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Small Caps Back to Breakeven for 2017, Buy These 5 Stocks on the Dip
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Among the premier beneficiaries of Trump’s surprise electoral win, small cap stocks have been on a tear recently. With his focus squarely on domestic business, the President issued several campaign promises, all of which were widely expected to benefit this class of stocks. A pledge to substantially step up investment on infrastructure and widely expected corporate tax cuts have helped small cap companies race ahead on the bourses.
This is why few market watchers were surprised when the Russell 2000 hit an all-time high recently. But a variety of factors have acted as a drag since then, none more so than the realization that such policy steps may not be around the corner just yet. At the same time, the factors which propelled such stocks upward remain firmly in place, which means that you would do well to pick up fundamentally sound options on the dip.
Trump’s Win Boosts Russell 2000
In the month immediately following Trump’s spectacular victory last fall, the Russell 2000 gained more than 16%. The new administration’s promise to significantly reduce corporate tax rates were the primary reason for such an increase. Adding to this phenomenon was Trump’s promise to boost infrastructure spending.
Such steps are expected to benefit domestic focused companies. Adding to the optimism about such stocks was Trump’s protectionist stance on trade. Given these factors, the Russell 2000 notched up faster gains toward end February, ultimately hitting an all-time high on Mar 1. This follows on the back of the stock category’s superior performance in 2016, when small caps soared by 19.5%, significantly higher than the 9.5% gain notched up by the S&P 500.
Index Near Break-Even
And yet, at this point, the Russell 2000 is barely in the green for the year. On Tuesday, the index was 3.6% lower than the peak hit on Mar 1. This means that it has gained merely 0.39% year-to-date. This compares rather unfavorably to the S&P 500’s year-to-date increase of 5.7%.
The immediate decline for the Russell seems to be fallout of the grievous losses being suffered by energy stocks. The Russell 2000’s energy sector has declined 11.8% since March and has lost 16.3% year-to-date. A decline in the prices of U.S. crude, due to oversupply concerns, have weighed on smaller companies from the sector who maintain large debt levels in order to sustain operations.
Is a Near-Term Turnaround Likely?
Technicians at equity research company MKM Partners believe small caps could begin to move northward very soon. Historically, March has been the best month for this class of stocks, with average gains of around 3% over the past 15 years. This means that a rebound near the end of this month looks quite plausible. Additionally, with decliners widely outstripping the number of advancers, small caps are at their most oversold in more than a year.
With the sudden shift in sentiment, this means that there is sufficient room for fresh gains. Additionally, small caps may be suffering the consequences of an upcoming rate hike. Investors have tended to stay away from riskier asset classes before a Fed meeting, which is of course, a decidedly temporary phenomenon.
Taking a broader macro perspective, small caps have been affected by the perceived lack of progress on those policies which would have been beneficial for domestic industry. If Trump can push his infrastructure plan through Congress relatively quickly and the Fed refrains from raising rates at a fast clip, small cap stocks could become the favored choice of investors once again.
Our Choices
With the catalysts for their success firmly in place, small cap stocks are likely to overcome the temporary dip quite soon. Domestic focused companies are likely to benefit from the new administration, a trend which is likely to boost this asset class.
This is why it makes sense to add such choices to your portfolio well before the next uptrend. However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Health Insurance Innovations, Inc. develops, distributes and administers web-based individual health insurance plans and ancillary products.
Health Insurance Innovations has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 31.3% for the current year. Its earnings estimate for the current year has improved by 33.6% over the last 30 days. The stock’s price has declined 5.8% year-to-date to $16.80.
Big 5 Sporting Goods Corporation (BGFV - Free Report) is a leading sporting goods retailer in the Western U.S.
Big 5 Sporting Goods has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 35.4% for the current year. Its earnings estimate for the current year has improved by 15.2% over the last 30 days. The stock’s price has declined 14% year-to-date to $14.90.
Quidel Corporation (QDEL - Free Report) discovers, develops, manufactures and markets point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses.
Quidel has a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved 18.8% over the last 60 days. The stock’s price has declined 4.3% year-to-date to $20.48. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Planet Payment, Inc. is a provider of international payment processing and multi-currency processing services.
Planet Payment has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 42.2% for the current year. Its earnings estimate for the current year has improved by 5% over the last 30 days. The stock’s price has declined 12.8% year-to-date to $3.56.
Bridgepoint Education, Inc. is a provider of post-secondary education services.
Bridgepoint Education has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 58.3% for the current year. Its earnings estimate for the current year has improved by 35.7% over the last 30 days. The stock’s price has declined 5.3% year-to-date to $9.59.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks Investment Research.
