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Buy These 5 Small-Cap Stocks to Tap Year-End Rally
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Wall Street has seen a surge in small-cap stocks, with the iShares Russell 2000 ETF (IWM - Free Report) climbing more than 4% in the past five days. This rally coincides with cooling inflation data for the month of October. Experts believe that it may mark the start of a fourth-quarter rally for small-cap stocks, barring some occasional dips.
Let’s find out the factors behind this rally, what it means for investors as well as the outlook for 2024. Notably, in this light, investors can bet on top-ranked small-cap stocks like Ambac (AMBC - Free Report) , Pangaea Logistics Solutions (PANL - Free Report) , MoneyLion (ML - Free Report) , OppFi (OPFI - Free Report) and Carrols Restaurant Group (TAST - Free Report) .
Small-Cap Rally in the Cards?
Eric Green, CIO of Penn Capital Management, suggests that this rally has been long overdue (as quoted on Yahoo Finance), given the prolonged outperformance of large-cap stocks. Valuations for small-cap companies have become compressed relative to their larger counterparts, making them an attractive buy.
A Less-Hawkish Fed
The latest employment report and the Consumer Price Index data both indicate that inflation is on the decline. This may lead to a less-hawkish Fed in the near term. Following the release of this data, market indicators showed about a 95% probability that the Federal Reserve would keep interest rates unchanged in December, as reflected by data from the CME Group.
Upbeat Holiday Season Sales in the Cards?
The National Retail Federation (NRF) stated that consumers are estimated to shell out between $957.3 billion to $966.6 billion during November and December. Thus, spending will increase between 3% and 4% over the same period last year. The growth may be slightly less than in recent years, but it’s still in line with the growth rate from 2010 to 2019, when the average annual holiday outlays jumped 3.6%. Now, lower inflation can boost investor confidence and drive growth in this sector.
Will M&A Activities Pick Up in Small-Cap Space?
Apart from reduced inflation, other factors may add to the rally in small-cap stocks. Per strategists, seasonality tends to benefit small caps toward the end of the year. Additionally, the valuation gap between large and small-cap companies, as well as private and public markets, suggests that mergers and acquisitions (M&A) may pick up. Companies may find it more attractive to acquire smaller, faster-growing firms, taking advantage of the valuation mismatch.
Upbeat 2024 Outlook for Small Caps?
For 2024, Eric Green points out that small caps have priced in a likely recession. In contrast, large-cap stocks have not priced in the possibility of a recession. This pricing mismatch indicates that small-cap stocks may be primed for a rally next year.
Top-Ranked Stocks to Buy
Against this backdrop, we highlight a few small-cap stocks that have Zacks Rank #1 (Strong Buy) or 2 (Buy). The Zacks Consensus Estimate for their earnings in the upcoming fiscal year has grown by at least 10% in the past one month. Moreover, these stocks have jumped more than 10% in the past week. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ambac Financial Group, Inc. is a holding company that provides financial guarantees and other financial services to clients in both the public and private sectors globally, through its subsidiaries. The stock has a Zacks Rank #1.
Market Cap: $671.1 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 550%
The Zacks Rank #2 company is a data-driven, digital financial platform. It offers mobile banking and financial membership to take control of their finances.
Market Cap: $282.16 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 12.74%
Image: Bigstock
Buy These 5 Small-Cap Stocks to Tap Year-End Rally
Wall Street has seen a surge in small-cap stocks, with the iShares Russell 2000 ETF (IWM - Free Report) climbing more than 4% in the past five days. This rally coincides with cooling inflation data for the month of October. Experts believe that it may mark the start of a fourth-quarter rally for small-cap stocks, barring some occasional dips.
Let’s find out the factors behind this rally, what it means for investors as well as the outlook for 2024. Notably, in this light, investors can bet on top-ranked small-cap stocks like Ambac (AMBC - Free Report) , Pangaea Logistics Solutions (PANL - Free Report) , MoneyLion (ML - Free Report) , OppFi (OPFI - Free Report) and Carrols Restaurant Group (TAST - Free Report) .
Small-Cap Rally in the Cards?
Eric Green, CIO of Penn Capital Management, suggests that this rally has been long overdue (as quoted on Yahoo Finance), given the prolonged outperformance of large-cap stocks. Valuations for small-cap companies have become compressed relative to their larger counterparts, making them an attractive buy.
A Less-Hawkish Fed
The latest employment report and the Consumer Price Index data both indicate that inflation is on the decline. This may lead to a less-hawkish Fed in the near term. Following the release of this data, market indicators showed about a 95% probability that the Federal Reserve would keep interest rates unchanged in December, as reflected by data from the CME Group.
Upbeat Holiday Season Sales in the Cards?
The National Retail Federation (NRF) stated that consumers are estimated to shell out between $957.3 billion to $966.6 billion during November and December. Thus, spending will increase between 3% and 4% over the same period last year. The growth may be slightly less than in recent years, but it’s still in line with the growth rate from 2010 to 2019, when the average annual holiday outlays jumped 3.6%. Now, lower inflation can boost investor confidence and drive growth in this sector.
Will M&A Activities Pick Up in Small-Cap Space?
Apart from reduced inflation, other factors may add to the rally in small-cap stocks. Per strategists, seasonality tends to benefit small caps toward the end of the year. Additionally, the valuation gap between large and small-cap companies, as well as private and public markets, suggests that mergers and acquisitions (M&A) may pick up. Companies may find it more attractive to acquire smaller, faster-growing firms, taking advantage of the valuation mismatch.
Upbeat 2024 Outlook for Small Caps?
For 2024, Eric Green points out that small caps have priced in a likely recession. In contrast, large-cap stocks have not priced in the possibility of a recession. This pricing mismatch indicates that small-cap stocks may be primed for a rally next year.
Top-Ranked Stocks to Buy
Against this backdrop, we highlight a few small-cap stocks that have Zacks Rank #1 (Strong Buy) or 2 (Buy). The Zacks Consensus Estimate for their earnings in the upcoming fiscal year has grown by at least 10% in the past one month. Moreover, these stocks have jumped more than 10% in the past week. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ambac (AMBC - Free Report)
Ambac Financial Group, Inc. is a holding company that provides financial guarantees and other financial services to clients in both the public and private sectors globally, through its subsidiaries. The stock has a Zacks Rank #1.
Market Cap: $671.1 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 550%
One-Week Price Change: 10.82%
Pangaea Logistics Solutions (PANL - Free Report)
Zacks Rank #1 Pangaea Logistics Solutionsoperates as a global logistics company. It provides seaborne dry-bulk transportation services.
Market Cap: $328.98 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 74.5%
One-Week Price Change: 20.0%
MoneyLion (ML - Free Report)
The Zacks Rank #2 company is a data-driven, digital financial platform. It offers mobile banking and financial membership to take control of their finances.
Market Cap: $282.16 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 12.74%
One-Week Price Change: 22.45%
OppFi (OPFI - Free Report)
Zacks Rank #1 Opportunity Financial LLC provides a financial technology platform that powers banks to help everyday consumers gain access to credit.
Market Cap: $308.77 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 26.32%
One-Week Price Change: 13.41%
Carrols Restaurant Group (TAST - Free Report)
Zacks Rank #1 Carrols Restaurant Group is the largest BURGER KING franchisee in the United States, with over 800 restaurants.
Market Cap: $402.73 million
Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 13.51%
One-Week Price Change: 18.81%