Finding hidden gems in the stock market is every investor’s dream.  Those stocks with massive upside potential that no one is paying attention to yet are like needles in the market’s haystack of investible names.

Many times these diamonds in the rough are found in the small-cap market.  

#-ad_banner-#Small-caps are public companies with a market cap of roughly $300 million to $4 billion.  Above $4 billion, a company moves into the mid-cap category. Below $300 million, a company is considered to be part of the micro-cap or even penny stock segments.

The small-cap sector is indeed the sweet spot of the stock market.  While penny stocks and micro-caps have greater volatility, and therefore more potential, the risk factor is just too high for most conservative investors.  Despite recently lagging, the small-cap market is well known for outperforming the overall market in the long term.  

I have identified three under-the-radar small-cap stocks boasting colossal upside potential:

1. Albany International (NYSE: AIN)
Sitting on a $2 billion market capitalization, Albany is solidly in the small-cap category. Launched in 1895, the company’s primary focus is the machines that make paper and cardboard. However, recently Albany has started to use its equipment to produce carbon fiber and other composites used in the aerospace industry. It is this pivot that I expect to be the catalyst for impressive future growth.

The reason I am so bullish on Albany is the fact that the company is General Electric’s (NYSE: GE) only composite fan blade supplier for the blades used in the Boeing 737 MAX and Airbus A320neo aircrafts. Thanks to the new customer, the engineered composite division of Albany was profitable for the first time in the fourth quarter of 2017. Earnings growth is expected to jump by 20% annually over the next several years.  

Net sales climbed by over 4% and the company increased its revolving credit lines during the fourth quarter.  Also, steady cash flow from stable operating performance increased cash balances from $30 million to over $180 million.

Technically, shares have fallen below the 50-day simple moving average (SMA), but have found support in the $61.00 range, creating an ideal buy opportunity.  Buying now in the $62.00 zone with a $75.00 target and initial stops at $56.72 is the play on this small-cap.

2. Axon Enterprises (Nasdaq: AAXN)
Formerly known as TASER International, this $2 billion market cap maker of TASER guns, body cameras and other military/police equipment is poised to post strong 2018 performance.

Shares are higher by nearly 50% this year despite a rough 2017.  The price surge comes from Axon embracing digitalization and bringing to the forefront of law enforcement.

The company’s Evidence.com venture is designed to help police departments manage their ever-growing digital evidence library. What makes Evidence.com so exciting is the fact that it creates a recurring revenue stream unlike the company’s other products. Subscription style revenue is expected to vastly improve Axon’s bottom line over the next decade.  

Axon posted record revenue of over $340 million, GAAP EPS of $0.04, and $82 million in cash in the fourth quarter. Add these metrics to the fact that the company has zero debt, and it paints an extremely bullish picture.

Technically, shares continue in a strong upward trend after the earning gap up end of February.  Getting long on a break out of $40.00 per share with a $100.00 per share target and initial stops at $33.37 makes solid investment sense.  

3. Axcelis Technologies (Nasdaq: ACLS)
It is the technical price pattern that first caught my eye with this $800 million market cap small cap.  Shares dropped to a $22.00 low in mid-February but have since been slowly and steadily moving higher toward resistance at both the 50- and 200-day SMAs. In and of itself, this is not enough impetus to get long. However, when combined with the fundamental picture, a compelling long thesis emerges.

Axcelis is the leading provider of services and equipment to the semiconductor industry. In other words, the company’s products and services support the lucrative semiconductor business. Specifically, the company offers a suite of manufacturing technologies for ion implantation, one of the most critical and enabling steps in the IC manufacturing process. Another revenue source is the company’s extensive aftermarket service and support, including spare parts, equipment upgrades, maintenance services and customer training. Axcelis calls the 20 most significant semiconductor manufacturers in the world its customers on over 3000 products.  

The company returned an astounding 350% net income increase from 2016 to 2017. Combined with the highest revenue numbers in a decade paints a very bullish picture for 2018. Nearly monolithic in its space, Axcelis controls close to 30% of its market.  

I love the fact that Axcelis is not a bet on a particular consumer-facing high tech company but rather a bet on overall technological growth. I would bet big on this high-tech backbone company!

Buying on a break out above the 50- and 200-day SMAs at $26.76 per share with a target price of $45.00 per share and initial stops at $21.33 per share is my play on this high-tech gem.

Risks To Consider: No matter how compelling your long thesis on a stock, anything can and does happen in the market.  Always use stops and do not be afraid to take losses!  Remember, your first loss is the easiest!

Action To Take: Consider adding one or more of the above small-cap stocks to your portfolio.

Editor’s Note: Here Are Our Top 10 Stocks for 2018

Stock #2: lets you own a stake in every Hollywood movie and yields 12.6%

Stock #3: has higher profit margins than 98% of all companies on the S&P 500.

Click here to get their names and ticker symbols.