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5 Best Small-Cap Stocks to Benefit From Interest Rate Cuts
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On Friday, in his speech at the Fed’s Jackson Hole Economic Policy Symposium, Chairman Jerome Powell signaled the first reduction in the benchmark interest rate since March 2020. The Fed fund rate is currently in the range of 5.25-5.5%, its highest level in 23 years.
Although Powell refrained from announcing the time and the extent of the rate cut, Wall Street expects the first cut in the September FOMC meeting. A rate cut is likely to benefit small-cap stocks the most, aside from large-caps.
At this stage, investment in small-cap stocks that have strong momentum along with a favorable Zacks Rank should be prudent. Five such stocks are Fulcrum Therapeutics Inc. (FULC - Free Report) , Heritage Insurance Holdings Inc. (HRTG - Free Report) , Latham Group Inc. (SWIM - Free Report) , Seanergy Maritime Holdings Corp. (SHIP - Free Report) and BrainsWay Ltd. (BWAY - Free Report) .
Powell Signals Rate Cut
“The time has come for policy to adjust," Powell said in his speech. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The central bank aggressively initiated a series of 11 rate hikes from March 2022 through July 2023. This policy was necessary to combat an elevating inflation rate, which, in June 2022, climbed to a 40-year high level.
Since the beginning of 2024, market participants have been speculating about the date and magnitude of the first rate cut. However, the Fed delayed the first cut as it was not sure about inflation’s gradual declining trajectory and a resilient labor market.
At Jackson Hole, Powell said, “Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic. Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”
Small-Cap Stocks to Benefit the Most
Since the onset of the COVID-19 pandemic in March 2020, small businesses have suffered a lot. During the pandemic era, the main concern was demand, as social distancing resulted in a slowdown in U.S. consumer spending, which hurt this segment. The global breakdown of supply-chain systems and the shortage of manpower affected these companies the most.
After the pandemic, the major issue for U.S. small businesses was galloping inflation. This space suffered significantly due to a higher interest rate regime. These companies operate on a thin profit margin, and most new businesses take time to achieve profitability.
Small businesses are unable to pass on the total hike in input costs to their final products, which takes a toll their financial condition. Moreover, these companies have no geographical diversification and depend on U.S. consumers.
Small-cap stocks are generally dependent on cheap sources of credit for their survival. Therefore, a gradual decline of the benchmark interest rate will help this space immensely.
Our Picks for Best Small-Cap Stocks
We have narrowed our search to five small-cap stocks that have strong momentum even after providing handsome returns year to date. These stocks have seen positive earnings estimate revisions in the past 30 days. Each of our picks currently sports a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A. 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
Fulcrum Therapeutics Inc.
Fulcrum is a clinical-stage biopharmaceutical company, focused on developing products for improving the lives of patients with genetically defined diseases in the areas of high unmet medical need in the United States.
FULC’s product candidates include losmapimod, a small molecule for the treatment of facioscapulohumeral muscular dystrophy under phase III clinical trial, and pociredir, a fetal hemoglobin inducer for the treatment of sickle cell disease and beta-thalassemia is under phase I clinical trial.
FULC is also discovering drug targets for the treatments of rare neuromuscular, muscular, central nervous system, and hematologic disorders, as well as cardiomyopathies and pulmonary diseases.
Fulcrum Therapeutics has an expected revenue and earnings growth rate of more than 100% and 69.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 30 days.
Heritage Insurance Holdings Inc.
Heritage Insurance provides personal and commercial residential insurance products in the United States. HRTG also provides restoration, emergency, and recovery services, property management, and reinsurance services, homeowners insurance products, including single-family, homeowners or duplex, and condominium owners; and dwelling fire insurance policies.
In addition, HRTG offers personal line policies through a network of retail independent agents, wholesale agents, and a partnership with a direct agency, as well as distribute indirectly to retail locations through wholesale agency relationships.
Heritage Insurance has an expected revenue and earnings growth rate of 11.2% and 10.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 33.1% over the past 30 days.
Latham Group Inc.
Lathan Group designs, manufactures, and markets in-ground residential swimming pools in North America, Australia, and New Zealand. SWIM offers a portfolio of pools and related products, including in-ground swimming pools that include fiber glass and packaged pools, and pool covers and liners under the Latham, Narellan, CoverStar, Radiant, and GLI brand names.
Lathan Group has an expected revenue and earnings growth rate of 5.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 30 days.
Seanergy Maritime Holdings Corp.
Seanergy Maritime Holdings is a prominent pure-play Capesize ship owner that provides marine dry bulk transportation services through a modern fleet of Capesize vessels. SHIP’s operating fleet consists of Capesize dry bulk vessels and Newcastlemax dry bulk vessels.
Seanergy Maritime Holdings has an expected revenue and earnings growth rate of 48.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 30 days.
BrainsWay Ltd.
BrainsWay develops and sells noninvasive neurostimulation treatments for mental health disorders in the United States and internationally. BWAY serves doctors, hospitals, and medical centers in the field of psychiatry.
BWAY offers Deep Transcranial Magnetic Stimulation platform technology for the treatment of major depressive disorders, anxious depression, obsessive-compulsive disorders, smoking addiction, bipolar disorders, post-traumatic stress disorders, schizophrenia, Alzheimer's disease, autism, chronic pain, multiple sclerosis, post-stroke rehabilitation, and Parkinson's diseases.
BrainsWay has an expected revenue and earnings growth rate of 24.2% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 30 days.
