Canadian small-cap innovation stocks are an area often overlooked by investors, but an analyst says the sector is primed for growth this year.

Martin Toner, director of institutional research, growth and innovation at ATB Capital Markets, told BNN Bloomberg that the dominance of large-cap tech and innovation stocks may soon start to fade as investors look elsewhere for returns.

“It’s actually quite unusual for large-caps to outperform after you have a correction like we had in 2022, but that is exactly what happened in 2023,” he said in a Friday interview.

“I think that as we get more economic normalization, macro variables will normalize more, and I think investors are going to turn their attention to smaller cap names.”

Toner recommended Real Matters (REAL, TSX), Docebo (DCBO, TSX) and Galaxy Digital (GLXY, TSX) as his top picks in the Canadian small-cap innovation space.

Neither Toner, his family, his firm nor its clients own shares of the stocks listed above. None of the companies mentioned are investment banking clients at his firm.

For the full interview, click on the video at the top of this article.