Wall Street has maintained its northbound journey year to date after finishing an impressive 2020 despite the global outbreak and thereafter resurgence of the novel coronavirus. While the majority of market participants are focused on large-cap stocks, the small caps have in fact outperformed their large-cap peers.
At this stage, it will be sound to invest in small-cap stocks with a favorable Zacks Rank that have popped year to date and still have upside left for 2021.
Astonishing Rally of Small-Cap Stocks
The major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — rallied 7.3%, 16.3% and 43.6%, respectively, in 2020. The small-cap centric Russell 2000 jumped 30.6%.
Year to date, the Dow, the S&P 500 and the Nasdaq Composite has gained 2.5%, 4.1% and 8.7%, respectively, while the Russell 2000 has climbed 16.4%. On Feb 8, the index recorded a fresh all-time high of 2,309.43, marking the first time that it crossed the landmark 2,300 level.
Importance of Small Businesses
Small businesses create a significant number 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.
However, given their small-scale of operations, small businesses are generally cash-starved. These organizations operate on a thin profit margin and most new businesses are yet to achieve profitability. In this regard, massive fiscal and monetary stimulus injected by the government and the Fed helped small businesses to survive the coronavirus-induced economic devastations.
Stimulus Helps in Revival of Small Businesses
In March 2020, the U.S. government provided more than $800 billion to small businesses as part of the CARES Act, which ended in July. In June 2020, 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 of up to $5 billion will get a loan in the range of $250,000 to $300 million for 5 years at floating rate.
On Oct 30, the central bank reduced the minimum loan size to $100,000 from $250,000 and decided to ease restrictions on debt for companies already participating in the Paycheck Protection Program.
Moreover, President Joe Biden has proposed a $1.9 trillion stimulus as the second round of coronavirus relief package. Biden's proposal includes $15 billion in grants to small businesses, along with $35 billion in low-interest loans. The Small Business Paycheck Protection Program of $284 billion in loans will also continue.
Finally, the U.S. economy will gradually return to the pre-pandemic level as more parts of it reopen with the speeding up of the vaccination process. Consequently, the 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 surged 20% or more year to date. These stocks have strong growth potential for 2021 and have witnessed solid earnings estimation revisions in the last 7 to 30 days. Each of our picks carries 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 year to date.
Aviat Networks Inc. ( AVNW Quick Quote AVNW - Free Report) designs, manufactures and sells a range of wireless networking products, solutions and services in North America, Africa, the Middle East, Europe, Russia, Latin America and the Asia Pacific.
The company has expected earnings growth of more than 100% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved more than 47.5% over the last 7 days. The stock price has soared 61.1% year to date.
Strattec Security Corp. ( STRT Quick Quote STRT - Free Report) designs, develops, manufactures, and markets automotive access control products under the VAST Automotive Group brand primarily in the United States.
The company has an expected earnings growth rate of more than 100% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved 31.2% over the last 30 days. The stock price has jumped 25.6% year to date.
Bridgewater Bancshares, Inc. ( BWB Quick Quote BWB - Free Report) provides banking products and services to commercial real estate investors, small business entrepreneurs, and high-net-worth individuals in the United States.
The company has an expected earnings growth rate of 14.3% for the current year. The Zacks Consensus Estimate for the current year has improved 24.3% over the last 30 days. The stock price has climbed 25.6% year to date.
Schnitzer Steel Industries Inc. ( SCHN Quick Quote SCHN - Free Report) recycles ferrous and nonferrous scrap metals and manufactures finished steel products worldwide. It operates in two segments, Auto and Metals Recycling, and Cascade Steel and Scrap.
The company has an expected earnings growth rate of more than 100% for the current year (ending August 2021). The Zacks Consensus Estimate for current-year earnings has improved 59.6% over the last 30 days. The stock price has appreciated 20% year to date.
Myers Industries Inc. ( MYE Quick Quote MYE - Free Report) manufactures and sells polymer products for industrial, agricultural, automotive, commercial and consumer markets in the United States and internationally. It operates through two segments, Material Handling and Distribution.
The company has an expected earnings growth rate of 15.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6% over the last 30 days. The stock price has advanced 20% year to date.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.9% per year.
These 7 were selected because of their superior potential for immediate breakout. See these time-sensitive tickers now >>