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5 Small-Cap Stocks to Buy on Russell 2000's Newfound Strength

Tirthankar Chakraborty
·4-min read

By and large, small-cap stocks are lagging behind large-cap stocks this year. However, since June, the Russell 2000 index that predominantly tracks U.S. small-cap stocks is now playing catch up with the broader S&P 500, and the tech-laden Nasdaq. Lest we forget, the large-cap stocks scaled northward mostly due to an AI-led boom in tech stocks.

But such gains among tech stocks are overblown, and their valuations certainly look stretched. Also, large-cap stocks in particular are taking a beating at the moment due to the recent banking sector turmoil and fears of an imminent recession.

Conversely, the Russell 2000 index is well below its recent peak, indicating more room to run upward. The Russell 2000 index has jumped 7.5% so far in June, while it gained nearly 7% year to date. The gauge of small-cap stocks, in reality, recently closed above the 50-day moving average, indicative of an upward trend in the index.

Investors have begun pouring money into small-cap stocks as they are confident about the present state of the economy, and are to a great extent looking beyond the big-tech boom. Since small-cap stocks’ larger portion of revenues is tied to the domestic economy, these gained strength after a much stronger-than-anticipated increase in May’s nonfarm payroll.

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The Labor Department stated that 339,000 new jobs were added to the U.S. economy in May, more than analysts’ forecast of 195,000 job additions. For the month of March and April, job additions were also revised upward. The U.S. economy posted positive job growth for the 29th month in a row in May.

The jobless rate may have increased from a five-decade low but continues to hover below the coveted 4%-mark, a tell-tale sign that the labor market remains resilient (read more: 5 Stocks to Gain From Stunning Jobs Growth in May).

Thus, banking on the recent strength of the economy, small caps, having a larger domestic focus, are poised to perform well relative to large caps that are subjected to more geopolitical risks. We have, thus, highlighted five small-cap stocks that are well-positioned to capitalize on the broader rally, and scale upward.

These stocks currently possess a Zacks Rank #1 (Strong Buy) or 2 (Buy).  The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Viant Technology DSP is an advertising software company that enables marketers and their advertising agencies to plan, buy and measure their advertising.

Viant Technology has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 30.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 57.1%.

Chuy's CHUY owns and operates full-service restaurants serving a distinct menu of authentic Mexican food.

Chuy's has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 4.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 24.8%.

Lifetime Brands LCUT is a leading designer, marketer, and distributor of kitchenware, cutlery & cutting boards, bakeware & cookware, pantry ware & spices, tabletop, and bath accessories.

Lifetime Brands has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 9.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 93.6%.

Midwest Holding MDWT is focused on providing technology-enabled and services-oriented solutions to distributors and reinsurers of annuity and life insurance products, principally in the United States.

Midwest Holding has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 138.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 549.3%.

Oxford Square Capital OXSQ is a business development company principally investing in syndicated bank loans and debt and equity tranches of CLO vehicles.

Oxford Square Capital has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 12.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 26.2%.

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Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report

Lifetime Brands, Inc. (LCUT) : Free Stock Analysis Report

Oxford Square Capital Corp. (OXSQ) : Free Stock Analysis Report

Midwest Holding Inc. (MDWT) : Free Stock Analysis Report

Viant Technology Inc. (DSP) : Free Stock Analysis Report

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