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Rotation Trade May Prompt Stock Gains for AMPY, GLDD, TREE
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At the moment, renewed interest in smaller domestic firms has led to a rotation out of mega-cap technology companies that had dominated gains in Wall Street. Interest rate cut prospects sparked off by falling inflation ignited a long-awaited rally among small-cap stocks that not only raised interest among individual investors but also billionaires like Stanley Druckenmiller.
This calls for investors to place their bets on growth-oriented small-cap stocks such as Amplify Energy Corp. (AMPY - Free Report) , Great Lakes Dredge & Dock Corporation (GLDD - Free Report) and LendingTree, Inc. (TREE - Free Report) for stellar returns.
Big Tech Lose Their Appeal
Market participants have recently begun to move out of the favored tech behemoths, or the so-called Magnificent Seven stocks, which have mostly fueled the market rally over the past year. The group, which consists of mega-caps such as NVIDIA, Alphabet, Microsoft, Meta Platforms, Apple, Amazon and Tesla has contributed to more than half of the broader S&P 500’s return in the past year.
However, these stocks have started to wobble as investors remain jittery about their stretched valuations and are drawing comparisons to the dot-com bubble. They believe that AI-driven revolutionary technology has primarily inflated the price of these mega-cap tech stocks, making them a risky bet for now.
Small Caps Are Now Wall Street Darlings
In a dramatic market shift, investors favored small-cap companies and other earlier detested sectors, including energy, real estate and finance. Small-cap stocks, in particular, have gained prominence as interest rate cut expectations increased.
With consumer price pressures ebbing amid a contraction in both manufacturing and service sector activity in June, the odds of a Fed rate cut as early as fall rise. The CME FedWatch Tool presently shows that 91.7% of market participants expect the Fed to trim interest rates by a quarter-point in the September policy meeting, up from a probability of 52% a month ago (read more: Rise in Rate-Cut Bets May Prompt Stock Gains for GOLD, KGC, FNV).
Interest rate cuts, nonetheless, are a blessing in disguise for small caps. This is because any interest rate hike impacts small caps more than large caps due to a weaker balance sheet and higher debt levels. Notably, small caps have suffered for quite some time as the Fed kept its interest rates elevated to tame relentless inflationary pressure.
Meanwhile, Donald Trump’s improving prospects in the presidential race bolstered a small-cap rally since some of his policies, such as increasing tariffs and reducing taxes, bode well for smaller companies. Likewise, the Russell 2000 Index, which predominantly comprises small-cap stocks, has gained more than 6% month to date. However, the small-cap index continues to remain below its 2021 peak, a tell-tale sign that it has more room to scale upward.
Druckenmiller is Making a Bet on Small Caps
Billionaire investor, Druckenmiller was successful in predicting the unprecedented NVIDIA Corporation (NVDA - Free Report) stock rally. He bought several shares of NVIDIA at the end of 2022 and sold many of them at the beginning of 2024 not before he made mammoth gains.
Similarly, Druckenmiller has now raised his bets on small caps, with the May filings showing that his Duquesne Family Office has acquired stakes in iShares Russell 2000 ETF (IWM - Free Report) , an indication that not only retail investors but also billionaires are hopeful about a small-cap rally soon. IWM has gained a solid 8% so far this year.
3 Small Cap Stocks Set to Rally Hard: AMPY, GLDD, TREE
Given the positives, it’s judicious for astute investors to place bets on small-cap growth stocks like Amplify Energy, Great Lakes Dredge & Dock and LendingTree. These stocks have a Zacks Rank #1 (Strong Buy) and a Growth Score of A or B, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks Rank #1 stocks here.
Amplify Energy
Amplify Energy is an oil and natural gas company. Amplify Energy has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 17.4% over the last 60 days. The company’s expected earnings growth rate for the current and next quarters are 41.7% and 214.7%, respectively.
Great Lakes Dredge & Dock
Great Lakes Dredge & Dock is the largest provider of dredging services in the United States. Great Lakes Dredge & Dock has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 24.1% over the last 90 days. The company’s expected earnings growth rate for the current year is 414.3%.
LendingTree
LendingTree operates an online consumer platform in the United States. LendingTree has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 0.8% over the last 60 days. The company’s expected earnings growth rate for the current year is 18%.
Shares of Amplify Energy, Great Lakes Dredge & Dock, and LendingTree have gained 23.4%, 21.6%, and 73.2%, respectively, year to date.
