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Small Cap Momentum: 3 Top Ranked Stocks Crushing the Market
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Regular readers of my writeups know that I am a huge fan of trading momentum stocks, as momentum is one of the market’s premier anomalies. But when investors combine momentum with the Zacks Rank, they really get something special.
By using the Zacks Stock Screening tool, I have filtered for the stocks with the strongest three-month momentum. I also focused the results on stocks with five-year sales growth greater than 15% annually and stocks with either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) rating.
In this article I cover three top-ranked stocks – Sezzle Inc. ((SEZL - Free Report) ), Freightcar America ((RAIL - Free Report) ) and Lifeway Foods ((LWAY - Free Report) ), which have all massively outperformed the market over the past three months. It should be noted that trading high growth, small-cap momentum stocks is not for the faint of heart, as they can have extremely high volatility. However, for those who are comfortable managing the risk, the reward can be more than worth it.
Image Source: Zacks Investment Research
Sezzle Inc: Fintech Growth Stock
Sezzle Inc. is a financial technology company that provides a "Buy Now, Pay Later" (BNPL) service, allowing consumers to make purchases and pay for them in interest-free installments. Sezzle partners with various retailers to offer flexible payment solutions, making it easier for customers to manage their cash flow while driving sales for merchants. Sezzle Inc. is a newer stock that started trading on public exchanges last summer following a direct listing rather than an IPO.
Sezzle Inc’s business is growing like a weed and sales are projected to grow 38.6% this year and 31.1% next year. Earnings are also forecast to rocket higher, with analysts expecting profits to climb 437% this year and 50.5% next year. And earnings estimates are on the rise, with analysts boosting FY24 EPS by 37.2% and FY25 EPS by 43.5% in the last two months, giving SEZL a Zacks Rank #1 (Strong Buy) rating.
Even with the tremendous price appreciation SEZL stock has seen in the last three months, the company is still trading at a reasonable valuation thanks to the huge growth in earnings. Today, Sezzle Inc. is trading at a one year forward earnings multiple of 24.4x, which is in line with the market average and seems to be a discount for a company with such strong growth forecasts.
Image Source: Zacks Investment Research
Freightcar America: Incredible Momentum
Freightcar America, Inc. is a leading manufacturer of railcars in North America, specializing in the production of aluminum-bodied and steel-bodied railcars for various freight transportation needs. The company designs and builds a wide range of railcar types, including open and covered hoppers, gondolas, and intermodal platforms, serving industries like agriculture, mining, and energy. Headquartered in Chicago, Illinois, Freightcar America has a long history in railcar manufacturing, known for its innovation and quality.
Freightcar America holds a Zacks Rank #2 (Buy), reflecting a strong upward trend in earnings revisions. Fiscal year 2024 earnings estimates have increased by 8.7%, while fiscal year 2025 estimates are up by an impressive 65.1%. Revenue is expected to surge 65.5% this year, while earnings are projected to grow 164% this year and 184% next year, showcasing the company's robust growth trajectory. Furthermore, Freightcar America is attractively valued, trading at just 15.2x its FY25 earnings.
If RAIL stock can break out from this bull flag, I would not be surprised to see it start another aggressive rally. Watch for trading above the $11.40 level to signal a breakout. However, if the stock loses the $9.70 level of support it may be worth waiting for another opportunity.
Image Source: TradingView
Lifeway Foods: Stock Breakout and Growing Profits
Lifeway Foods is a leading US producer of kefir, a fermented dairy product rich in probiotics. The company's offerings include various kefir drinks, plant-based probiotic beverages, and other cultured dairy products, which promote gut health and immune support. Lifeway is known for its commitment to quality ingredients and innovative flavors, helping to grow the kefir market in North America.
I am personally a regular consumer of kefir, and Lifeway Foods is by far my favorite producer of the drink. It seems many others have caught on as well. Sales are expected to grow 25% this year and 15.1% next year, while earnings are projected to climb 32% and 54% over the same periods. LWAY also boasts a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions. FY24 earnings estimates have increased by 23.8% and FY25 by 24.4% in the last two months.
The technical picture on Lifeway Foods stock is also quite compelling. After gapping higher a week ago, the price action has formed a tight bull flag, indicating another breakout may soon be possible. If the stock can trade above the $26.50 level, it would signal a breakout and likely send the stock higher again. Alternatively, if LWAY stock loses the $25.50 level of support, it may be prudent to look for other opportunities.
Image Source: TradingView
Should Investors Buy SEZL, RAIL and LWAY Shares?
These three small-cap stocks are benefiting from strong momentum and positive earnings revisions, which have led to significant price gains over the past few months.
That said, trading these small-cap growth stocks requires a risk-tolerant approach, given their potential for high volatility. For investors comfortable managing such risks, the growth prospects and momentum indicators present a compelling opportunity. Watching for key technical levels can help identify optimal entry points, but investors should remain cautious and ready to exit if these stocks fall below critical support levels.