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5 Best Small-Cap Stocks to Benefit From Interest Rate Cuts
On Friday, in his speech at the Fed’s Jackson Hole Economic Policy Symposium, Chairman Jerome Powell signaled the first reduction in the benchmark interest rate since March 2020. The Fed fund rate is currently in the range of 5.25-5.5%, its highest level in 23 years.
Although Powell refrained from announcing the time and the extent of the rate cut, Wall Street expects the first cut in the September FOMC meeting. A rate cut is likely to benefit small-cap stocks the most, aside from large-caps.
At this stage, investment in small-cap stocks that have strong momentum along with a favorable Zacks Rank should be prudent. Five such stocks are Fulcrum Therapeutics Inc. (FULC - Free Report) , Heritage Insurance Holdings Inc. (HRTG - Free Report) , Latham Group Inc. (SWIM - Free Report) , Seanergy Maritime Holdings Corp. (SHIP - Free Report) and BrainsWay Ltd. (BWAY - Free Report) .
Powell Signals Rate Cut
“The time has come for policy to adjust," Powell said in his speech. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The central bank aggressively initiated a series of 11 rate hikes from March 2022 through July 2023. This policy was necessary to combat an elevating inflation rate, which, in June 2022, climbed to a 40-year high level.
Since the beginning of 2024, market participants have been speculating about the date and magnitude of the first rate cut. However, the Fed delayed the first cut as it was not sure about inflation’s gradual declining trajectory and a resilient labor market.
At Jackson Hole, Powell said, “Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic. Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”
Small-Cap Stocks to Benefit the Most
Since the onset of the COVID-19 pandemic in March 2020, small businesses have suffered a lot. During the pandemic era, the main concern was demand, as social distancing resulted in a slowdown in U.S. consumer spending, which hurt this segment. The global breakdown of supply-chain systems and the shortage of manpower affected these companies the most.
After the pandemic, the major issue for U.S. small businesses was galloping inflation. This space suffered significantly due to a higher interest rate regime. These companies operate on a thin profit margin, and most new businesses take time to achieve profitability.
Small businesses are unable to pass on the total hike in input costs to their final products, which takes a toll their financial condition. Moreover, these companies have no geographical diversification and depend on U.S. consumers.
Small-cap stocks are generally dependent on cheap sources of credit for their survival. Therefore, a gradual decline of the benchmark interest rate will help this space immensely.
Our Picks for Best Small-Cap Stocks
We have narrowed our search to five small-cap stocks that have strong momentum even after providing handsome returns year to date. These stocks have seen positive earnings estimate revisions in the past 30 days. Each of our picks currently sports a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A. 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
Fulcrum Therapeutics Inc.
Fulcrum is a clinical-stage biopharmaceutical company, focused on developing products for improving the lives of patients with genetically defined diseases in the areas of high unmet medical need in the United States.
FULC’s product candidates include losmapimod, a small molecule for the treatment of facioscapulohumeral muscular dystrophy under phase III clinical trial, and pociredir, a fetal hemoglobin inducer for the treatment of sickle cell disease and beta-thalassemia is under phase I clinical trial.
FULC is also discovering drug targets for the treatments of rare neuromuscular, muscular, central nervous system, and hematologic disorders, as well as cardiomyopathies and pulmonary diseases.
Fulcrum Therapeutics has an expected revenue and earnings growth rate of more than 100% and 69.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 30 days.
Heritage Insurance Holdings Inc.
Heritage Insurance provides personal and commercial residential insurance products in the United States. HRTG also provides restoration, emergency, and recovery services, property management, and reinsurance services, homeowners insurance products, including single-family, homeowners or duplex, and condominium owners; and dwelling fire insurance policies.
In addition, HRTG offers personal line policies through a network of retail independent agents, wholesale agents, and a partnership with a direct agency, as well as distribute indirectly to retail locations through wholesale agency relationships.
Heritage Insurance has an expected revenue and earnings growth rate of 11.2% and 10.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 33.1% over the past 30 days.
Latham Group Inc.
Lathan Group designs, manufactures, and markets in-ground residential swimming pools in North America, Australia, and New Zealand. SWIM offers a portfolio of pools and related products, including in-ground swimming pools that include fiber glass and packaged pools, and pool covers and liners under the Latham, Narellan, CoverStar, Radiant, and GLI brand names.
Lathan Group has an expected revenue and earnings growth rate of 5.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 30 days.
Seanergy Maritime Holdings Corp.
Seanergy Maritime Holdings is a prominent pure-play Capesize ship owner that provides marine dry bulk transportation services through a modern fleet of Capesize vessels. SHIP’s operating fleet consists of Capesize dry bulk vessels and Newcastlemax dry bulk vessels.
Seanergy Maritime Holdings has an expected revenue and earnings growth rate of 48.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 30 days.
BrainsWay Ltd.
BrainsWay develops and sells noninvasive neurostimulation treatments for mental health disorders in the United States and internationally. BWAY serves doctors, hospitals, and medical centers in the field of psychiatry.
BWAY offers Deep Transcranial Magnetic Stimulation platform technology for the treatment of major depressive disorders, anxious depression, obsessive-compulsive disorders, smoking addiction, bipolar disorders, post-traumatic stress disorders, schizophrenia, Alzheimer's disease, autism, chronic pain, multiple sclerosis, post-stroke rehabilitation, and Parkinson's diseases.
BrainsWay has an expected revenue and earnings growth rate of 24.2% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 30 days.