3 Small-Cap Stocks to Buy and Hold For 2025 and Beyond

Key Points

• SelectQuote is trading near historic lows and ready to rebound on easing headwinds, growth, and improving profit outlook. 
• HanesBrand Inc. is experiencing a major refocusing that is improving the margin. 
• Polaris struggles with macroeconomic conditions in 2024 but is set up to pivot back to growth in 2025 as lower interest rates reinvigorate discretionary spending. 

Small-cap stocks have underperformed the broad market for years but are poised to rebound soon. The FOMC has all but committed to its first interest rate cut since 2020, ushering in a new age for stocks. In this new age, headwinds will diminish, allowing riskier businesses with greater dependence on borrowing to flourish. This is a look at three small-cap stocks well-positioned to benefit from the shift and deliver value to their shareholders in 2025 and beyond. 

SelectQuote Well-Positioned to Benefit From AI

SelectQuote NYSE: SLQT is a small-cap insurance platform providing policies direct-to-consumers across four operating segments. The company is well-positioned for 2025 for several reasons, including lower interest rates and AI. The company is already using AI to improve efficiency and consumer outcomes and is expected to continue on this path. Details from the latest results include sustained, high-double-digit top-line growth, outperformance, and increased guidance. Guidance was increased by 800 basis points at the midpoint, putting it above the analysts' consensus forecast reported by MarketBeat and may be cautious given the trends. 

Debt has been a concern for investors but is not a significant red flag today. The company’s leverage ratios are healthy, with long-term debt running at roughly half of assets and 2x equity, leaving it in a healthy position. That position is highlighted by the institutional activity in 2024. The balance of activity shifted to buying in Q2 and remained strong in Q3, creating a rising base of support, with the market trending higher from its bottom and on the brink of a complete reversal. 

Institutions Like the Fit of Hanes

Hanesbrands NYSE: HBI is another quality stock whose share price has struggled over the past two years. The stock is trading near a 15-year low but is unlikely to fall further if for no other reason than institutional buying. The institutional activity in 2024 is overwhelmingly bullish and has lifted total ownership to over 80% of the stock. That is a powerful tailwind for the market that is leading to bullish activity on the price chart. The weekly chart shows this stock moving up from its bottom and on track to complete a reversal soon. 

Among the catalysts for this stock is the sale of its global Champion business. The deal is expected to generate $1.3 to $1.5 billion in proceeds, dependent on reaching certain performance milestones. The cash will bolster the balance sheet by lowering debt and help the company continue its transformation efforts. The transformation is refocusing the company on “innerwear,” its core business, cutting out lower-margin operations and improving cash flow. The core business is expected to return to growth as soon as next year. 

High-Yield Polaris Trades Near Rock Bottom

Polaris NYSE: PII stock price is struggling in 2024 due to economic headwinds with consumers focused on essentials rather than discretionary items like RV equipment. However, the business remains sufficient to sustain the dividend, yielding a robust 3% with shares near $87, and distribution growth remains in the outlook. The 2024 results leave plenty to be desired, but balance sheet health is not one of them. Highlights from the balance sheet include increased assets and a 7.4% increase in equity. Leverage is low at 1.5x equity and less than 0.5x assets. 

Lower interest rates are Polaris's catalyst. Lower interest rates are expected to ease consumer pressures and unfreeze the discretionary spending market. This means that for Polaris investors, the business will likely inflect and return to growth at the end of the fiscal year. Growth may accelerate through the end of 2025, and the outlook for 2025 is light. In this environment, investors may expect analysts to shift gears and initiate an upgrade cycle to add upward pressure to the stock price. The opportunity for investors is earnings-driven growth compounded by a price-multiple expansion. Trading at 14x next year’s outlook, the stock is discounted by nearly 50% compared to the historical averages.