Investors have done a fine job since the lows in 2009 by buying mega cap stocks, especially those that pay solid dividends. If the economy continues to improve, even at a slower pace than most recoveries, stock investors may want to turn their attention to taking some profits and look at adding some small cap names to their portfolios.

In a new report just out, the analysts at Deutsche Bank A.G. (NYSE: DB) have an outstanding list of small cap stocks to buy that you may want to consider. We screened their report for the top picks by sector, with the highest percentage upside to their price target.

Consumer: Pinnacle Entertainment Inc. (NYSE: PNK) tops the list in this sector. It has casinos and other resorts located throughout the United States, and the stock was up more than 7% on Friday. Deutsche Bank upgrades the stock from Hold to Buy, with a $23 price target. The Thomson/First Call estimate is $17.

Airlines: SkyWest Inc. (NASDAQ: SKYW) tops the small cap airline stocks to buy. Operating regional flights for most of the major carriers has led to strong earnings. The Deutsche Bank price target is $20, while the Wall St. consensus target is much lower at $14.50.

Health care: Neurocrine Biosciences Inc. (NASDAQ: NBIX) is the hands down top pick. Due to anticipated strong results from three new drugs in phase II studies, revenues are primed to grow dramatically over the next two years. The target price for the stock is $15. The Wall St. consensus price target is slightly lower at $14.50.

Energy: Pacific Drilling S.A. (NYSE: PACD) makes the Deutsche Bank list of top names to buy. Providing ultra-deepwater drilling services around the world on a contract basis, Pacific Drilling has been the benefactor of extremely high day rates. The price target for the stock is $13, and the consensus estimate is at $12.

Financials: Ellington Financial LLC (NYSE: EFC) makes the cut. Specializing in mortgage-backed bonds, Ellington Financial recently committed $140 million in capital to buy rental homes. The Deutsche Bank price target for the stock is $27. The consensus estimate is very close at $26.97. Investors receive a large 12% yield.

Technology: Ixia (NASDAQ: XXIA) is the top stock to buy here. Ixia provides converged Internet protocol (IP) network validation and network visibility solutions in the United States and internationally. The price target for the stock is $24. The consensus is the same at $24.

Typically, small cap stocks are pretty far off the financial media radar. It is no stretch that some readers are not familiar with the Deutsche Bank top stocks to buy, as this is where solid research comes in handy. Investors that add an allocation of small caps to their portfolios in front of an improving economy may just be in for some solid gains.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.