May was an eventful month characterized mainly by Trump’s anti-trade policies, which reignited investors’ love for small-cap stocks. In fact, the Russell 2000 index hit multiple record highs last month and easily outperformed the large-cap rivals, gaining 6% vs. 2.2% gains for the S&P 500. This marks the biggest monthly gain for the small-cap index since September.
The outperformance mainly came on the heels of fading trade talks between the United States and China, Trump’s decision to re-impose sanctions on Iran, and now the initiation of steel and import tariffs on America’s biggest allies — the European Union, Canada and Mexico — which were previously exempted from the duties, since these were announced in March. Thanks to Trump, all these developments could trigger a global slowdown and roil the broad stock market. However, one corner of the investing world -- small cap -- is less prone to these events. This is because the pint-sized stocks are closely tied to the U.S. economy and do not have much exposure to the international market. These are insulated from international headwinds, including trade policy and geopolitical tensions, and are considered safe and better plays if political issue or economic turmoil creeps into the picture. Additionally, small-cap stocks are also well protected from a stronger greenback. Strong earnings and tax cuts also supported the rally. Small-cap stocks pay higher taxes than large-cap companies and are thus the biggest beneficiaries of a tax cut. An encouraging domestic economic trend also backed their momentum. The U.S. economy has entered its second-longest expansion phase since 1785, 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 consumer confidence index rebounding to an 18-year high, indicating solid economic growth prospects. The bullish trend is likely to continue at least in the short term. Given this, investors might want to tap the space, although small-cap stocks are more volatile and carry the risk of huge losses in unfavorable market conditions. As such, we have highlighted five top-performing small-cap stocks of May that are poised to outperform as long as geopolitics keep perturbing the stock market. These stocks have a top Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of B or better. You can see . the complete list of today’s Zacks #1 Rank stocks here Turtle Beach Corporation ( HEAR Quick Quote HEAR - Free Report) This California-based audio technology company provides various gaming headset solutions to various platforms, including video game and entertainment consoles, handheld consoles, personal computers, and mobile and tablet devices under the Turtle Beach brand. Zacks Rank: #1 Growth Score: A May Return: 205.5% Global Eagle Entertainment Inc. ENT This California-based company offers content and connectivity services for the airline industry. It provides airlines with in-flight video content, e-commerce and information services. Zacks Rank: #2 Growth Score: B May Return: 90.2% Comstock Resources Inc. CRK This Texas-based independent energy company is engaged in the acquisition, development, production and exploration of oil and natural gas properties. Zacks Rank: #2 Growth Score: A May Return: 58.5% Pioneer Energy Services Corp. PES This Texas-based company provides land contract drilling services and production services to independent and major oil and gas exploration and production companies. Zacks Rank: #2 Growth Score: B May Return: 46.7% Amtech Systems Inc. ASYS This Arizona-based company is engaged in the manufacture of several items of capital equipment -- one of which is patented -- used by customers in the manufacture of semiconductors. Zacks Rank: #1 Growth Score: B May Return: 45.6% More Stock News: This Is Bigger than the iPhone! It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market. Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>