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Small Cap Momentum: 3 Top Ranked Stocks Crushing the Market
Regular readers of my writeups know that I am a huge fan of trading momentum stocks, as momentum is one of the market’s premier anomalies. But when investors combine momentum with the Zacks Rank, they really get something special.
By using the Zacks Stock Screening tool, I have filtered for the stocks with the strongest three-month momentum. I also focused the results on stocks with five-year sales growth greater than 15% annually and stocks with either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) rating.
In this article I cover three top-ranked stocks – Sezzle Inc. ((SEZL - Free Report) ), Freightcar America ((RAIL - Free Report) ) and Lifeway Foods ((LWAY - Free Report) ), which have all massively outperformed the market over the past three months. It should be noted that trading high growth, small-cap momentum stocks is not for the faint of heart, as they can have extremely high volatility. However, for those who are comfortable managing the risk, the reward can be more than worth it.
Image Source: Zacks Investment Research
Sezzle Inc: Fintech Growth Stock
Sezzle Inc. is a financial technology company that provides a "Buy Now, Pay Later" (BNPL) service, allowing consumers to make purchases and pay for them in interest-free installments. Sezzle partners with various retailers to offer flexible payment solutions, making it easier for customers to manage their cash flow while driving sales for merchants. Sezzle Inc. is a newer stock that started trading on public exchanges last summer following a direct listing rather than an IPO.
Sezzle Inc’s business is growing like a weed and sales are projected to grow 38.6% this year and 31.1% next year. Earnings are also forecast to rocket higher, with analysts expecting profits to climb 437% this year and 50.5% next year. And earnings estimates are on the rise, with analysts boosting FY24 EPS by 37.2% and FY25 EPS by 43.5% in the last two months, giving SEZL a Zacks Rank #1 (Strong Buy) rating.
Even with the tremendous price appreciation SEZL stock has seen in the last three months, the company is still trading at a reasonable valuation thanks to the huge growth in earnings. Today, Sezzle Inc. is trading at a one year forward earnings multiple of 24.4x, which is in line with the market average and seems to be a discount for a company with such strong growth forecasts.
Image Source: Zacks Investment Research
Freightcar America: Incredible Momentum
Freightcar America, Inc. is a leading manufacturer of railcars in North America, specializing in the production of aluminum-bodied and steel-bodied railcars for various freight transportation needs. The company designs and builds a wide range of railcar types, including open and covered hoppers, gondolas, and intermodal platforms, serving industries like agriculture, mining, and energy. Headquartered in Chicago, Illinois, Freightcar America has a long history in railcar manufacturing, known for its innovation and quality.
Freightcar America holds a Zacks Rank #2 (Buy), reflecting a strong upward trend in earnings revisions. Fiscal year 2024 earnings estimates have increased by 8.7%, while fiscal year 2025 estimates are up by an impressive 65.1%. Revenue is expected to surge 65.5% this year, while earnings are projected to grow 164% this year and 184% next year, showcasing the company's robust growth trajectory. Furthermore, Freightcar America is attractively valued, trading at just 15.2x its FY25 earnings.
If RAIL stock can break out from this bull flag, I would not be surprised to see it start another aggressive rally. Watch for trading above the $11.40 level to signal a breakout. However, if the stock loses the $9.70 level of support it may be worth waiting for another opportunity.
Image Source: TradingView
Lifeway Foods: Stock Breakout and Growing Profits
Lifeway Foods is a leading US producer of kefir, a fermented dairy product rich in probiotics. The company's offerings include various kefir drinks, plant-based probiotic beverages, and other cultured dairy products, which promote gut health and immune support. Lifeway is known for its commitment to quality ingredients and innovative flavors, helping to grow the kefir market in North America.
I am personally a regular consumer of kefir, and Lifeway Foods is by far my favorite producer of the drink. It seems many others have caught on as well. Sales are expected to grow 25% this year and 15.1% next year, while earnings are projected to climb 32% and 54% over the same periods. LWAY also boasts a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions. FY24 earnings estimates have increased by 23.8% and FY25 by 24.4% in the last two months.
The technical picture on Lifeway Foods stock is also quite compelling. After gapping higher a week ago, the price action has formed a tight bull flag, indicating another breakout may soon be possible. If the stock can trade above the $26.50 level, it would signal a breakout and likely send the stock higher again. Alternatively, if LWAY stock loses the $25.50 level of support, it may be prudent to look for other opportunities.
Image Source: TradingView
Should Investors Buy SEZL, RAIL and LWAY Shares?
These three small-cap stocks are benefiting from strong momentum and positive earnings revisions, which have led to significant price gains over the past few months.
That said, trading these small-cap growth stocks requires a risk-tolerant approach, given their potential for high volatility. For investors comfortable managing such risks, the growth prospects and momentum indicators present a compelling opportunity. Watching for key technical levels can help identify optimal entry points, but investors should remain cautious and ready to exit if these stocks fall below critical support levels.