard five-dose vial. In 2020, Retractable’s stock surged more than 600% from $1.50 to $10.75, and despite a pullback this year as competitors gained momentum, shares are still up more than 450% post-pandemic.

Shaw, who has never sold a single share of Retractable’s stock, owns a 43% stake in the company worth $130 million and still thinks it’s underappreciated compared with industry heavyweights like Becton Dickinson and Medtronic. 

“The syringe doesn’t know whether it has water, tequila or the vaccine in it. So if we’re saving 20% on the vaccines, we can save 20% of other medications for the hospitals just as well,” says Shaw, pointing out his syringes’ efficient design. “At some point we won’t be sitting here with our ratio of 6, and our competitors’ ratios closer to 40. It just makes no sense.”

Other standouts among America’s Best Small Companies include Monarch Casino & Resort, owner of lesser known casinos in Reno, Nevada and Black Hawk, Colorado; video game headset maker Turtle Beach, used car dealer America’s Car-Mart, and sofa retailer La-Z-Boy. 

One newcomer to Forbes’ list is California’s Big 5 Sporting Goods. Few stocks have recovered more impressively since the depths of the pandemic than Big 5, debuting at No. 14 in our ranking. It’s o-t-c shares plummeted to just 71 cents per share in April 2020 after it was forced to close most of its 430 stores in the western United States. Since then, it’s up more than 6,000% to $44 per share, a frothy valuation even considering a rebound in revenues to $888 million in the first three quarters of 2021 and a doubling of profits from a year ago. Big 5 joins another sporting goods retailer, Hibbett, whose stock is up 150% in the last year and ranks 8th among top small caps. 

Tucker Walsh, manager of Polen Capital’s small cap growth fund, attributes small stock outperformance to what he calls the “law of small numbers.” 

Says Walsh, “You can achieve and maintain a faster growth rate due to the fact that you haven’t gotten so large that it’s hard to repeat.”

For more successful small caps, see our full list of America’s Best Small Companies.

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