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5 Top-Ranked Small-Cap Stocks to Escape Trade Tension

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Wall Street has seen a nasty spell of trading over the past several months, pulling the major indices down for the year. This is because global trade worries, threats of inflation, concerns over speedy tightening of monetary policy, and the ongoing political turmoil in Washington continued to provide resistance.

On the other hand, macro fundamentals paint a rosy picture given that the U.S. economy has entered its second-longest expansion since 1785. This is especially thanks to higher consumer spending, rising consumer confidence, low borrowing cost, growing wages, and solid hiring. In particular, consumers were more confident in April, with the consumer confidence index rebounding to an 18-year high, indicating solid economic growth prospects.

Additionally, President Donald Trump is betting on juicy growth through $1.5 trillion in tax cuts and fresh government spending. If this wasn’t enough, strong earnings expectation will provide further lift to the stocks.

Against such a backdrop, small-cap stocks could be an excellent choice for investors seeking a top pick in today’s market environment.

Why Small Caps?

Small caps are closely tied to the U.S. economy and do not have much exposure to the international market. These stocks generally lead the market when the American economy is on a solid footing.

Small-cap stocks are the biggest beneficiaries of the tax cut as these pay higher taxes with a median effective tax rate of 31.9%. In comparison, the larger, multi-national companies on the S&P 500 pay a lower median effective tax rate of 28%, while the tax rate for 30 mega-cap stocks on the Dow Jones Industrial Average is even low at 23.8%.

The pint-sized stocks are considered safe and better plays if any political issue or economic turmoil creeps into the picture. As such, these could well insulate investors from any trade woes, in particular U.S.-China trade dispute or NAFTA negotiations. Further, these stocks are poised to benefit from the strength in the greenback, the trend is being seen lately due to rising yields.

Since these companies are small, they are poised to grow more than their already tapped out large-cap counterparts. However, they are extremely volatile and could lead to huge losses compared with large and mid-cap counterparts in a short span.

How to Play?

As a result, we have chosen those small-caps stock that have a top Zacks Rank #1 (Strong Buy), Growth Score of A, solid Industry Rank in the top 40%, positive earnings estimate revision for fiscal 2018 over the past 30 days and double-digit earnings growth for fiscal 2018. All these suggest their continued outperformance in the coming months.  

You can see the complete list of today’s Zacks #1 Rank stocks here.

Rocky Brands Inc. (RCKY - Free Report)

It is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky Outdoor Gear, Georgia Boot, Durango, Lehigh, and the licensed brand, Dickie. The company has seen positive earnings estimate revision of 10 cents for this year over the past month, and has an expected earnings growth rate of 29.31%. The stock belongs to a top-ranked Zacks industry (top 34%).

CRA International Inc.

It is an economics, finance, and business consulting firm that works with businesses, law firms, accounting firms, and governments in providing a wide range of services. The Zacks Consensus Estimate for 2018 has moved up from $2.15 to $2.30 over the past month and the expected growth rate is 20.42%. The stock belongs to a top-ranked Zacks industry (top 10%).

Patrick Industries Inc. (PATK - Free Report)

This is a major manufacturer of component products and distributor of building products and materials for the Recreational Vehicle, Manufactured Housing and Marine industries. The stock has seen solid earnings estimate revision of 34 cents over the past month for this year, reflecting year-over-year earnings growth of 41.82%. It falls in a top-ranked Zacks industry (top 37%).

Echo Global Logistics Inc. (ECHO - Free Report)

It is a leading provider of technology-enabled transportation and supply chain management services, delivered on a proprietary technology platform, serving the transportation and logistics needs of its clients. The company saw solid earnings estimate revision of 14 cents for this year over the past 30 days, representing year-over-year growth of 62.79%. The stock belongs to a top-ranked Zacks industry (top 27%).

Movado Group Inc. (MOV - Free Report)

It is one of the world's premier watchmakers. The company designs, manufactures and distributes watches from 10 of the most recognized and respected names in time: Movado, Concord, EBEL and ESQ Movado along with their Coach, HUGO BOSS, Juicy Couture, Lacoste, Tommy Hilfiger and Scuderia Ferrari licensed watch brands. Movado saw positive earnings estimate revision of 15 cents for the fiscal year (ending January 2019) over the past month and has an expected earnings growth rate of 12%. It falls under a top-ranked Zacks industry (top 15%).

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