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5 Top Small-Cap Stocks to Counter Severe Volatility

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Wall Street has been suffering from extreme volatility since the beginning of September. The magnitude of day-to-day fluctuations in stock prices in September is next to market fluctuations in March when coronavirus-led lockdowns were imposed all over the world.

However, a closer look at Wall Street reveals that small-cap stocks have suffered relatively less than large-cap and mid-cap stocks month to date. In fact, several small-cap stocks have gained so far this month. A handful of these stocks with a favorable Zacks Rank is likely to rally further in the near future.

Small Caps Outperform Peers in September  

Month to date, all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are down 2.7%, 5.2% and 8.3%, respectively. These three stock indexes are predominantly large-cap specific indexes. The mid-cap centric S&P 400 Index declined 3.2% so far this month.

However, the small-cap centric Russell 2000 Index has dropped only 1.6% in this period. Another small-cap specific S&P 600 Index declined 3.2%. Therefore, September's volatility so far has a lesser impact on small-cap stocks compared with mid and large caps.

Small Business Optimism Index Rebounds in August

On Sep 8, the National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose 1.4 point to 100.2 in August from 98.8 in July. The index came in at 100.6 in June. The decline in July was mainly due to the resurgence of coronavirus in the United States. However, the index is yet to reach its pre-pandemic level of 104.5 in February.

August data, based on 751 companies, showed that seven of the 10 components of the index improved last month while two declined and one remained unchanged. Notably, last month's data was the first one after the termination of the payroll protection aid to small businesses in July.

According to NFIB's chief economist Bill Dunkelberg "We are seeing areas of improvement in the small business economy, as job openings and plans to hire are increasing, but many small businesses are still struggling and are uncertain about what the future will hold."

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.

The U.S. economy will gradually return to the pre-pandemic level as more parts of it reopen. Consequently, further reopening of the economy is likely to result in greater momentum for small businesses.

Our Top Picks

We have narrowed down our search to five small-cap stocks that have popped in this 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 September.

 

CAI International Inc. (CAI - Free Report) operates as transportation finance and logistics company in the United States, Switzerland, France, Korea, Singapore, rest of Asia, rest of Europe and internationally. It operates through two segments, Container Leasing and Logistics.

The company has an expected earnings growth rate of 38.5% for the current year. The Zacks Consensus Estimate for the current year has improved 43.4% over the last 60 days.

Hibbett Sports Inc. (HIBB - Free Report) is engaged in the retail of athletic-inspired fashion products including athletic footwear, athletic and fashion apparel, and sports equipment and related accessories. It operates in two segments, Lawson and Bolt.
The company has an expected earnings growth rate of 86.3% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved 14% over the last 30 days.

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 60 days.

Alerus Financial Corp. (ALRS - Free Report) provides various financial services to businesses and consumers in the United States. It operates through four segments: Banking, Retirement and Benefit Services, Wealth Management, and Mortgage.

The company has expected earnings growth of 2.6% for the current year. The Zacks Consensus Estimate for the current year has improved 37.1% over the last 60 days.

Suburban Propane Partners L.P. (SPH - Free Report) is engaged in the retail marketing and distribution of propane, fuel oil, and refined fuels. It operates in four segments: Propane, Fuel Oil and Refined Fuels, Natural Gas and Electricity, and All Other.

The company has expected earnings growth of 43.8% for the current year (ending September 2021). The Zacks Consensus Estimate for the current year has improved 19.8% over the last 60 days.

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

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