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Dollar Hits Yearly Peak: 5 Small-Cap Growth Stocks to Buy

Gourav Kanti Bagchi
Lilly (LLY) is at a 52-week high, but can investors hope for more gains in the future? We take a look at the company's fundamentals for clues.

The U.S. dollar reached its best levels of 2018, after President Trump announced that the United Sates will withdraw the Iranian nuclear deal. Along with a stronger dollar, stable business sentiment bodes well for small-cap companies that are domestically focused.

Though small-cap stocks are considered high-risk investment options given their low market cap, investing in small-cap growth stocks could be a profitable proposition at this time. Markets are stabilizing and economic data has been mostly favorable.For investors with a high risk appetite and return expectations, small-cap growth stocks are the best bet given the current market environment.

Stronger Dollar to Hurt Export-Oriented Companies

On May 8, President Trump decided to exit the Iran nuclear deal which was concluded by the Obama administration in 2015. In fact, the President called this nuclear deal “defective at its core,” and hence announced that “the United States will withdraw from the Iran nuclear deal.” Trump cited the reason for withdrawal from the deal as Iran’s being “the leading state sponsors of terror.”

Following these developments, the ICE Dollar Index (DXY) which compares the greenback with six other currencies was at $92.82 on May 10, its highest settlement of this year. Strong greenback is expected to weigh on companies that generate their revenues from export-oriented business. In this context, small-cap growth stocks are expected to get investor attention.

Trump Exits Iran Deal, Small-Business Sentiment Upbeat

In addition, the United States will be re-imposing sanctions on Iran. The first sanctions will be implemented as early Aug 6, while the next phase of sanctions will come on Nov 4. August’s sanctions will be targeted more toward the Iranian Central Bank and Iran’s precious metal sector, while November’s sanctions will be a big blow to sectors like oil and energy.

Additionally, the NFIB small-business optimism index increased 0.1 points to 104.8 in April. Out of the 10 major components in the index, four registered a rise, while two remained unchanged. NFIB Chief Economist Bill Dunkelberg said that “there is no question that small business is booming.” In fact, Dunkelberg expected that lesser regulatory hurdles, improved consumer spending and the new tax law will continue to support small-business optimism in the coming months.

5 Potential Small Cap Growth Stocks

Given this encouraging backdrop, small-cap growth stocks, which are believed to have a stronger linkage with the domestic economy, provide an excellent investment avenue. While growth stocks are also called “glamour stocks” because of the superior returns they offer, small-cap growth stocks may offer even higher returns, despite being risky bets.

With the help of our new Style Score System, we have zeroed in on four stocks with market cap of below $1 billion that look promising based on their encouraging Zacks Rank and favorable Growth Score.

Our Growth Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investment opportunities in the growth investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nanometrics Incorporated NANO is a provider of process control metrology and inspection systems.

This California-based company has a Zacks Rank #1 and a Growth Score of A. The company has expected earnings growth of 84% for the current year, higher than the industry’s projected return of 20.3%. The Zacks Consensus Estimate for the current year has improved 36.1% over the past 30 days.

Plymouth Industrial REIT, Inc. PLYM is a vertically integrated and self-managed real estate investment trust.

This Massachusetts-based company has a Zacks Rank #1 and a Growth Style of A. The company has expected earnings growth of more than 100% for the current year, higher than the industry’s projected return of 4.4%. The Zacks Consensus Estimate for the current year has improved 44.3% over the past 30 days.

XO Group Inc. XOXO is a provider of multiplatform media and marketplace services to the entertainment markets.

This New York-based company has a Zacks Rank #2 and a Growth Style of A. The company has expected earnings growth of 59% for the current year, higher than the industry’s projected return of 25.5%. The Zacks Consensus Estimate for the current year has improved 10.7% over the past 30 days.

Stoneridge, Inc. SRI is a designer of engineered electrical and electronic components for the automotive, commercial and motorcycle vehicle markets. 

This Michigan-based company has a Zacks Rank #1 and a Growth Score of B. The company has expected earnings growth of 31.9% for the current year, higher than the industry’s projected return of 20.2%. The Zacks Consensus Estimate for the current year has improved 5.1% over the past 30 days.

Rocky Brands, Inc. RCKY is a major footwear and apparel company.

This Ohio-based company has a Zacks Rank #1 and a Growth Style Score of B. The company has expected earnings growth of 29.3% for the current year, higher than the industry’s projected return of 18.4%. The Zacks Consensus Estimate for the current year has improved 7.1% over the past 30 days.

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