Small Cap Equities Top Performers in Q1 2021: Top 5 Picks
Wall Street ended an impressive first quarter 2021 after witnessing an astonishing rally in the 2020 pandemic. Like last year, the rally in the first quarter of 2021 was broad in terms of different segments and sectors. While market participants are primarily concerned with large-cap stocks, a closer look at Wall Street reveals that it was the small-cap segment that performed best during the quarter.
The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – rose 7.8%, 5.8% and 2.8% respectively in the first quarter of 2021. The mid-cap specific S&P 400 climbed by 13.1% over the same period. Meanwhile, the two indexes focused on small caps – the Russell 2000 and the S&P 600 – jumped 12.4% and 17.9%, respectively.
The possibility of a faster than expected reopening of the US economy as well as the unprecedented fiscal and monetary stimulus have restored the confidence of market participants in small businesses. At this point, it will be prudent to invest in small cap stocks with a favorable Zacks rank.
Reopening of the economy
The US government has ramped up COVID-19 vaccinations. The acceleration of the process implies chances of a faster than expected reopening of the US economy. This, combined with the mitigation of the pandemic, will significantly increase the activities of small businesses. Notably, the National Federation of Independent Business reported that its Small Business Optimism Index rose to 95.8 in February from 95 in January.
Small businesses create a significant number of jobs in the US economy. More than 50% of newly created jobs in the private sector come from here. These people constitute a large part of the clientele of large companies.
Additionally, small businesses are an important part of large business supply chain management systems for innovative and technologically superior inputs. In addition, small businesses are more often than not a vital cog in the customer base of American businesses.
Due to the small scale of their operations, small businesses are generally cash-strapped. These organizations operate with a low profit margin and most new businesses have yet to achieve profitability. Therefore, reopening the economy will greatly benefit small businesses.
Stimulus helps revive small businesses
In March 2020, the U.S. government provided more than $ 800 billion to small businesses under the CARES Act, which ended in July. In June 2020, the Fed launched a loan program of up to $ 600 billion to small and medium-sized businesses. Under this program, businesses with up to 15,000 employees or revenues of up to $ 5 billion will obtain a loan in the range of $ 250,000 to $ 300 million over 5 years at variable rates.
On October 30, the central bank reduced the minimum loan size to $ 100,000 from $ 250,000 and decided to ease restrictions on the debt of companies already participating in the paycheck protection program.
What’s more, the newly injected stimulus from President Joe Biden for $ 1.9 trillion includes $ 15 billion in small business grants, as well as $ 35 billion in low-interest loans. The Small Business Paycheck Protection Program, with $ 284 billion in loans, will also continue.
Our top picks
We’ve narrowed down our search to five small-cap stocks that have soared over 90% year-to-date and still have a big upside for 2021. These stocks have seen strong revisions to earnings estimates in the past. during the last 7 to 30 days. Each of our picks has a Zacks # 1 rank (strong buy). You can see The full list of current Zacks # 1 Rank stocks here.
The graph below shows the price evolution of our five choices since the start of the year.
Rocky Brands Inc. RCKY designs, manufactures and markets footwear and clothing under the Rocky, Georgia Boot, Durango, Lehigh and Michelin brands in the United States, Canada and abroad. The company operates through three segments: wholesale, retail and military.
The company forecasts profit growth of 36% for the current year. Zacks’ consensus estimate for current year earnings has improved 19.7% in the past 30 days. The share price has jumped 108.2% since the start of the year.
USA Truck Inc. USAK operates as a truck transporter in the United States, Mexico and Canada. It operates through two segments, USAT trucking and logistics.
The company expects earnings growth of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 17.2% in the past 30 days. The share price has climbed 104.9% since the start of the year.
Veritiv Corp. VRTV operates as a business-to-business provider of value-added packaging products and services, as well as facility solutions, printing and publishing products and services in the United States, Canada, Mexico and abroad.
The company expects earnings growth of 29.8% for the current year. Zacks’ consensus estimate for current year earnings has improved by 80% over the past 30 days. The share price has climbed 119.5% since the start of the year.
Oasis Midstream LP Partners OMP provides intermediary services related to crude oil, natural gas and water in North America.
The company forecasts a profit growth rate of over 100% for the current year. Zacks’ consensus estimate for the current year has improved 2.4% over the past 7 days. The stock is up 90.3% year-to-date.
Conn’s Inc. CONN is a specialty retailer of consumer durables and related services in the United States. It operates through two segments, retail and credit.
The company forecasts profit growth of over 100% for the current year (ending January 2022). Zacks’ consensus estimate for current year earnings has improved 17.7% in the past 7 days. The share price has risen 98.9% since the start of the year.
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