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Don't Ignore Small Caps in Market's V-Shaped Recovery: 5 Picks

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Forget coronavirus, Wall Street is witnessing a V-shaped recovery for the past four and half months from the pandemic-ravaged bear market in early March. Panic selling had resulted in major stock indexes hitting rock bottom on Mar 23.

The market rally started when economies started reopening, a series of better-than-expected economic data pleasantly surprised, and the second quarter saw better-than-expected U.S. GDP and corporate earnings.

Meanwhile, economists and financial experts are focused on the large-cap-centric three major indexes — the Dow, the S&P 500 and the Nasdaq Composite — for  tremendous performances. However, one should not forget the contribution of small-cap stocks in Wall Street's fabulous recovery.

In fact, the two small-cap specific indexes — the Russell 2000 and the S&P 600 — are the outperformers in the new bull market. Several small-cap stocks have skyrocketed with more than 80% returns during this period. Some of them are Zacks top-ranked stocks.

Small-Cap Stocks Outperform

Market participants are enthusiastic about the facts that the S&P 500 is currently at a striking distance to surpass its all-time high recorded on Feb 19 and the Dow is just 2% away from a positive territory year to date. Moreover, analysts are debating whether the Nasdaq Composite will defy coronavirus and beat last year's performance, which was the best in six years.

However, a deeper look at the stock market's performance in the last four and a half months gives us some interesting information.  From Mar 23 to Aug 12, the small-cap-centric Russell 2000 and the S&P 600 rallied 63.8% and 60.1%, outpacing the S&P 500 and the Dow that soared 54.2% and 53.6%, respectively. Only the tech-laden Nasdaq Composite surpassed the small-cap-centric indexes jumping 66.1%, during the period.

Both the Russell 2000 and the S&P 600 finished the last four months and the first week of August on a positive note like their large-cap peers. However, the Russell 2000 and the S&P 600 still need to gain 5.1% and 9.5%, respectively, to become green year to date.

Unprecedented Fiscal and Monetary Stimulus

Small businesses suffered the most owing to the global outbreak of the deadly coronavirus, which forced the U.S. government to impose lockdowns for nearly two months. The Trump administration's decision to provide a massive restructuring package to small businesses greatly helped in reviving this space. 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 a loan in the range of $250,000 to $300 million for 5 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 (market capital < $1 billion) stocks that have skyrocketed more than 80% in the past three months. These stocks also have strong growth potential and saw robust earnings estimate revisions in the past 7 to 30 days. 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 three months.

 

Superior Group of Companies Inc. (SGC - Free Report) manufactures and sells apparel and accessories in the United States and internationally. It operates through three segments: Uniforms and Related Products, Remote Staffing Solutions, and Promotional Products.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved more than 100% over the past 30 days. The stock price has soared 182.9% in the past three months.

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 55.8% for the current year (ending September 2021). The Zacks Consensus Estimate for the current year has improved 67.1% over the past 30 days. The stock price has jumped 119% in the past three months.

Sterling Construction Co. Inc. (STRL - Free Report) is a leading heavy civil construction company that specializes in the building and reconstruction of transportation and water infrastructure projects in the United States.

The company has an expected earnings growth rate of 66.7% for the current year. The Zacks Consensus Estimate for the current year has improved 26.1% over the past 7 days. The stock has climbed 103.9% in the past three months.

Hamilton Beach Brands Holding Co. (HBB - Free Report) is a designer, marketer and distributor of branded electric household and specialty houseware appliances, as well as commercial products for restaurants, bars and hotels.

The company has an expected earnings growth rate of 20.2% for the current year. The Zacks Consensus Estimate for the current year has increased 4.8% over the past 7 days. The stock has appreciated 97.4% in the past three months.

International Money Express Inc. (IMXI - Free Report) offers wire transfer and other processing services to customers through a network of sending and paying agents located primarily in the District of Columbia and Puerto Rico as well as throughout Latin America.

The company has an expected earnings growth rate of 11.5% for the current year. The Zacks Consensus Estimate for the current year has improved 8.8% over the past 7 days. The stock has surged 85.1% in the past three months.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>