Small-cap stocks often sit outside the spotlight, but that is precisely where long-term investors can find outsized opportunities. While these companies carry higher risk than established blue chips, they also offer greater upside when their business models begin to scale. As 2026 approaches, a selective approach to quality small-caps can add meaningful growth potential to a diversified portfolio.

Hammond Power Solutions

Hammond Power Solutions has carved out a niche as a producer of dry-type transformers, power quality equipment, and other magnetic technologies that are critical to modern infrastructure. Demand for these products has been bolstered by global electrification trends, investment in renewable energy projects, and the expansion of digital infrastructure like data centres.

Despite already delivering meaningful gains, Hammond Power continues to exhibit business momentum that suggests further upside potential. Its order backlog remains elevated compared with prior periods, which provides some visibility into future revenue streams. Executives have indicated that orders tied to data centre expansion have accelerated, with key contracts secured following the most recent quarterly results.

Looking ahead, the company’s strategy includes organic growth initiatives supported by production expansion and selective acquisitions. These moves aim to strengthen its competitive position and capture more of the rising demand associated with electrification and the broader energy transition.

5N Plus

5N Plus operates in the advanced materials and specialty semiconductor space, supplying high-performance components that serve several rapidly expanding sectors. Its portfolio includes materials used in renewable energy systems, space applications, medical imaging devices, and industrial markets.

Growth for 5N Plus is being propelled by demand in its Specialty Semiconductors segment, particularly from renewable energy and space power projects. A recently expanded supply agreement with a major strategic partner is expected to boost shipment volumes significantly over the coming years. Exposure to these high-growth end markets positions the company to benefit as global investment in clean energy and space infrastructure continues.

Additionally, 5N Plus holds a competitive advantage in high-purity materials outside of China, a differentiator as customers increasingly seek diversified, resilient supply chains. This strategic positioning enhances its long-term growth profile in an evolving global marketplace.

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What makes both of these companies compelling is not hype, but fundamentals. Each has identifiable growth drivers, improving financial discipline, and leadership teams that appear aligned with long-term value creation. They are not speculative bets with no earnings visibility; rather, they represent calculated risks where the downside is increasingly understood and the upside remains underappreciated.

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For investors willing to tolerate short-term volatility, high-quality small-caps can play an important role in a growth-oriented strategy. While they should never dominate a portfolio, selectively adding well-researched names like these can enhance returns over a multi-year horizon. As always, discipline matters: monitor execution closely, reassess when fundamentals change, and invest with a long-term mindset rather than chasing quick gains.