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5 Small Hidden Gems to Pick From a Volatile Wall Street
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Wall Street is witnessing volatile trading since mid-February following several measures of inflation that edged up in January after three consecutive months of decline. Market participants are worried that the Fed will pursue a higher interest rate regime and tighter monetary control for longer than expected.
A section of market participants now expects the central bank to raise the interest rate by at least 1% in 2023 with the possibility of another 50-basis point hike in the March FOMC meeting. A rigorous hike in interest rates with tighter monetary control is likely to result in a recession.
Small Businesses Suffer the Most
Small business operators are most susceptible to recession. The major issue for U.S. small businesses is galloping inflation, which is currently well above the Fed’s target rate of 2%. The global breakdown of supply-chain systems due to the pandemic and the shortage of manpower has 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.
Small businesses are major sufferers of a higher interest rate regime. These companies operate on a thin profit margin and most new businesses take time to achieve profitability. Moreover, small businesses, have no geographical diversification and depends on U.S. consumers. Therefore, a slowdown in U.S. consumer spending is likely to hurt small industries the most.
Positive Developments
The National Federation of Independent Business said in its last report that its Small Business Optimism Index went up to 90.3 in January of 2023 from a six-month low of 89.9 in December. However, the metric is still well below its 49-year average of 98. The proportion of owners expecting better business conditions over the next six months increased by six points in January.
On Feb 1, in its February FOMC meeting, the Fed also reduced the magnitude of interest rate hike by 25 basis points to the range of 4.50% to 4.75%. At present, per the CME FedWatch, there exists a 72.3% probability that the central bank will maintain 25 basis-points rate hike in the March FOMC. The minutes of the Fed’s February FOMC meeting revealed that a substantial majority of Fed officials favor reducing the magnitude of the interest rate hike going forward.
Fundamentals of the U.S. economy remain solid. The labor market has seen massive job addition in January. Retail sales jumped in January and industrial production remained stable. The ISM manufacturing and services indexes increased in January. Therefore, the Fed may fulfill its soft-landing commitment.
Our Top Picks
We have narrowed our search to five small-cap (market capital < $1 billion) stocks that have provided around 20% returns year to date. These stocks have strong growth potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 30 days.
Moreover, these companies are regular dividend payers that will act as an income stream in a volatile market. 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.
Image Source: Zacks Investment Research
Universal Insurance Holdings Inc. (UVE - Free Report) operates as an integrated insurance holding company in the United States. UVE is engaged in insurance underwriting, distribution and claims settlement. Universal Insurance generates revenues from the collection and investment of premiums.
UVE’s agency operations which include Universal Florida Insurance Agency and U.S. Insurance Solutions Inc. generate income from policy fees, commissions, premium financing referral fees and the marketing of ancillary services.
Universal Insurance has expected revenue and earnings growth rates of 10.7% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10% over the last seven days. The stock price of UVE has soared 81.8% year to date. The stock has a current dividend yield of 3.40%.
HireQuest Inc. (HQI - Free Report) provides temporary staffing solutions in the United States. HQI provides temporary staffing services, including skilled and semi-skilled labor and industrial personnel, clerical and administrative personnel, and construction personnel. In addition, HireQuest specializes in commercial drivers.
HQI serves customers primarily in the construction, industrial/manufacturing, warehousing, hospitality, recycling/waste management, disaster recovery, logistics, auctioneering, construction, landscaping, and retail industries.
HireQuest has an expected revenue and earnings growth rate of 29.4% and 35.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the last 30 days. The stock price of HQI has jumped 44.5% year to date. The stock has a current dividend yield of 1.06%.
United Bancorporation of Alabama Inc. (UBAB - Free Report) offers checking and savings accounts, certificates of deposit, individual retirement accounts, small business programs, business solutions, merchant services, and cash management services. UBAB also provides various lending services, such as personal loans, business loans, lines of credit, and equipment loans; real estate loans for the agricultural community, agribusiness loans, and working lines of credit; and overdraft services.