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Rotation Trade May Prompt Stock Gains for AMPY, GLDD, TREE
At the moment, renewed interest in smaller domestic firms has led to a rotation out of mega-cap technology companies that had dominated gains in Wall Street. Interest rate cut prospects sparked off by falling inflation ignited a long-awaited rally among small-cap stocks that not only raised interest among individual investors but also billionaires like Stanley Druckenmiller.
This calls for investors to place their bets on growth-oriented small-cap stocks such as Amplify Energy Corp. (AMPY - Free Report) , Great Lakes Dredge & Dock Corporation (GLDD - Free Report) and LendingTree, Inc. (TREE - Free Report) for stellar returns.
Big Tech Lose Their Appeal
Market participants have recently begun to move out of the favored tech behemoths, or the so-called Magnificent Seven stocks, which have mostly fueled the market rally over the past year. The group, which consists of mega-caps such as NVIDIA, Alphabet, Microsoft, Meta Platforms, Apple, Amazon and Tesla has contributed to more than half of the broader S&P 500’s return in the past year.
However, these stocks have started to wobble as investors remain jittery about their stretched valuations and are drawing comparisons to the dot-com bubble. They believe that AI-driven revolutionary technology has primarily inflated the price of these mega-cap tech stocks, making them a risky bet for now.
Small Caps Are Now Wall Street Darlings
In a dramatic market shift, investors favored small-cap companies and other earlier detested sectors, including energy, real estate and finance. Small-cap stocks, in particular, have gained prominence as interest rate cut expectations increased.
With consumer price pressures ebbing amid a contraction in both manufacturing and service sector activity in June, the odds of a Fed rate cut as early as fall rise. The CME FedWatch Tool presently shows that 91.7% of market participants expect the Fed to trim interest rates by a quarter-point in the September policy meeting, up from a probability of 52% a month ago (read more: Rise in Rate-Cut Bets May Prompt Stock Gains for GOLD, KGC, FNV).
Interest rate cuts, nonetheless, are a blessing in disguise for small caps. This is because any interest rate hike impacts small caps more than large caps due to a weaker balance sheet and higher debt levels. Notably, small caps have suffered for quite some time as the Fed kept its interest rates elevated to tame relentless inflationary pressure.
Meanwhile, Donald Trump’s improving prospects in the presidential race bolstered a small-cap rally since some of his policies, such as increasing tariffs and reducing taxes, bode well for smaller companies. Likewise, the Russell 2000 Index, which predominantly comprises small-cap stocks, has gained more than 6% month to date. However, the small-cap index continues to remain below its 2021 peak, a tell-tale sign that it has more room to scale upward.
Druckenmiller is Making a Bet on Small Caps
Billionaire investor, Druckenmiller was successful in predicting the unprecedented NVIDIA Corporation (NVDA - Free Report) stock rally. He bought several shares of NVIDIA at the end of 2022 and sold many of them at the beginning of 2024 not before he made mammoth gains.
Similarly, Druckenmiller has now raised his bets on small caps, with the May filings showing that his Duquesne Family Office has acquired stakes in iShares Russell 2000 ETF (IWM - Free Report) , an indication that not only retail investors but also billionaires are hopeful about a small-cap rally soon. IWM has gained a solid 8% so far this year.
3 Small Cap Stocks Set to Rally Hard: AMPY, GLDD, TREE
Given the positives, it’s judicious for astute investors to place bets on small-cap growth stocks like Amplify Energy, Great Lakes Dredge & Dock and LendingTree. These stocks have a Zacks Rank #1 (Strong Buy) and a Growth Score of A or B, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks Rank #1 stocks here.
Amplify Energy
Amplify Energy is an oil and natural gas company. Amplify Energy has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 17.4% over the last 60 days. The company’s expected earnings growth rate for the current and next quarters are 41.7% and 214.7%, respectively.
Great Lakes Dredge & Dock
Great Lakes Dredge & Dock is the largest provider of dredging services in the United States. Great Lakes Dredge & Dock has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 24.1% over the last 90 days. The company’s expected earnings growth rate for the current year is 414.3%.
LendingTree
LendingTree operates an online consumer platform in the United States. LendingTree has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings increased 0.8% over the last 60 days. The company’s expected earnings growth rate for the current year is 18%.
Shares of Amplify Energy, Great Lakes Dredge & Dock, and LendingTree have gained 23.4%, 21.6%, and 73.2%, respectively, year to date.
Image Source: Zacks Investment Research