### Small-Cap Stocks: Higher Risk, Higher Reward
Small-cap firms tend to be less stable than their larger peers, making them a higher-risk, higher-reward proposition for investors. Here’s why investors should pay attention to small-cap stocks:
#### Federal Reserve’s Rate Cut Boosts Small-Cap Growth
The Fed’s recent interest rate drop could help small-cap companies to be able to borrow money more easily, encouraging growth. The September rate cut of 50 basis points is a welcome relief that should make borrowing more accessible, with additional rate cuts likely in the future. This favorable rate landscape is expected to benefit small-cap companies.
#### Selecting Investment Targets Wisely
There remains a wide range of risk within the small-cap space, so investors should look to fundamentals and important business developments as a guide for selecting investment targets. It’s essential to consider various factors before investing in small-cap stocks.
### Top Small-Cap Stocks to Watch
#### 1. TZOO: Shift to Paid Model Drives Stock Rally
Travelzoo (NASDAQ: TZOO) provides travel-related websites and mobile apps and recently shifted to a fee-based subscription model. Despite initial concerns, the company has maintained revenue and member numbers. With a forward P/E ratio of 12.6 and projected earnings growth of 17.5%, Travelzoo shows potential for growth.
#### 2. FBRT: REIT With Strong Growth Potential
Franklin BSP Realty Trust (NYSE: FBRT) invests in residential mortgage pass-through securities and is expected to benefit from reduced interest rates. With strong new commitments and a dividend yield of 11.2%, FBRT has a positive outlook for growth.
#### 3. AURA: Positive Trial Results Fuel Optimism
Aura Biosciences (NASDAQ: AURA) recently reported positive results from its Phase 2 study of bel-sar, a treatment for ocular cancers. Analysts are optimistic about AURA shares, with a consensus price target of $21.67, more than 160% above current levels.
### Risk vs. Reward Analysis
Small-cap stocks offer the potential for outsized returns but come with higher risk compared to larger companies. Factors such as company type, industry, and sector play a crucial role in managing risk. Biotechnology companies like Aura may experience volatility due to factors like profitability and new drug treatments.
In conclusion, small-cap stocks present unique opportunities for investors seeking growth potential. It’s essential to conduct thorough research and consider various factors before investing in small-cap companies to maximize returns and manage risk effectively.