Wall Street has maintained its northbound journey year to date after finishing an impressive 2020 despite the global outbreak and thereafter resurgence of the novel coronavirus. However, the pace of rally of the three major large-cap centric indexes has slowed.
U.S. stock markets have already faced three volatile patches so far this year, resulting in frequent interruptions of the rally. January's volatility was the result of a trading practice in which a few key heavily shorted stocks by hedge funds were favored by a group of individual investors organized via Reddit’s wallstreetbets forum. However, in February, volatility resulted from a spike in benchmark Treasury Note yield and inflationary expectations.
Consequently, the Dow, the S&P 500 and the Nasdaq Composite are up just 4%, 3.2% and 1.4%, respectively, year to date. Meanwhile, the small-cap centric benchmark Russell 2000 Index has jumped 13.7% year to date. The possibility of a faster-than-expected reopening of the U.S. economy and unprecedented fiscal and monetary stimulus has restored market participants' confidence in small businesses.
Stimulus Helps in Revival of Small Businesses
In March 2020, the U.S. government provided more than $800 billion to small businesses as part of the CARES Act, which ended in July. In June 2020, the Fed initiated a lending program of up to $600 billion to small and mid-sized businesses. Under this program, businesses with up to 15,000 employees or revenues of up to $5 billion will get a loan in the range of $250,000 to $300 million for 5 years at floating rate.
On Oct 30, the central bank reduced the minimum loan size to $100,000 from $250,000 and decided to ease restrictions on debt for companies already participating in the Paycheck Protection Program.
Moreover, President Joe Biden has proposed a $1.9 trillion stimulus as the second round of the coronavirus relief package. Biden's proposal includes $15 billion in grants to small businesses, along with $35 billion in low-interest loans. The Small Business Paycheck Protection Program of $284 billion in loans will also continue.
Reopening of the Economy
The U.S. government has accelerated COVID-19 vaccinations. The speeding up of the vaccination process implies chances of a faster-than-expected reopening of the U.S. economy. The reopening of the economy with the easing of the pandemic will significantly ramp up small business activities. Notably, 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 U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for 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 more often than not form a vital cog in corporate America's customer base.
Our Top Picks
We have narrowed down our search to five Russell 2000 stocks that have skyrocketed more than 40% year to date and still have strong upside left for 2021. These stocks have witnessed solid earnings estimate revisions in the last 30 to 60 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Genesco Inc. GCO operates as a retailer and wholesaler of footwear, apparel and accessories. It operates through four segments: Journeys Group, Schuh Group, Johnston & Murphy Group, and Licensed Brands.
The company has expected earnings growth of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 5.9% north over the last 60 days. The stock has soared 68% year to date.
Customers Bancorp Inc. CUBI provides banking services to small and medium-sized businesses, professionals, individuals and families. It operates in two segments, Customers Bank Business Banking and BankMobile.
The company has an expected earnings growth rate of 42.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the last 30 days. The stock has jumped 66.9% year to date.
Rocky Brands Inc. RCKY designs, manufactures and markets footwear and apparel under the Rocky, Georgia Boot, Durango, Lehigh and Michelin brand names in the United States, Canada and internationally. The company operates through three segments: Wholesale, Retail, and Military.
The company has expected earnings growth of 13.6% for the current year. The Zacks Consensus Estimate for the current year has improved 25% over the last 30 days. The stock has climbed 63.2% year to date.
Midland States Bancorp Inc. MSBI provides various banking products and services to individuals, businesses, municipalities, and other entities. It operates through Banking, Wealth Management, Commercial FHA Origination and Servicing, and Other segments.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.6% over the last 30 days. The stock has rallied 61.5% year to date.
CAI International Inc. CAI operates as transportation finance and logistics company in the United States, Switzerland, France, Korea, Singapore, rest of Asia, rest of Europe and internationally. It operates through two segments, Container Leasing and Logistics.
The company has an expected earnings growth rate of 38.5% for the current year. The Zacks Consensus Estimate for the current-year earnings has improved 45.7% over the last 30 days. The stock has surged 44.1% 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.
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