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5 Small-Cap Stocks Outpacing the Broader Market in 2019

Nalak Das

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. The small-cap-centric Russell 2000 Index is still lagging its large-cap peers.

The stock market’s impressive bull run is likely to continue in the near term supported by a dovish Fed, which already cut the benchmark rate by 75 basis points, expectation of a partial trade deal between the United States and China this year and a firmly north-bound government bond yield curve reversing the inversion in August.

These positives strengthened investors’ confidence in risky assets like equities, especially the cyclical large-cap growth stocks. 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.

Russell 2000 Lags Large-Cap Peers

Year to date, the three major stock indexes of Wall Street, the Dow, the S&P 500 and the Nasdaq Composite have rallied 18.7%, 23.4% and 27.7%, respectively. All three indexes have set new all-time highs in November, surpassing their previous highs posted in July.

For the week ended Nov 8, the Dow completed the winning streak of three-straight weeks, while the S&P 500 and the Nasdaq Composite finished in positive territory for the fifth and sixth consecutive week, respectively.

Meanwhile, the Russel 2000 has gained 17.9% so far in 2019. More importantly, the index is still 5.4% 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 high so far this year, while its large-cap peers have established new highs several times in 2019.

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.

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

Although Russell 2000 is behind its large-cap peers in 2019, several small-cap stocks have popped. 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 VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 199.1% year to date.

 

Barrett Business Services Inc. BBSI provides business management solutions for small and mid-sized companies in the United States. It develops a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry. The company has an expected earnings growth rate of 21.9% for the current year. The Zacks Consensus Estimate for the current year has improved 9.8% over the last 30 days. The stock has soared 60.6% 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 56.5% year to date.



Akorn Inc. AKRX is a specialty generic pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals, over-the-counter consumer health products and animal health pharmaceuticals in the United States and internationally. The company has an expected earnings growth rate of 42.1% for the current year. The Zacks Consensus Estimate for the current year has improved 35.3% over the last 30 days. The stock has surged 34.5% year to date.



Quanex Building Products Corp. NX provides components for the fenestration industry worldwide. It operates through three segments: North American Engineered Components, European Engineered Components, and North American Cabinet Components. The company has an expected earnings growth rate of 41.5% for the current year. The Zacks Consensus Estimate for the current year has improved 1.1% over the last 30 days. The stock has surged 40.9% 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.

Today, See These 5 Potential Home Runs >>


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Quanex Building Products Corporation (NX) : Free Stock Analysis Report
 
FORTERRA INC (FRTA) : Free Stock Analysis Report
 
Akorn, Inc. (AKRX) : Free Stock Analysis Report
 
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
 
Barrett Business Services, Inc. (BBSI) : Free Stock Analysis Report
 
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