During the great market recovery from the pandemic-triggered crash of March 2020, small-cap stocks were speculative bets in the short to medium term. Some small cap stocks have generated multiple returns in the blink of an eye. However, emerging companies are not just speculation. There are high quality small cap stocks to buy and hold for the long term.

When it comes to large-cap stocks, it’s impossible to imagine a portfolio without blue-chip stocks. These stocks provide portfolio stability, and high-quality, blue-chip stocks typically offer returns above inflation.

However, it is impossible to create great fortune in the stock markets with only large cap stocks. Mid and small cap stocks are the biggest creators of wealth.

Of course, if a portfolio has five or six well-researched small-cap stocks, not all of them will trigger. However, even if the success percentage is 50%, it is more than enough to increase overall portfolio returns.

So let’s talk about three small cap stocks to buy and hold.

Small Cap Stocks to Buy and Hold: Rada Electronic (RADA)

Electronic Rada (NASDAQ:RADA) is probably one of the best small cap stocks to buy and hold. I expect multiple returns from the stock over the next few years.

It should be noted that in June 2022, Rada announced an all-stock merger with Leonardo DS. The latter is a leading supplier of advanced defense electronics. For 2021, the combined entity’s revenue is $2.7 billion with an adjusted EBITDA margin of 11.2%.

In addition, the merged entity will have a solid balance sheet with a net debt/adjusted EBITDA ratio of 0.6x. With geopolitical tensions rising globally, now is a good time to buy these small-cap stocks. In the long term, the combined entity is likely to drive strong single-digit revenue growth.

Recently, Rada released results for the second quarter of 2022. The numbers disappointed and the stock trended lower. This is a good accumulation opportunity with the merged entity likely to benefit from a large addressable market.

Digital Marathon (MARA)

Source: Graphic by Josh Enomoto

The collapse of Bitcoin (BTC-USD) resulted in a sharp correction in Bitcoin mining stocks. For investors optimistic about the long-term prospects of cryptocurrencies, digital marathon (NASDAQ:MARA) stock is worth buying.

After hitting all-time highs of $83, MARA stock has fallen to current levels of $13.7. Assuming a bullish case scenario where Bitcoin returns to $50,000, the stock will offer multiple returns.

One of the reasons to love Marathon is the impending big growth. For July 2022, the company reported a hash capacity of 4.9 PE/s. By early 2023, the company plans to increase capacity to 23.3 PE/s. It should be noted that the company has already obtained a hosting capacity of 23.3 PE/s.

Therefore, in the coming quarters, revenue growth is expected to increase sharply. If this is paired with an uptrend in Bitcoin, MARA stock will retest all-time highs.

From a financial perspective, Marathon reported unrestricted liquidity of $120.7 million in Q2 2022. The company’s bitcoin stake also had a fair market value of $236.3 million in July 2022. Therefore, there is great financial flexibility to invest in future expansion.

Small Cap Stock to Buy and Hold: Piedmont Lithium (PLL)

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Recently, Elon Musk felt that lithium refining is the “allowed to print money.” Given the expected growth of the electric vehicle (EV) industry, this statement seems realistic.

Piedmont Lithium (NASDAQ:PLL) is a buy-and-hold small-cap stock in the lithium mining segment. The stock has been largely sideways with returns of 13% over the past 12 months. An upside break seems imminent given the positive business development.

In summary, Piedmont aims to be the largest producer of lithium hydroxide in the United States. The assets of LHP-2 and Carolina are 100% owned by the company. These two assets have a combined after-tax net present value of $5 billion.

Additionally, a stake in the Quebec and Ghana assets also adds to the long-term cash flow potential. Short term, restarting mining (at the Quebec mine) is likely to be a catalyst for higher equities.

Overall, the PLL stock looks massively undervalued given the NPV of the assets. Once mining begins at 100% owned projects, the stock is likely to go ballistic.

As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.