You Can Bank Double-Digit Profits with These 2 Small-Cap Stocks

The Dow is in the red on the year, but the Russell 2000 index is up more than 8%. That's a bullish indicator for all stocks, but it's especially bullish for small-cap stocks.

And we've got two of the best small-cap stocks you can buy right now to take advantage of this tailwind...

You see, there are all sorts of ways to analyze the stock market, from looking at price/earnings ratios to how many stocks go up and down each day.

You Can Bank Double-Digit Profits with These 2 Small-Cap StocksBut one of the tried-and-true ratios compares the performance of small caps to the overall market. The thinking is that when the lesser-known and somewhat riskier companies do well, it is a good sign for the market as a whole.

And right now, that is exactly what's going on...

The Russell 2000 index, which tracks the performance of stocks with relatively small market capitalization, has been crushing the performance of the Dow, one of the most popular benchmarks for larger stocks.

When small-cap indexes front-run the rest of the market, it's a sign investors are bullish on stocks, and that enthusiasm will hit the entire market.

It also means small caps will continue their sterling performance.

To help you capitalize on the strength in small stocks, we're bringing you two of the best small caps you can get into right now, for potentially double-digit gains over the next month...

Diamonds in the Rough

One of the best parts about buying small caps is that because small-cap companies don't get a lot of coverage from Wall Street analysts, savvy investors can find many overlooked opportunities.

And the fewer people looking at any given stock, the more likely its market price will not reflect the company's true earnings potential.

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When big news or positive earnings do come out for a small stock, the share price can jump significantly, too. Just take a look at Weight Watchers International Inc. (WTW) hiring DJ Khaled as a brand ambassador this year. The stock surged over 30% in just two weeks and is now up 80% on the year.

Getting in early on a small cap before a major event like this is one way to bank double-digit profits.

Fortunately, Money Morning Quantitative Specialist Chris Johnson has done the research to uncover two new opportunities to make double-digit gains on small caps with breakout potential.

Chris believe small-cap leadership is a reliable "risk-on" indicator. That means investors feel confident enough to buy stocks based on a perceived increase in risk value, no matter what external factors might say.

Here are his two best small caps to buy right now...

The Two Best Small Caps for Big Profits

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Chris's proprietary ranking system has energy, oil, and oil services sectors as leaders in this market. Combine that with the power of small stocks and the results can be explosive.

The first stock is California Resources Corp. (NYSE: CRC), a small oil and gas explorer/producer based in Los Angeles.

CRC is a top performer in its sector, nearly tripling in value from mid-March to a two-year high now. The company released good earnings earlier this month, and analysts fell over each other raising their price targets.

Even though the stock is up nicely, the run here may not be over. Johnson thinks there are two reasons to believe there's more fuel in the tank.

First, bets that the stock will fall in price - or "short interest" - has been rising since January.

Legions of investors borrowed shares of the stock to sell, and the price kept climbing. That turns on the pain to excruciating levels for them, and sooner or later they will have to throw in the towel. To get out of the trade, they have to buy their shares back, and that creates even more demand for the stock.

Second, Wall Street is skeptical of the company, as only a quarter of the covering analysts rate California Resources a "Buy."

But that's an improvement from a month ago, when nobody thought of the stock as a buy. This could be the beginning of an analyst rush to upgrade a stock that has few performance peers this year.

With high short squeeze and upgrade potential, CRC should be looking at a target of at least $50 from its recent price of $32.77 within the next month.

The second small cap to watch is Diamond Offshore Drilling Inc. (NYSE: DO).

This is an oil services company that provides contract drilling services through a fleet of offshore drilling rigs, drill ships, and semisubmersibles.

The shares have been trading in a sideways pattern in recent weeks, although it fell with the entire energy sector as the price of oil declined over the past week.

While Diamond's chart may be less impressive than that of California Resources, the short interest and analyst pictures are much more one-sided. Bearish bets have been ratcheting higher for more than 18 months, resulting in a marketplace where even the slightest bit of good news can cause a stampede of buying by these wrong-way bears looking to end their pain.

The analyst community is aligned even more against DO, with just three of the 32 covering the stock rating it a "Buy."

Clearly there is huge potential for short covering and analyst upgrades, which should propel the stock above its January high to a near-term target in the $22 area from its recent price of $17.74.

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Chris Johnson is on pace to see 3,390% total winning gains this year.

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If not, he's working for free.

So mark your calendar for one year from today...

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