3 Top Small-Cap Stocks to Buy in August 2023

Even though most conservative investors find it safer to stick to trusted blue chips, they may find similarly safe and healthy options among small caps as well.

| More on:

Image source: Getty Images

Risk tolerance is an important trait for an investor, though it varies drastically from one investor to another. Some investors prefer to play it safe, and the risk they like to take is buying safe, blue-chip stocks in weak markets (at discounted prices and valuations). Others go completely in another direction and risk investing in untested or highly volatile stocks, playing a high-stake game for exceptional rewards.

The most pragmatic approach is probably somewhere between the two extremes. It’s a good idea to look outside the blue-chip pool, but that doesn’t mean you have to dive headfirst into dangerous waters. You can find safe and decently performing stocks among small caps as well, and there are three small-cap stocks that should be on your radar this month.

A tech stock

With a market capitalization of about $1.65 billion, Enghouse Systems (TSX:ENGH) lies close to the upper limit of the small-cap stocks. This valuation is courtesy of a brutal downward slump that has cost the company about 61% of its valuation.

Since it’s still going down, the stock may become even more discounted over time and more attractively valued. But considering the bullish tech sector, an upward trend may be just as likely.

It’s a software and services company that operates in multiple domains, including services related to the transportation sector, interactive services for call centres, and video communications.

This diverse range of business segments might offer this company multiple growth avenues, and if they lead to a major revenue uptick, the stock may follow course. It’s in the position to double your capital just by recovering to its peak value.

A senior care company

Another small-cap stock that you might consider investing in is Extendicare (TSX:EXE). It’s a steady business as the Canadian senior population is steadily growing, and as a 50-year-old name in this segment, Extendicare has established itself as a leader and a trusted service provider. It caters to over a hundred thousand seniors through its 103 communities, over half of which it directly owns.

The stock doesn’t offer much in the way of capital appreciation. In the last 10 years, the stock has grown by just 5%. But it’s a generous dividend payer, and it’s currently offering a juicy 6.6% yield, perfect for starting a healthy passive-income stream. The company has maintained consistent payouts since 2014.

A private equity firm

Clairvest Group (TSX:CVG) is a stable, small-cap growth stock that has grown by almost 1,000% in the last two decades. The growth hasn’t been very consistent over this period, and there were multiple phases when the stock slumped or simply became stagnant but overall, the direction has mostly been up.

The company has completed over 380 acquisitions over the years and currently has a portfolio of 24 companies that it currently owns/has a stake in. It also offers returns through dividends, but the yield is practically non-existent. However, it’s a solid pick for long-term and sustainable capital-appreciation potential.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Clairvest Group made the list!

Foolish takeaway

The three small-cap stocks represent companies that have a solid position in their respective industries and have performed well during multiple adverse markets. They may not have the “weight” of blue-chip stocks, but they are resilient and reliable picks that can be held in your portfolios for years or even decades.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enghouse Systems. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A worker gives a business presentation.
Dividend Stocks

TSX Communications in April 2024: The Best Stocks to Buy Right Now

Here are two of the best TSX communication stocks you can buy in April 2024 and hold for years to…

Read more »

Man considering whether to sell or buy
Dividend Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold?

Royal Bank of Canada (TSX:RY) has a high dividend yield. Should you buy it?

Read more »

Businessman looking at a red arrow crashing through the floor
Dividend Stocks

BCE’s Stock Price Has Fallen to its 10-Year Low of $44: How Low Can it Go?

BCE stock price has dipped 39% in two years and shows no signs of growth in the next few months.…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Invest $10,000 in This Dividend Stock for $3,974.80 in Passive Income

This dividend stock gives you far more passive income than just from dividends alone, so consider it if you want…

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Can a 6% dividend yield help you build a monthly retirement income? An investment made right can help you build…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

These three monthly-paying dividend stocks can help you earn a monthly passive income of $1,000.

Read more »

Dividend Stocks

3 Dividend Stocks to Double Up on Right Now

Some of these dividend stocks will take longer to recover than others, but they'll certainly pay you to stick around.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: How Much to Invest to Earn $250/Month

Want to earn $250/month of tax-free passive income? Here are four Canadian dividend stocks to look at buying in your…

Read more »