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2 Top Small-Cap Stocks to Buy in 2017

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Market Up Gettyimages

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Small-cap stocks can deliver explosive gains -- or sizable losses. Choose well and these high-risk yet potentially high-reward stocks can deliver multibagger returns and turbocharge your portfolio's overall performance. But choose poorly and a small-cap stock can produce painful losses, up to and including a complete loss of capital should the business be forced into bankruptcy.

That's why it's so important to invest in only the best of these businesses -- those poised to benefit from undeniable long-term trends and enjoy the largest growth opportunities. Read on to learn about two such businesses that meet these criteria -- and that are two of the small-cap stocks best positioned to reward investors in the year and decade ahead.


Image source: Envestnet.

The wealth management platform

Envestnet 's(NYSE: ENV) $538 million acquisition of Yodlee is looking more prescient by the day. As the wealth management industry moves steadily toward a fiduciary standard in which financial advisors are required to act in their clients' best interests, the ability to see a client's complete financial picture is becoming a necessity. And Yodlee's data aggregation technology -- which helps advisors see all of their clients' assets, even those that they do not manage directly -- is considered by many to best in class.

By integrating Yodlee's capabilities into its cloud-based software suite, Envestnet has further strengthened its value proposition as a comprehensive and fully integrated suite of software solutions for wealth management professionals. The combined company continues to bolster its customer count, which now exceeds 52,000 advisors who in turn manage 5.9 million accounts and over $1 trillion in total assets. Yet tremendous growth potential still remains, with Envestnet estimating that its total addressable market spans across 265,000 advisors and more than $11 trillion in investable assets.

With the regulatory environment likely to become only more burdensome for wealth management professionals in the years ahead, Envestnet's technology solutions should continue to grow in importance. As more advisors flock to its platform, the company's revenue and profit growth should remain impressive . As such, Envestnet's current $1.6 billion market cap likely understates its massive growth potential, thereby providing investors who buy shares today with an opportunity for outsized gains.

The digital bank

BofI Holding (NASDAQ: BOFI) operates an online-only bank. The company, whose name stands for "Bank of Internet," does not have bricks and mortar locations. That allows BofI to offer higher interest rates to its banking customers while still earning strong returns on equity, thanks to its low-cost structure and highly efficient operations.

Bofi Roe Bofi Holdings

Image source: BofI Holding .

Image source: BofI Holding investor presentation .

Moreover, BofI's growth continues to impress. Since 2011, the company has grown its earnings per share at a 32% annualized rate. Fiscal 2016 saw more of the same, with deposit and asset growth exceeding 30% and net income surging 44%.

Bofi Asset Profit Growth Bofi Holdings

Image source: BofI Holding .

Image source: BofI Holding investor presentation .

Importantly, BofI has achieved this growth while maintaining superior asset quality than its competitors, with non-accrual and net charge-off ratios that are well below the industry average.

Bofi Net Charge Offs Bofi Holdings

Image source: BofI Holding .

Image source: BofI Holding investor presentation .

Better still, BofI has long runways for growth still ahead. Banking is a massive global arena in which the industry titans manage hundreds of billions and even trillions of dollars in assets. That leaves plenty of room for the relatively small BofI, with its current $7.9 billion asset base and still only $1.7 billion market cap, to grow exponentially in the coming decade. As such, long-term investors who buy shares of BofI Holding today should be well rewarded.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends BofI Holding. The Motley Fool recommends Envestnet. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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