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These 5 Small-Cap Stocks Might Make You the Most Money in 2023

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U.S. stock markets have been witnessing a steady northbound journey since mid-October. The rally in the U.S. stock markets is likely to sustain in the near term on expectations of a slowing inflation rate and a reduction in the magnitude of the interest rate hike by the Fed. At present, the Fed fund rate is within the range of 3.75-4%.

Small businesses are major sufferers of a higher interest rate regime. Despite various hurdles, investment in small-cap (market capital < $1 billion) stocks such as Barings BDC (BBDC - Free Report) , Titan Machinery (TITN - Free Report) , Chico's FAS (CHS - Free Report) , Thermon Holding (THR - Free Report) and IBEX Limited (IBEX - Free Report) with a favorable Zacks Rank is likely to strengthen one’s portfolio in 2023.

Understandably, smaller and therefore less-proven enterprises present higher risks as they operate on a thin profit margin and most new businesses take time to achieve profitability. The major issue for U.S. small businesses is galloping inflation, which is currently at a 40-year high. The global breakdown of supply-chain systems due to the pandemic and the shortage of manpower have hurt these companies the most.

Historically, small-cap stocks have been shown to outperform the rest of the market in significant part because of greater growth opportunities. Relative to bigger companies, small-cap companies show significantly higher growth potential. Most small-cap companies enjoy a larger room for future growth compared to large-cap companies, making them attractive options for investors.

Our Top Picks

We have narrowed our search to five small-cap (market capital < 1 billion) stocks that have seen solid earnings estimate revisions for 2022 and 2023 in the past 30 days and have a VGM Score of A or B. Finally, 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.

Year-to-Date Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Barings BDC is an externally managed investment company, primarily focused on senior secured loans, first lien debt, unitranche, second lien debt, subordinated debt, equity co-investments and senior secured private debt investments in private middle-market companies that operate across a wide range of industries. It specializes in mezzanine, leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing and recapitalization in the lower middle market, mature and later-stage companies.

Barings BDC has a market cap of $940.3 million and a VGM Score of B. The Zacks Consensus Estimate for its current-year and 2023 earnings has improved 1.95% and 8.8% over the past 30 days to $1.05 and $1.11 per share, respectively.

Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe, through which it sells both new and used equipment. The company operates through the Agriculture, Construction and International segments. Agriculture is the largest segment (about two-thirds of revenue) with Construction and International splitting the rest more or less equally. TITN’s solid inventory position and continued success in reducing operating expenses and lowering interest expenses are expected to help in offsetting higher input costs and the impact of supply-chain headwinds in the near term.

Titan Machinery has a market cap of $886.9 million and a VGM Score of A. The Zacks Consensus Estimate for its current-year and 2023 earnings has improved 12.1% and 13% over the past 30 days to $4.38 and $4.35 per share, respectively.

Chico's FAS is a cultivator of brands serving the lifestyle needs of fashion-savvy women 30 years and older. It is an omnichannel specialty retailer of women's private branded casual-to-dressy clothing, intimate wear and complementary accessories. CHS’s brand portfolio currently consists of three brands: Chico's, White House Black Market and Soma. Currently, Chico’s operates boutiques and outlets throughout the United States and Canada, as well as an online presence for each of its brands.

Chico’s FAS has a market cap of $722.08 million and a VGM Score of A. The Zacks Consensus Estimate for its current-year and 2023 earnings has improved 7.06% and 9.2% over the past 30 days to 91 cents and $1 per share, respectively.

Thermon Holding is engaged in providing engineered thermal solutions, known as heat tracing, for process industries, including energy, chemical processing and power generation. Products offered by the company include heating cables, tubing bundles and control systems, while services offered by it include design optimization, engineering, installation and maintenance services. Its products provide an external heat source to pipes, vessels and instruments for freeze protection, temperature and flow maintenance and environmental monitoring.

Thermon Holding has a market cap of $669.2 million and a VGM Score of A. The Zacks Consensus Estimate for its current-year and 2023 earnings has improved 19.4% and 12.6% over the past 30 days to $1.35 and $1.51 per share, respectively.

IBEX provides end-to-end technology-enabled customer lifecycle experience solutions in the United States and internationally. IBEX offers customer support, technical support, inbound and outbound sales, business intelligence and analytics, digital demand generation and CX surveys and feedback analytics service to companies that outsource such requirements to third-party providers. Its major products are ibex Connect, ibex Digital and ibex CX.

IBEX has a market cap of $486.8 million and a VGM Score of A. The Zacks Consensus Estimate for its current-year and 2023 earnings has improved 2.8% and 2.9% over the past 30 days to $1.47 and $1.76 per share, respectively.

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