Canadian Small-Caps With Big Potential for the New Year

These two Canadian small-cap stocks can be excellent investments if you establish good positions in both companies right now.

Stock market investing isn’t all about having a fortune to invest in the stock market and putting all your money into big-ticket stocks to get substantial returns. Investing smaller amounts in small companies with significant long-term growth potential can be an excellent way to grow the returns from your investment portfolio. There are plenty of small-cap stocks available for Canadian investors to consider on the stock market.

Small-cap stocks are riskier and more volatile investments compared to large-cap stocks. However, the greater risk accompanies greater growth potential. The key to increasing your chances of being successful with bets on small-cap stocks is identifying companies with solid fundamentals and strong growth prospects.

Investing in the right small-cap stocks can reduce the risk to your capital and amplify the returns from your self-directed portfolio. Considering this, here are a couple of stocks that are worth a good look if you’re planning to diversify your portfolio with small-cap companies.

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CES Energy Solutions

CES Energy Solutions (TSX: CEU) is a $1.55 billion market capitalization company headquartered in Calgary that provides consumable chemical solutions for oilfield operators in the energy industry. Oil and gas extraction is becoming more complex, and energy companies need solutions that improve processes. Traditional energy might eventually be replaced by renewable alternatives down the line. However, the sector is in high demand, putting CES Energy in a good position for strong long-term growth.

The company does not have an asset-heavy business model, letting it weather commodity price fluctuations better than energy companies. CES Energy provides high-margin chemical solutions that provide the company steady cash flows regardless of oil price changes.

As of this writing, CES stock trades for $6.87 per share, down by 32% from its 52-week high. It can be an excellent entry point for investors to consider before the next rally comes along.

WELL Health Technologies

WELL Health Technologies (TSX: WELL) is another small-cap Canadian stock that can be a solid buy-and-hold investment. WELL stock is a $1.27 billion market capitalization digital health tech company that operates Canada’s largest network of outpatient clinics. The company came into the limelight amid the pandemic when telemedicine services became essential due to social-distancing regulations.

The company used the boom from that time to expand its offerings and is now growing its top line without losing focus on maintaining profitability. The company’s strategic acquisitions will speed up its growth and solidify its position as a leading player in the digital healthcare space. Besides that, its ability to increase patient visits across its platforms will drive more growth for the company.

As of this writing, WELL stock trades for $5.10 per share, down by 30% from its 52-week high. It might be a good time to invest in the stock.

Foolish takeaway

Small-cap stocks are riskier and more volatile investments than large-cap stocks due to several factors. Lower liquidity and a higher sensitivity to economic conditions are two major reasons. The fact that these companies are not as well-established as large-cap stocks and might lack strong earnings track records also contributes to the higher degree of risk.

However, not all small-cap stocks tick these boxes and have strong underlying businesses that can grow significantly over the long term. Small-cap stocks that grow to the size of larger counterparts over the years offer better returns than already established companies.

Against this backdrop, CES Energy Solutions stock and WELL Health Technologies stock can be good investments to consider.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Ces Energy Solutions. The Motley Fool has a disclosure policy.

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