Our Predictive AI Finds Profit Potential in this Small-Cap Sector

By Mike Burnick

Recently, I pointed out in an earlier issue how small-cap stocks were stealing the performance spotlight, if not the headlines, away from large caps in the S&P 500.  

In fact, small caps are outperforming large caps by more than 2-to-1 this year.  

The same dynamic is playing out at the sector level, even in out-of-favor sectors like healthcare. 

As you can see below, Healthcare (XLV) is the second worst-performing sectors in the S&P 500 year to date, right behind Communications Services (XLC). 

But not all healthcare stocks are created equally. 

Large-cap healthcare stocks are being dragged down by margin compression in big pharma and medical device stocks. Meanwhile, small-cap healthcare stocks are where the action is.  

In fact, the S&P Small Cap 600 Healthcare Index is up 8.7% year to date, outperforming large-cap healthcare by 12.5%! 

This outperformance is also driven by stronger profit growth. 

Earnings for small-cap healthcare stocks in the Russell 2000 Index are on track to surge 16.5% higher this year, compared to just 2.5% for large-cap healthcare! 

So, today, let’s see what opportunities we can find hiding inside this overlooked sector… 

How to Find the Best Small-Cap Healthcare Stocks 

Now is a great time to search for small-cap healthcare stocks poised for big potential gains.  

And it’s easy to find them with two powerful TradeSmith tools: 

  1. The popular TradeSmith Screener… 
  1. And our proprietary Predictive Alpha price forecasts. 

With these tools and just four screener filters, you can easily zero in on the small-cap healthcare stocks expected to make upside moves in the next month. 

To get started, log into your TradeSmith Finance Dashboard, and click on the Invest page from the main menu. Then select the Screener tab in the following sub menu. 

From there, add four simple filters to search for small-cap healthcare stocks that are forecast to move higher, according to our Predictive Alpha algorithms.  

These key screener filters are, in the order shown above… 

  • Markets: Click on both the S&P 600 (SML) and Russell 2000 (IWM) small-cap stock indexes 
  • Sectors: Select Healthcare 
  • Prime Expected Move: More than 5% 
  • Prime Historical Target Accuracy: More than 75% 

Simply click on the blue + Add Filters button to add these filters, along with any others you prefer to search with.  

Before we look at the results, here’s a quick look at how Predictive Alpha works.  

The AI Behind Predictive Alpha 

As a refresher, Predictive Alpha uses unique, AI-powered analytics to generate daily price projections for each stock over the next 21 trading days (about one month).  

It produces individual price forecast models for every stock we track, based on each stock’s unique historical patterns and market behavior. Here’s an example: 

Our Predictive Alpha system projects this stock will move higher by 15% to a target price of $97.99 by July 8, 2026.  

And the Historical Target Accuracy of 78.13% measures how accurately the system has hit that price target for the stock in the past. 

Lastly, the Projected Price Range is the shaded blue area in the graph above, showing the expected range of price movement over the next month or more.  

Now let’s put it all together and see what the Screener turns up.  

Your Small-Cap Healthcare Watchlist 

With that in mind, the Screener will search among all small-cap stocks in the S&P 600 (SML) and Russell 2000 (IWM), limiting the results to only Healthcare sector stocks only. 

Then the Screener will filter the results even more, by searching only for stocks in our Predictive Alpha system with:   

  • Expected Move: Greater than 5% in the next 21 days 
  • Historical Target Accuracy: More than 75% 

Once your filters are set, simply click the Run Screener button to view your results. 

When I ran this screener yesterday with the filters above, I got 15 results. The top 5 are displayed below, sorted by Predictive Alpha Expected Move (highest at top). 

As you can see, all five top results show double-digit expected moves to the upside within the next 21 days.  

Click on any the blue highlighted ticker symbol to view complete TradeSmith data for that stock –including detailed Predictive Alpha metrics. Here’s an example using one of the results, Twist Bioscience (TWST). 

On the left, you’ll find our exclusive price forecast chart along with the Current Projection summary. 

  • Prime Projection Date: 07/08/2026 
  • Projected Target: $97.99 (+15.05% gain) 
  • Historical Target Accuracy: 78.13% 

To the right you’ll find more detailed Predictive Alpha data for Twist Bioscience.  

Mike Burnick’s Bottom Line: Successful trading and investing is about finding the right places to prospect for stocks with excellent upside potential. In this case, small-cap healthcare stocks. But you also want to focus on the stocks with the biggest potential moves. Our exclusive Predictive Alpha projections can help you do exactly that. 

Good investing, 

Mike Burnick 
Senior Analyst, TradeSmith