7 Massively Undervalued Micro-Cap Stocks to Buy Before Lift Off Dr. Gerald W. Perritt, the founder of Chicago-based portfolio manager Perritt Capital Management , wrote a whitepaper a few years ago entitled “The MicroCap Advantage.” As the title suggests, it discussed why investing in undervalued micro-cap stocks makes sense. The whitepaper showed that between 1926 and 2018, the compound annual growth rate (CAGR) of small company stocks was 11.8%, 180 basis points higher than the return for large company stocks. Further, despite the risk, small company stocks outperformed large company stocks in 54 of the 89 years. The only caveat? The annual standard deviation of small company stocks was almost two-thirds greater than their large company counterparts. Therefore, investing in micro-cap stocks is best if you have a fully-diversified portfolio that allocates a significant weighting to large-cap stocks. With that in mind, I’ve selected seven undervalued micro-cap stocks from the First Trust Dow Jones Select MicroCap Index Fund (NYSEARCA: FDM ), a collection of 201 small company stocks.