Small-cap and mid-cap stocks tend to be interest rate sensitive. The core reason is that many of these companies are dependent on debt instruments to meet their long-term financial obligations.
Although the Federal Reserve is wobbling on a possible rate reduction this year due to sticky inflation, the central bank is widely expected to slash rates no later than 2025. This event should prove to be a major catalyst for smaller companies that have struggled in this high-rate environment.
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Which small-cap growth stocks are worth building a position in ahead of this catalyst? Here is a brief overview of three stocks that could soar when interest rates fall.
1. Agenus
Agenus (AGEN -2.13%) is a small-cap immunology company staring down several potent catalysts. Most importantly, the company has designs on a possible accelerated regulatory filing for an antibody cocktail intended as a treatment for advanced metastatic microsatellite stable colorectal cancer without active liver metastases.
Further down the road, Agenus plans to broaden the total addressable market for its lead antibody regimen, which could transform the therapy into a multi-billion-dollar-a-year earner. That's speculative, but the market appears to be giving Agenus zero chance of success based on its tiny market cap of $224 million. This extreme pessimism could represent a tremendous opportunity for risk-tolerant investors.
With a recent cash infusion from Ligand Pharmaceuticals, Agenus should have the cash to reach this important regulatory milestone and a parade of other clinical catalysts in 2025. As always with developmental biotechs, regulatory hiccups or clinical setbacks should be carefully considered before buying shares.
2. Canopy Growth
Canopy Growth (CGC -2.11%) is a Canadian licensed cannabis cultivator. Its shares have nearly doubled this year in response to the U.S.'s proposed reclassification of cannabis from Schedule 1 to Schedule 3 under the Controlled Substances Act.
That's somewhat surprising, given that Canopy's home base is Canada and it can't yet truly benefit from positive changes in the American regulatory landscape. But the market isn't being irrational in this case. After all, Canopy has plans to move into the U.S. market as soon as the legal landscape permits.
The bottom line is that this Canadian cannabis stock isn't a great pick for those with a short-term mindset. However, the company's long-term strategy could make it a formidable player in the global marijuana market before the decade's end.
3. Curaleaf Holdings
Curaleaf Holdings (CURLF -2.56%) bills itself as the world's leading cannabis company, and for good reason. The company sports a top-tier market position in Europe and a coast-to-coast footprint in the United States. Europe and the U.S. may represent a cumulative commercial opportunity of nearly $300 billion.
To put this into context, Curaleaf has a market cap of $4.1 billion. The regulatory landscape for marijuana globally remains a mess, and it could take another decade to sort it out, but the opportunity for long-term shareholders is indeed real.
Curaleaf holds generational wealth-building potential because of its frontrunner status in terms of international expansion among U.S. multi-state operators. In keeping with this theme, Morningstar analyst Kristoffer Inton noted recently that Curaleaf scans as "one of the most attractively priced cannabis stocks" because of its opportunities domestically and abroad.
While analyst notes should always be taken with a grain of salt, Curaleaf does seem to have a multi-decade growth ramp ahead of it. This cannabis stock, in turn, may be worth the risk for aggressive investors.
