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Small Business Optimism Rises Amid Coronavirus Woes: 5 Picks

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Small business organizations’ confidence climbed in June for two successive months as the reopening of the U.S. economy outpaced concerns about the second wave of the deadly cornavirus and heightened geopolitical conflict between the United States and China.

Meanwhile, in the past month, several small-cap (market capital < $1,000 million) stocks have popped more than 10%. Here we have selected five with a favorable Zacks Rank and strong growth potential for the near future. 

Small Businesses Optimism Rises in June

On Jul 14, the National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose to 100.6 in June from 98 in May. The index came in at 90.9 in April. However, the index is yet to reach its pre-pandemic level of 104.5 in February.

Eight of the 10 components of the index improved last month while two declined. Per the report, the majority of owners is optimistic about future business conditions and expects the ongoing recession to be short-lived.

Notably, real sales expectations for the next three months increased 37 points to a net 13%. Outlook for business activities for the next six months grew 5 points to 39%. Present situation expansions index rose 8 points to a net 13%. Plans for the hiring index grew 8 points to a net 16%.

Small Businesses Are Vital

Small corporates create a significant amount of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for big businesses.

Moreover, small companies are a major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses more often than not form a vital cog in corporate America's customer base.

Finally, owing to their predominantly domestic-focused business strategy, small business organizations are generally immune to any external shocks like geopolitical conflicts.

Unprecedented Fiscal and Monetary Stimulus

The Trump administration's decision to provide a massive restructuring package to small businesses greatly helped in reviving this space from coronavirus-led economic devastations. On Mar 27, the government released a relief package of $349 billion in forgivable loans to small businesses, provided the firms maintain their payrolls.

Moreover, in April, the U.S. government approved a $480 billion coronavirus relief package with funding earmarked for devastated small businesses and overwhelmed hospitals, and to ramp up testing nationwide during the pandemic.

On Jun 15, the Fed initiated a lending program of up to $600 billion to small and mid-sized businesses. Under this program, businesses with up to 15,000 employees or revenues up to $5 billion will get loan in the range of $250,000 to $300 million for five years in floating rate. The central bank will encourage retail banks to lend out to struggling companies and will purchase 95% of each loan extended under the facility.

Our Top Picks

We have narrowed down our search to five small-cap stocks that have popped more than 10% in the past month with strong growth potential and robust earnings estimate revisions. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past month.

 

Nautilus Inc. (NLS - Free Report) is a fitness solutions company, which designs, develops, sources, and markets cardio and strength fitness products, and related accessories for consumer and commercial use in the United States, Canada and internationally. It operates in two segments, Direct and Retail.

The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 7 days. The stock price has rallied 53.2% in the past month.

Rite Aid Corp. (RAD - Free Report) operates a chain of retail drugstores in the United States. It operates through two segments, Retail Pharmacy and Pharmacy Services.

The company has an expected earnings growth rate of more than 100% for the current year (ending February 2021). The Zacks Consensus Estimate for the current year has improved by more than 100% over the last 30 days. The stock price has jumped 27% in the past month.

EXFO Inc. (EXFO - Free Report) develops, manufactures, and markets smarter network test, monitoring, and analytics solutions for communications service providers, network equipment makers, and Web-scale operators.

The company has an expected earnings growth rate of more than 100% for next year (ending August 2021). The Zacks Consensus Estimate for next year has improved 27.8% over the last 7 days. The stock price has climbed 20% in the past month.

MarineMax Inc. (HZO - Free Report) is the largest recreational boat and yacht retailer in the United States. It sells new and used recreational boats, including pleasure boats, motor and convertible yachts, pontoon boats, fishing boats, ski boats and jet boats.

The company has an expected earnings growth rate of 2.3% for next year (ending September 2021). The Zacks Consensus Estimate for next year has improved 14% over the last 30 days. The stock price has advanced 15.8% in the past month.

Strattec Security Corp. (STRT - Free Report) designs, develops, manufactures, and markets automotive access control products under the VAST brand primarily in the United States.

The company has an expected earnings growth rate of more than 100% for next year (ending August 2021). The Zacks Consensus Estimate for next year has improved 20.9% over the last 7 days. The stock price has surged 18.2% in the past month.

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