10 Best Small and Mid-Cap Stocks to Consider Buying in August

The U.S. stock market is shifting gears as August approaches. Big tech stocks, which have been on a hot streak, are starting to cool off. Meanwhile, smaller companies are gaining steam, as evinced by the chart below:

VOO data by YCharts

This change is partly due to expectations that interest rates might drop later this year. Lower rates tend to help smaller firms because they often need to borrow money to grow.

Armed with this insight, here is a list of 10 small and mid-cap stocks that could ride this trend higher in August and beyond.

Image source: Getty Images.

1. Iovance Biotherapeutics

Iovance Biotherapeutics (NASDAQ:IOVA) is revolutionizing cancer treatment with its innovative immunotherapy approach. The company's focus on solid tumors positions it as a potential leader in certain segments of the high-value oncology market, offering significant growth potential in the competitive biotech space.

2. DraftKings

DraftKings (NASDAQ:DKNG) has been propelled to the forefront of a rapidly expanding market by the sports betting boom. With more states legalizing gambling, the company is well positioned to capitalize on America's growing appetite for sports wagering and online gaming.

3. Kratos Defense & Security Solutions

Kratos Defense & Security Solutions (NASDAQ:KTOS) is redefining warfare with cutting-edge unmanned systems and cybersecurity solutions. The company's next-gen focus and diverse defense portfolio make it a strong contender in the evolving national security landscape.

4. Rocket Lab USA

Rocket Lab USA (NASDAQ:RKLB) is democratizing access to space as an innovative launch provider. The company's efficient small satellite launch capabilities are opening doors for countless new space-based technologies and applications.

5. Archer Aviation

Archer Aviation (NYSE:ACHR) is working to revolutionize urban transportation with its electric vertical takeoff and landing (eVTOL) aircraft. The company's progress in development and strategic partnerships make it an intriguing player in the future of mobility.

6. AeroVironment

AeroVironment (NASDAQ:AVAV) is pushing the boundaries of aerial technology, from battlefield drones to commercial applications. The company's diverse portfolio serves both military and civilian markets, driving its growth potential.

7. Alarm.com Holdings

Alarm.com Holdings (NASDAQ:ALRM) is securing homes and businesses with its smart security solutions in an increasingly connected world. The company's cloud-based platform is tapping into the growing Internet of Things (IoT) market, offering scalable growth opportunities.

8. Harmonic Inc.

Harmonic Inc. (NASDAQ:HLIT) provides the infrastructure backbone for the streaming revolution. The company's video delivery solutions are crucial for cable, satellite, and telecom operators in the age of digital content, putting it in a prime position in the evolving media landscape.

9. Iridium Communications

Iridium Communications (NASDAQ:IRDM) specializes in global connectivity. The company's satellite network provides communications in the most remote corners of the planet, with growing applications in IoT and asset tracking across various industries.

10. CRISPR Therapeutics

CRISPR Therapeutics (NASDAQ:CRSP) is at the forefront of gene-editing technology, developing transformative gene-based medicines. The company's innovative approaches to genetic disorders and cancer treatment could potentially reshape the future of medicine.

Balancing risk and reward with growth-oriented stocks

Investing in smaller growth companies comes with higher risks but also offers the potential for bigger rewards. As such, it's wise to approach these stocks cautiously. Instead of going all-in, consider adding a few of these companies to your portfolio in small doses -- perhaps 1% to 2% each. This strategy can boost your growth potential without putting too much at stake.

Another option is to create a separate, speculative growth portfolio. This approach lets you explore exciting growth opportunities while keeping your main investment portfolio safe. You'll still have a chance to benefit from some of the world's fastest-growing industries but with less risk to your overall financial picture.

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*Stock Advisor returns as of July 29, 2024

George Budwell has positions in Archer Aviation and CRISPR Therapeutics. The Motley Fool has positions in and recommends AeroVironment, CRISPR Therapeutics, and Iovance Biotherapeutics. The Motley Fool recommends Alarm.com and Rocket Lab USA. The Motley Fool has a disclosure policy.