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Top 5 High-Flying Small Hidden Gems Amid Wall Street Mayhem

Wall Street has been reeling under severe volatility since the beginning of 2022 after finishing impressively in the last two coronavirus-ridden years. Small business operators suffered the most during the pandemic. The nightmare of these companies continues this year too owing to record-high inflation, a higher interest rate regime and the ongoing Russia-Ukraine war.

Nevertheless, despite several hurdles, several small-cap (market capital < $1 billion) stocks are flying high this year. Investment in these stocks with a favorable Zacks Rank is likely to strengthen one’s portfolio in an otherwise tough environment. Five of them are — USA Truck Inc. USAK, TimkenSteel Corp. TMST, JAKKS Pacific Inc. JAKK, United Fire Group Inc. UFCS and Assertio Holdings Inc. ASRT.

Near-Term Concerns

The major issue for U.S. small businesses is the galloping inflation, which is currently at its 40-year high. The global breakdown of supply-chain systems due to the pandemic and shortage of manpower have hurt these companies the most. Small businesses are unable to pass on the total hike in input costs to their final products deteriorating their financial conditions.

The NFIB Small Business Optimism Index declined for the second consecutive month to 95.7 in February 2022. This was the lowest reading of the index since January 2021. For the first time, the reading of this index came below its 40-year average of 98 in two consecutive months.

The Fed will hike the benchmark interest rate in March, for the first time in three years. The central bank is likely to raise many more times in 2022 to combat inflation. A higher interest rate will be detrimental to their businesses as these companies are generally cash-starved.

These companies operate on a thin profit margin and most new businesses will take time to achieve profitability. Moreover, these organizations; virtually have no geographical diversification and depends on U.S. consumers. A higher inflation rate due to the Russia-Ukraine war would worsen their financial positions.

Year to date, the three large-cap centric stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – have declined 8.7%, 10.6% and 16.1%. The small-cap specific Russell 2000 has also tumbled 10.4% year to date. On Mar 8, the index came out of the bear territory and is currently in the correction zone.

5 High-Flying Small Caps Despite Hurdles

We have narrowed our search to five small cap stocks that have provided double digit returns year to date, in contrast to the southbound movement of all major indexes. These stocks have positive growth potential for 2022 and have seen solid earnings estimate revisions in the last 30 days. Finally, each of our picks carries 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.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

USA Truck is engaged in the transportation of general commodity freight in interstate and foreign commerce. Geographically, USAK operates in the United States, Mexico, and Canada. USA Truck operates through two segments, Trucking and USAT Logistics.

USAK has expected earnings growth of 26.9% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 39.6% over the last 30 days. The stock price has surged 12.1% year to date.

TimkenSteel is engaged in manufacturing alloy steel, along with carbon and micro-alloy steel. TMST provides air-melted alloy steel bars, tubes, and precision components, as well as value-added services, including thermal treatment and machining in the United States and internationally. TimkenSteel operates in the SBQ Steel Bar, Seamless Mechanical Steel Tubes, and Billets; and Value-added Precision Products and Services segments.

TMST has an expected earnings growth rate of 2.8% for the current-year. The Zacks Consensus Estimate for next-year earnings has improved 8.2% over the last 30 days. The stock price has advanced 17.1% year to date.

JAKKS Pacific is a multi-brand company that has been designing and marketing a broad range of toys and consumer products since 1995. JAKK recently re-aligned its products into two reporting segments to better reflect management and operation of its business. JAKKS Pacific’s segments are Toys/Consumer Products and Halloween.

JAKK has an expected earnings growth rate of 8.5% for the current-year. The Zacks Consensus Estimate for next-year earnings has improved 1.9% over the last 30 days. The stock price has jumped 45.1% year to date.

United Fire Group is engaged in the business of writing property, casualty, and life insurances in the United States. UFCS’ products include commercial insurance, personal insurance, life insurance and surety bonds. United Fire Group underwrites and brokers a limited amount of excess and surplus lines insurance.

UFCS has an expected earnings growth rate of 18.3% for the current-year. The Zacks Consensus Estimate for next-year earnings has improved more than 100% over the last 30 days. The stock price has appreciated 17.7% year to date.

Assertio Holdings is a specialty pharmaceutical company. ASRT’s portfolio consists of branded prescription neurology, inflammation and pain medications. Assertio Holdings’ business development includes acquisitions, licensing and mergers.

ASRT has an expected earnings growth rate of more than 100% for the current-year. The Zacks Consensus Estimate for next-year earnings has improved 75% over the last 30 days. The stock price has climbed 13.8% year to date.


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JAKKS Pacific, Inc. (JAKK) : Free Stock Analysis Report

United Fire Group, Inc (UFCS) : Free Stock Analysis Report

Timken Steel Corporation (TMST) : Free Stock Analysis Report

USA Truck, Inc. (USAK) : Free Stock Analysis Report

Assertio Holdings, Inc. (ASRT) : Free Stock Analysis Report

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Zacks Investment Research