Wall Street has been witnessing an impressive rally in 2023 after a highly disappointing 2022. Year to date, the three large-cap benchmarks — the Dow, the S&P 500 and the Nasdaq Composite — have climbed 9%, 19.4% and 37%, respectively. However, the small-cap-specific benchmark — the Russell 2000 — has risen just 5%.

In 2022, small-cap companies suffered from record-high inflation, a soaring interest rate and fear of an impending recession. However, this year, this segment of the economy found relief from these three concerns.

The inflation rate has been steadily dwindling since June 2022. A lower inflation rate has reduced the input costs for these companies. Small businesses have little option to shift higher input costs in their final products.

Since the beginning of 2023, the Fed has reduced the magnitude of interest rate hikes. The central bank has given enough indication that it is approaching the end of the ongoing rate hike cycle. Small businesses are highly dependent on easy access to cheap credit.

A recently released series of key economic data has clearly indicated that the U.S. economy is cooling including the resilient labor market. However, better-than-expected consumer spending has reduced the risk of a near-term recession.  

Small businesses are predominantly dependent on the domestic economy. They generally have very little access to export markets. Therefore, a U.S. recession could have been disastrous for them.

Our Top Picks

We have applied our VGM Style Score to narrow the search to select five small-cap (market capital < $1 billion) companies that have strong potential for 2024. These stocks have seen positive earnings estimate revisions in the past 60 days. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy) and a VGM Score of A.  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 the past three months.

Image Source: Zacks Investment Research

Limbach Holdings Inc. (LMB Quick QuoteLMB - Free Report) provides building systems solutions in the United States. LMB engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. LMB operates in two segments, namely, General Contractor Relationships and Owner Direct Relationships.

Limbach Holdings has expected revenue and earnings growth rates of 9% and 5.7%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 8.2% over the past 30 days.  

Barrett Business Services Inc. (BBSI Quick QuoteBBSI - Free Report) provides light industrial, clerical and technical employees to a wide range of businesses through staff leasing, contract staffing, site management and temporary staffing arrangements. BBSI provides employees to a diverse set of customers, including among others, forest products and agriculture-based companies, electronics manufacturers, transportation and shipping enterprises, professional firms and general contractors.

Barrett Business Services has expected revenue and earnings growth rates of 5% and 8%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 4.9% over the past 60 days.  

Carrols Restaurant Group Inc. is the largest BURGER KING franchisee in the United States with more than 800 restaurants and has operated BURGER KING restaurants since 1976. TAST operates as a Burger King and Popeyes franchisee.

Carrols Restaurant Group has expected revenue and earnings growth rates of 3.8% and 7.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 15.4% over the past 30 days.  

CrossAmerica Partners LP (CAPL Quick QuoteCAPL - Free Report) is engaged in the wholesale distribution of motor fuels, operation of convenience stores, and ownership and leasing of real estate used in the retail distribution of motor fuels in the United States. CAPL operates in two segments, Wholesale and Retail.

The Wholesale segment of CAPL is engaged in the wholesale distribution of motor fuels to lessee dealers, independent dealers, commission agents, and company operated retail sites. The Retail segment of CAPL is involved in the sale of convenience merchandise items; and retail sales of motor fuels at company operated retail sites and retail sites operated by commission agents.

CrossAmerica Partners has expected revenue and earnings growth rates of 6.2% and 11.8%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 10.5% over the past 30 days.  

Viad Corp. operates as an experiential leisure travel and live events and marketing services company in the United States, Canada, the United Kingdom, the United Arab Emirates, the Netherlands, and Iceland. VVI operates through Pursuit, Spiro, and GES Exhibitions segments.

The Pursuit segment offers vertically integrated attractions and hospitality in destinations with a collection of attractions, lodges, and sightseeing tours. The GES Exhibition operates as an exhibition services company that partners with exhibition and conference organizers as a full-service provider of strategic and logistics solutions to manage the complexity of their shows. The Spiro segment of VVI operates an experiential marketing agency that partners with brands around the world to manage and elevate their global experiential marketing activities.

Viad has expected revenue and earnings growth rates of 6.2% and more than 100%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 44.8% over the past 30 days.