In addition, United Bancorporation of Alabama offers debit cards, prepaid cards, Visa credit cards, gift cards, and safe deposit boxes. Further, UBAB provides check cashing, convenience, reorder checks, remote deposit, mobile check deposit, personal storage compartments, Web payment options, insurance products, investment and brokerage, and online and mobile banking services.
United Bancorporation of Alabama has an expected revenue and earnings growth rate of 12.2% and 8.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 37% over the last 30 days. The stock price of UBAB has surged 22.2% year to date. UBAB has a current dividend yield of 1.02%.
Bluegreen Vacations Holding Corp. operates as a vacation ownership company. BVH markets and sells vacation ownership interests (VOI), and manages resorts in leisure and urban destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston and New Orleans, and others.
BVH also provides resort management, mortgage, title, reservation, and construction design and development services; and financing to qualified VOI purchasers and management services to the vacation club and homeowners' associations.
Bluegreen Vacations has an expected revenue and earnings growth rate of 0.2% and 10.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 30 days. The stock price of BVH has climbed 32.2% year to date. The stock has a current dividend yield of 1.84%.
Central Valley Community Bancorp operates as the bank holding company for the Central Valley Community Bank that provides various commercial banking services to small and middle-market businesses and individuals in the central valley area of California.
CVCY accepts demand, savings, and time deposits; certificates of deposit; and non-interest-bearing demand deposits, as well as provides NOW and money market accounts. CVCY’s loan products include commercial and industrial loans, loans secured by crop production and livestock, owner-occupied and investor commercial real estate, real estate construction and other land, agricultural real estate, and other real estate loans, equity loans and lines of credit, and installment and other consumer loans.
Central Valley Community has an expected revenue and earnings growth rate of 11.3% and 15.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days. The stock price of CVCY has advanced 19.4% year to date. The stock has a current dividend yield of 1.88%.
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5 Small Hidden Gems to Pick From a Volatile Wall Street
Wall Street is witnessing volatile trading since mid-February following several measures of inflation that edged up in January after three consecutive months of decline. Market participants are worried that the Fed will pursue a higher interest rate regime and tighter monetary control for longer than expected.
A section of market participants now expects the central bank to raise the interest rate by at least 1% in 2023 with the possibility of another 50-basis point hike in the March FOMC meeting. A rigorous hike in interest rates with tighter monetary control is likely to result in a recession.
Small Businesses Suffer the Most
Small business operators are most susceptible to recession. The major issue for U.S. small businesses is galloping inflation, which is currently well above the Fed’s target rate of 2%. The global breakdown of supply-chain systems due to the pandemic and the shortage of manpower has 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.
Small businesses are major sufferers of a higher interest rate regime. These companies operate on a thin profit margin and most new businesses take time to achieve profitability. Moreover, small businesses, have no geographical diversification and depends on U.S. consumers. Therefore, a slowdown in U.S. consumer spending is likely to hurt small industries the most.
Positive Developments
The National Federation of Independent Business said in its last report that its Small Business Optimism Index went up to 90.3 in January of 2023 from a six-month low of 89.9 in December. However, the metric is still well below its 49-year average of 98. The proportion of owners expecting better business conditions over the next six months increased by six points in January.
On Feb 1, in its February FOMC meeting, the Fed also reduced the magnitude of interest rate hike by 25 basis points to the range of 4.50% to 4.75%. At present, per the CME FedWatch, there exists a 72.3% probability that the central bank will maintain 25 basis-points rate hike in the March FOMC. The minutes of the Fed’s February FOMC meeting revealed that a substantial majority of Fed officials favor reducing the magnitude of the interest rate hike going forward.
Fundamentals of the U.S. economy remain solid. The labor market has seen massive job addition in January. Retail sales jumped in January and industrial production remained stable. The ISM manufacturing and services indexes increased in January. Therefore, the Fed may fulfill its soft-landing commitment.
