Small-Cap Stocks March Higher: 5 Stocks to Buy Right Away

The U.S. economy is relatively stable compared to the rest of the world, notwithstanding poor economic data that has been released recently.

In such a scenario, it will be wise to include small-cap stocks – with market caps below $5 billion – in a portfolio as these securities have more room to run than large-cap companies. To support this fact, we note that the performance of the Russell 2000, the preeminent index of stocks with lower capitalization, has outperformed the S&P 500, Dow and Nasdaq by a significant margin to date.

Market Mops Up Gains

The Institute for Supply Management reported that ISM Services Index decreased from 55.5% in July to 51.4% in August. The reading also came in significantly below the consensus estimate of 55.5%. The reading showed that service sector activity in the U.S. grew at its slowest pace since 2010. Additionally, the U.S. economy created a total of 151,000 jobs in August, considerably lower than the consensus estimate of 179,000.

However, markets continue to mop up gains despite disappointing reports. Investors are ignoring recent economic signals and are instead focusing on the fact these reports are making a near-term rate hike unlikely. Additionally, oil prices continue to move upward, leading to gains for energy sector companies.

San Francisco Fed President John Williams said that the economy is doing well. He also said that unemployment is likely to fall from the current level of 4.9% to 4.5% next year. Moreover, Williams believes that inflation will achieve the Fed’s target of 2% within the next two years.

The Small-Cap Advantage

As investors continue to seek investments that deliver high returns amid low interest rates, the popularity of small cap stocks continues to grow. A relatively stable economy and U.S. dollar as well as a rebound in oil prices have also contributed to this phenomenon.

Now, to choose small cap stocks, we will employ our VGM score. If you aren’t familiar with the Zack Style Scores, here V stands for Value, G for Growth and M for Momentum. The VGM score is simply a weighted combination of those scores. The score will be a comprehensive tool that will allow investors to filter the standard scoring system and better choose winning stocks.

The combination of a good VGM score along with a top Zacks Rank is even more promising. Hence, we have narrowed down our search to the following stocks based on this.

Aegean Marine Petroleum Network Inc. ANW is the primary provider of fuel to ocean-going and coastal vessels. The company is also involved in activities like marketing and distributing marine lubricants under the brand name of Alfa Marine Lubricants.

The company currently carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Aegean Marine Petroleum has expected earnings growth of more than 39% for the current year.

Alpha & Omega Semiconductor, Ltd. AOSL is a leading designer, developer and supplier of a portfolio of power semiconductors for the markets in the U.S. and Asia. The company is also involved in activities like supplying power IC products along with analog power devices.

Alpha & Omega Semiconductor has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 167% for the current year.

Central Garden & Pet Company CENT is a leading producer and marketer of premium and value-oriented products focused on the lawn & garden and pet supplies markets in the U.S. The company offers its products to mass merchants, home improvement centers, lawn and garden nurseries, grocery stores, specialty pet stores, veterinarians’ municipalities, and other individual animal buyers.

The company has expected earnings growth of more than 61% for the current year. It has a VGM Score of A and sports a Zacks Rank #1.

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

America's Car-Mart Inc. CRMT is an automotive retailer in the U.S. and the provider of financing to its customers. The company has a Zacks Rank #1 and a VGM Score of A. Its expected earnings growth is more than 67% for the current year.

Murphy USA Inc. MUSA is the operator of a chain of retail stores in the U.S. providing motor fuel products. The company has a Zacks Rank #2 and a VGM Score of A. Its expected earnings growth is almost 54% for the current year.

Where Do Zacks' Investment Ideas Come From?

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AEGEAN MARINE (ANW): Free Stock Analysis Report
 
AMERICAS CAR-MT (CRMT): Free Stock Analysis Report
 
ALPHA&OMEGA SEM (AOSL): Free Stock Analysis Report
 
MURPHY USA INC (MUSA): Free Stock Analysis Report
 
CENTRAL GARDEN (CENT): Free Stock Analysis Report
 
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