Wall Street is maintaining its dream run in 2019 wherein three major stock indexes have already set fresh all-time highs in November. These indexes predominantly consist of large-cap stocks. Meanwhile, the small-cap centric Russell 2000 Index has indicated a breakout for the first time this year.
On Nov 25, the Russell 2000 achieved a fresh 52-week high, signaling that small-cap stocks are gradually catching up their large-cap peers. Notably, so far in 219, small-cap stocks have lagged. In financial literature, a broad-based market rally implies that both large-cap and small-cap stocks are gaining and that overall boom is likely to continue.
Russell 2000 Hits Fresh 52-Week High
On Nov 25, the Russell 2000 Index gained 2.1% to close at 1,621.90, marking its highest close since Oct 9, 2018. The index also broke the previous closing high of this year at 1,618.4 recorded on May 6.
Year to date, the three major stock indexes of Wall Street, the Dow, the S&P 500 and the Nasdaq Composite have rallied 20.3%, 25% and 30.1%, respectively. All three indexes set new all-time highs on Nov 25, surpassing their previous highs posted early this month.
Meanwhile, the Russel 2000 has gained 19.1% so far in 2019. The index is still 7.3% away from its all-time high recorded on Aug 31, 2018. This indicates that the small-cap-centric index has failed to achieve a new all-time high so far this year, while its large-cap peers have established new highs several times in 2019.
However, on Nov 25, the Russell 2000 Index broke its previous 52-week high, which it failed to surpass several times. If the index can hold on its new level and consolidate further, it may not lag the large-cap counterparts.
Why Small Business Is Important
Small corporates create a significant number of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate from this space. These people constitute a large part of customers of big businesses.
Moreover, small companies are a major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses often end up being an important part of corporate America's customer base.
Additionally, owing to their predominantly domestic-focused business strategy, small-cap stocks are generally immune to the movement of the U.S. dollar. A strong U.S. dollar will make exports of large companies uncompetitive. However, small-cap stocks primarily remain unaffected by foreign exchange volatility.
Our Top Picks
Despite the slow pace of movement of small-cap stock prices, a few stocks within this stable (market capital < 1 billion) have skyrocketed ahead of the large-cap-centric indexes this year, and still have upside left. However, selection from these stocks may be difficult. In this scenario, our VGM Score comes in handy. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks year to date.
Forterra Inc. FRTA manufactures and sells pipe and precast products the United States, Canada and Mexico. It operates through Drainage Pipe & Products, and Water Pipe & Products segments. The company has an expected earnings growth rate of 77.3% for the current year. The Zacks Consensus Estimate for the current year has improved 76.2% over the last 30 days. The stock has jumped 191% year to date.
Foundation Building Materials Inc. FBM distributes building products in the United States and Canada. It offers wallboard, suspended ceiling system, and metal framing products. The company has an expected earnings growth rate of 148.8% for the current year. The Zacks Consensus Estimate for the current year has improved 2% over the last 30 days. The stock has jumped 151.5% year to date.
Chuy's Holdings Inc. CHUY owns and operates full-service restaurants, under the Chuy's name, serving a distinct menu of authentic Mexican food in the United States. The company has an expected earnings growth rate of 12.5% for the current year. The Zacks Consensus Estimate for the current year has improved 4.2% over the last 30 days. The stock has soared 60.5% year to date.
Spark Energy Inc. operates as an independent retail energy services company in the United States. It operates through two segments, Retail Electricity and Retail Natural Gas. The company has an expected earnings growth rate of 139.1% for the current year. The Zacks Consensus Estimate for the current year has improved 139% over the last 30 days. The stock has surged 50.1% year to date.
Northwest Pipe Co. NWPX manufactures engineered welded steel pipe water systems in North America. It operates through two segments, Water Transmission business and Tubular Products business. The company has an expected earnings growth rate of 15.8% for the current year. The Zacks Consensus Estimate for the current year has improved 46.7% over the last 30 days. The stock has surged 45.9% year to date.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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