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U.S. Small Businesses Gather Pace on Strong Recovery: 5 Picks

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U.S. small businesses have regained momentum in 2021 after facing severe hurdles in the pandemic-ridden 2020. The U.S. government has accelerated COVID-19 vaccinations. The speeding up of the process implies chances of a faster-than-expected reopening of the U.S. economy. This along with the easing of the pandemic significantly ramped up small business activities.

Small Businesses Gather Pace

The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 2.4 points from February to 98.2 in March. Since November, this was the first reading in which the index returned to its average historical level. Notably, seven out of 10 index components improved in March.

Per the survey, most of the small business owners are more optimistic about the U.S. economy and upwardly revised their expectations especially for the first half of 2021. Despite facing lack of adequate skilled manpower, small business owners have decided to hire more in order to expand their businesses.

In its Economic Average Report, released on Apr 21 by Yelp, nearly 146,486 new small businesses opened in the first-quarter 2021, the highest in a year. Moreover, more than 50,000 small businesses reopened last quarter, the highest since last summer. Yelp data science vice president Justin Norman said that this is a sign that local economies are back on solid ground after a tumultuous 2020.

Moreover, President Joe Biden's newly injected $1.9 trillion stimulus 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.

These positive developments have been reflected in stock markets. Year to date, large-cap specific the indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained 11.5%, 11.1% and 8.2%, respectively. On the other hand, the small-cap centric Russell 2000 and the S&P 600 surged 13.4% and 19.1%, respectively.

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.

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. Therefore, the reopening of the economy will immensely benefit small businesses.

Our Top Picks

We have narrowed down our search to five small-cap stocks that have popped more than 25% year to date and still have strong upside left for 2021. These stocks have witnessed robust earnings estimate revisions in the last 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 year to date.

 

Rocky Brands Inc. (RCKY - Free Report) designs, manufactures and markets footwear and apparel under the Rocky, Georgia Boot, Durango, Lehigh and Michelin brand names in the United States, Canada and internationally. It operates through three segments: Wholesale, Retail, and Military.

The company has expected earnings growth of 36% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 19.7% over the last 30 days. The stock price has soared 98.9% year to date.

United Bancorporation of Alabama Inc. (UBAB - Free Report) is a parent company of United Bank and UB Community Development. It provides a range of deposit products and loans, as well as other services such as Internet banking and brokerage services.

The company has expected earnings growth of 28.4% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 52.7% over the last 30 days. The stock price has climbed 28.1% year to date.

Bassett Furniture Industries Inc. (BSET - Free Report) is engaged in the manufacture, marketing and retail of home furnishings in the United States and internationally. It operates in three segments: Wholesale, Retail Â-company-owned Stores, and Logistical Services.

The company has expected earnings growth of more than 100% for the current year (ending November 2021). The Zacks Consensus Estimate for its current-year earnings has improved 16.8% over the last 30 days. The stock price has rallied 27.3% year to date.

ConocoPhillips (COP - Free Report) produces transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids worldwide.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 6.4% over the last 7 days. The stock has appreciated 25.1% year to date.

The Community Financial Corp. (TCFC - Free Report) operates as the bank holding company for Community Bank of the Chesapeake that provides commercial and retail banking services to individuals and businesses.

The company has an expected earnings growth rate of 25.6% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 7.8% over the last 30 days. The stock has advanced 24.9% year to date.

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