Majority of the stocks have witnessed a post-election rally, but the biggest winners seem to be the small-cap companies whose financial performance is largely tied with the domestic economy. Over the past one month, the Russell 2000 (index of small and mid-sized U.S. companies) has jumped 13.5% and PowerShares S&P SmallCap Financials ETF PSCF increased 18.3% compared with the S&P 500’s gain of just 3.8%.
While the price performance of all the stocks on the index has been impressive, the rally of financial stocks (constituting 26.5% of the Russell 2000 as of Jun 30, 2016) stands out. This performance was driven by the expectation of strong domestic economic growth, based on what the new president has promised so far.
While there are speculations and uncertainties over financial policies under Trump-regime, the prospect of certain developments is a silver lining for the financial stocks. Trump is in favor of lesser regulations, which have been making the operating environment challenging for financial stocks since the 2008 crisis.
Moreover, the possibility of another Fed rate hike later this month has cheered the investors. The financial stocks (except REITs) are one of the biggest beneficiaries of a rising rate environment.
In addition, the economic growth is likely to strengthen further as the new administration promises to focus on domestic economy, lowering tax rates and boosting infrastructure spending. With this enhanced economic growth, the small-cap financial stocks are expected to benefit the most as they are less susceptible to global concerns.
So, it’s the right time to add a handful of financial stocks to your investment portfolio right now.
Selecting the Winning Small-Cap Financial Stocks
While is a difficult task to choose a few small-cap financial stocks that are expected to provide huge returns from the vast universe, we have taken the help of the Zacks Stock Screener to easily pick the winning stocks.
We have shortlisted small cap financial stocks with a market capitalization of $1 billion or less and a VGM Score of A or B. Further, these stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
To further cut short the list, we selected those stocks that have gained more than 20% since the election date. Also, these stocks are estimated to record more than 3% earnings growth this year and over 5% earnings growth in 2017.
Here Are the Top Four Picks:
Health Insurance Innovations, Inc. HIIQ: Shares of this life insurance provider has surged 118.7% in the last four weeks. The company has a market cap of $221.6 million and is likely to witness 248.2% earnings growth in 2016, while for 2017, growth is anticipated to be 17%. Additionally, the stock sports a Zacks Rank #1 and has a VGM Score of A.
Home Bancorp, Inc. HBCP: This Southeast Bank has rallied 22.8% over the past one month. With a market cap of $251.5 million, the company is anticipated to record earnings growth of 12.8% for 2016 and 6.3% for 2017. Further, the stock carries a Zacks Rank #2 and has a VGM Score of B.
MoneyGram International, Inc. MGI: This miscellaneous financial service provider has gained 34.2% over the past one month. With a market cap of $583.1 million, the company is anticipated to record earnings growth of 60.5% for 2016 and 29% for 2017. Also, the stock carries a Zacks Rank #2 and has a VGM Score of A.
State National Companies, Inc. SNC: Shares of this Property & Casualty insurer have jumped 30.4% in the last four weeks. The company has a market cap of $566 million and is projected to record an increase in earnings of 4% in 2016 and 9.5% in 2017. Moreover, the stock sports a Zacks Rank #1 and has a VGM Score of B.
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MONEYGRAM INTL (MGI): Free Stock Analysis Report
HEALTH INS INN (HIIQ): Free Stock Analysis Report
HOME BANCORP (HBCP): Free Stock Analysis Report
STATE NATL COS (SNC): Free Stock Analysis Report
PWRSH-SP SC FIN (PSCF): ETF Research Reports
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