Image: Bigstock
Small Caps Back to Breakeven for 2017, Buy These 5 Stocks on the Dip
Among the premier beneficiaries of Trump’s surprise electoral win, small cap stocks have been on a tear recently. With his focus squarely on domestic business, the President issued several campaign promises, all of which were widely expected to benefit this class of stocks. A pledge to substantially step up investment on infrastructure and widely expected corporate tax cuts have helped small cap companies race ahead on the bourses.
This is why few market watchers were surprised when the Russell 2000 hit an all-time high recently. But a variety of factors have acted as a drag since then, none more so than the realization that such policy steps may not be around the corner just yet. At the same time, the factors which propelled such stocks upward remain firmly in place, which means that you would do well to pick up fundamentally sound options on the dip.
Trump’s Win Boosts Russell 2000
In the month immediately following Trump’s spectacular victory last fall, the Russell 2000 gained more than 16%. The new administration’s promise to significantly reduce corporate tax rates were the primary reason for such an increase. Adding to this phenomenon was Trump’s promise to boost infrastructure spending.
Such steps are expected to benefit domestic focused companies. Adding to the optimism about such stocks was Trump’s protectionist stance on trade. Given these factors, the Russell 2000 notched up faster gains toward end February, ultimately hitting an all-time high on Mar 1. This follows on the back of the stock category’s superior performance in 2016, when small caps soared by 19.5%, significantly higher than the 9.5% gain notched up by the S&P 500.
Index Near Break-Even
And yet, at this point, the Russell 2000 is barely in the green for the year. On Tuesday, the index was 3.6% lower than the peak hit on Mar 1. This means that it has gained merely 0.39% year-to-date. This compares rather unfavorably to the S&P 500’s year-to-date increase of 5.7%.
The immediate decline for the Russell seems to be fallout of the grievous losses being suffered by energy stocks. The Russell 2000’s energy sector has declined 11.8% since March and has lost 16.3% year-to-date. A decline in the prices of U.S. crude, due to oversupply concerns, have weighed on smaller companies from the sector who maintain large debt levels in order to sustain operations.
Is a Near-Term Turnaround Likely?
Technicians at equity research company MKM Partners believe small caps could begin to move northward very soon. Historically, March has been the best month for this class of stocks, with average gains of around 3% over the past 15 years. This means that a rebound near the end of this month looks quite plausible. Additionally, with decliners widely outstripping the number of advancers, small caps are at their most oversold in more than a year.
With the sudden shift in sentiment, this means that there is sufficient room for fresh gains. Additionally, small caps may be suffering the consequences of an upcoming rate hike. Investors have tended to stay away from riskier asset classes before a Fed meeting, which is of course, a decidedly temporary phenomenon.
Taking a broader macro perspective, small caps have been affected by the perceived lack of progress on those policies which would have been beneficial for domestic industry. If Trump can push his infrastructure plan through Congress relatively quickly and the Fed refrains from raising rates at a fast clip, small cap stocks could become the favored choice of investors once again.
Our Choices
With the catalysts for their success firmly in place, small cap stocks are likely to overcome the temporary dip quite soon. Domestic focused companies are likely to benefit from the new administration, a trend which is likely to boost this asset class.
This is why it makes sense to add such choices to your portfolio well before the next uptrend. However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Health Insurance Innovations, Inc. develops, distributes and administers web-based individual health insurance plans and ancillary products.
Health Insurance Innovations has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 31.3% for the current year. Its earnings estimate for the current year has improved by 33.6% over the last 30 days. The stock’s price has declined 5.8% year-to-date to $16.80.
Big 5 Sporting Goods Corporation (BGFV - Free Report) is a leading sporting goods retailer in the Western U.S.
Big 5 Sporting Goods has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 35.4% for the current year. Its earnings estimate for the current year has improved by 15.2% over the last 30 days. The stock’s price has declined 14% year-to-date to $14.90.
Quidel Corporation (QDEL - Free Report) discovers, develops, manufactures and markets point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses.
Quidel has a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved 18.8% over the last 60 days. The stock’s price has declined 4.3% year-to-date to $20.48. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Planet Payment, Inc. is a provider of international payment processing and multi-currency processing services.
Planet Payment has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 42.2% for the current year. Its earnings estimate for the current year has improved by 5% over the last 30 days. The stock’s price has declined 12.8% year-to-date to $3.56.
Bridgepoint Education, Inc. is a provider of post-secondary education services.
Bridgepoint Education has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 58.3% for the current year. Its earnings estimate for the current year has improved by 35.7% over the last 30 days. The stock’s price has declined 5.3% year-to-date to $9.59.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks Investment Research.
It's not the one you think.
See This Ticker Free >>