The Russell 2000 Index (index of the small-cap U.S. companies) has gained a little more than 20% so far this year compared with the S&P 500’s rally of 24.1%. The financial performance of small-cap companies is primarily tied with that of the domestic economy.
Notably, in third-quarter 2019, the country’s real GDP expanded at an annual rate of 2.1% (second estimate). In the second quarter, it was 2.0%, while in the first quarter real GDP was 3.1%. Thus, economic growth along with lower tax rates was primarily the reason behind majority of the gain in the Russell 2000 Index. While certain geopolitical concerns — including uncertainty related to the impact of Brexit along with the ongoing trade war and expectations of gradual economic slowdown — are likely to hamper all the U.S. companies to some extent in the near term, small-cap stocks will not be affected much as they are less susceptible to global concerns. Moreover, the small-cap stock market rally is expected to continue going forward, given the recent optimism over trade talks. It is expected that small-cap companies may even outperform their larger counterparts next year and are hence gaining favor. Although the near-term outlook for small-cap stocks looks bright, not all companies within the group will be able to capitalize on the favorable trends. Certain factors like increased competition and/or weak fundamentals might hurt the performance of some of the companies to an extent. While you should still hold small-cap stocks in your portfolio, there are some of the companies that you should get rid of before entering 2020 because of their weaknesses and lack of earnings growth potential. Stocks to Dump While it is difficult to pick small-cap stocks that are likely to disappoint in 2020, we have taken the help of the Zacks Stock Screener to select such stocks. We have shortlisted four stocks whose market capitalization is less than $1 billion and whose earnings for the current year as well as 2020 are expected to decline. Moreover, these stocks have a VGM Score of C, D or F and currently carry a Zacks Rank #4 (Sell) or #5 (Strong Sell). Also, these stocks have underperformed their respective industries so far this year. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Red Robin Gourmet Burgers, Inc. ( RRGB Quick Quote RRGB - Free Report) : Headquartered in Greenwood Village, CO, the company is a full-service casual dining restaurant chain that serves an assorted range of burgers. It has a market cap of $355 million and a VGM Score of D. Moreover, the Zacks Rank #5 stock’s earnings are expected to decline 54.9% in 2019 and 1.5% in 2020. Also, its shares have gained 2.9% so far this year, underperforming the industry’s growth of 19%. Celcuity Inc. CELC: The company is based in Minneapolis, MN, and has a Zacks Rank of 4 at present. The biomedical and cellular analysis company, with a market cap of $110.2 million, discovers the sub-types of cancer. It has a VGM Score of D, and its earnings are projected to decline 19.4% and 4.1% in 2019 and 2020, respectively. Also, the company’s share price has plunged 54.6% year to date against the industry’s growth of 6%. Atlas Air Worldwide Holdings, Inc. AAWW: The Purchase, NY-based company provides outsourced aircraft and aviation operating services. It has a market cap of $686.1 million and a VGM Score of D. Also, the Zacks Rank #5 stock’s earnings in 2019 and 2020 are projected to decline 37% and 12.8%, respectively. Its shares have lost 37.6% so far this year against 12.5% growth of the industry. Boston Private Financial Holdings, Inc. BPFH: The Boston, MA-based banking company has a Zacks Rank #4 at present. It has a VGM Score of D and a market cap of $939 million. The company’s earnings are expected to decline 2.1% in 2019 and 2.6% in 2020. So far this year, its shares have rallied 8.8%, underperforming the industry’s growth of 15.9%. 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. Today, See These 5 Potential Home Runs >>