Our Top Picks
We have narrowed our search to five small-cap (market capital < $1 billion) stocks that have provided around 20% returns year to date. These stocks have strong growth potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 30 days.
Moreover, these companies are regular dividend payers that will act as an income stream in a volatile market. 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.
Image Source: Zacks Investment Research
Universal Insurance Holdings Inc. (UVE - Free Report) operates as an integrated insurance holding company in the United States. UVE is engaged in insurance underwriting, distribution and claims settlement. Universal Insurance generates revenues from the collection and investment of premiums.
UVE’s agency operations which include Universal Florida Insurance Agency and U.S. Insurance Solutions Inc. generate income from policy fees, commissions, premium financing referral fees and the marketing of ancillary services.
Universal Insurance has expected revenue and earnings growth rates of 10.7% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10% over the last seven days. The stock price of UVE has soared 81.8% year to date. The stock has a current dividend yield of 3.40%.
HireQuest Inc. (HQI - Free Report) provides temporary staffing solutions in the United States. HQI provides temporary staffing services, including skilled and semi-skilled labor and industrial personnel, clerical and administrative personnel, and construction personnel. In addition, HireQuest specializes in commercial drivers.
HQI serves customers primarily in the construction, industrial/manufacturing, warehousing, hospitality, recycling/waste management, disaster recovery, logistics, auctioneering, construction, landscaping, and retail industries.
HireQuest has an expected revenue and earnings growth rate of 29.4% and 35.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the last 30 days. The stock price of HQI has jumped 44.5% year to date. The stock has a current dividend yield of 1.06%.
United Bancorporation of Alabama Inc. (UBAB - Free Report) offers checking and savings accounts, certificates of deposit, individual retirement accounts, small business programs, business solutions, merchant services, and cash management services. UBAB also provides various lending services, such as personal loans, business loans, lines of credit, and equipment loans; real estate loans for the agricultural community, agribusiness loans, and working lines of credit; and overdraft services.
In addition, United Bancorporation of Alabama offers debit cards, prepaid cards, Visa credit cards, gift cards, and safe deposit boxes. Further, UBAB provides check cashing, convenience, reorder checks, remote deposit, mobile check deposit, personal storage compartments, Web payment options, insurance products, investment and brokerage, and online and mobile banking services.
United Bancorporation of Alabama has an expected revenue and earnings growth rate of 12.2% and 8.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 37% over the last 30 days. The stock price of UBAB has surged 22.2% year to date. UBAB has a current dividend yield of 1.02%.
Bluegreen Vacations Holding Corp. operates as a vacation ownership company. BVH markets and sells vacation ownership interests (VOI), and manages resorts in leisure and urban destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston and New Orleans, and others.
BVH also provides resort management, mortgage, title, reservation, and construction design and development services; and financing to qualified VOI purchasers and management services to the vacation club and homeowners' associations.
Bluegreen Vacations has an expected revenue and earnings growth rate of 0.2% and 10.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 30 days. The stock price of BVH has climbed 32.2% year to date. The stock has a current dividend yield of 1.84%.
Central Valley Community Bancorp operates as the bank holding company for the Central Valley Community Bank that provides various commercial banking services to small and middle-market businesses and individuals in the central valley area of California.
CVCY accepts demand, savings, and time deposits; certificates of deposit; and non-interest-bearing demand deposits, as well as provides NOW and money market accounts. CVCY’s loan products include commercial and industrial loans, loans secured by crop production and livestock, owner-occupied and investor commercial real estate, real estate construction and other land, agricultural real estate, and other real estate loans, equity loans and lines of credit, and installment and other consumer loans.
Central Valley Community has an expected revenue and earnings growth rate of 11.3% and 15.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days. The stock price of CVCY has advanced 19.4% year to date. The stock has a current dividend yield of 1.88%.