Top 5 High-Flying Hidden Gems Amid Wall Street Chaos – March 11, 2022
Wall Street has been reeling from high volatility since the start of 2022 after finishing impressively in the last two years marked by the coronavirus. Small business operators have suffered the most during the pandemic. The nightmare of these companies continues this year as well due to record inflation, a higher interest rate regime and the ongoing Russian-Ukrainian war.
Nonetheless, despite several hurdles, many small-cap stocks (market capital USA Truck Inc. (USAK – free report), TimkenSteel Corp. (TMST – free report), J.A.K.KS Pacific Inc. (JAKK – free report), United Fire Group Inc. (CFU – free report) and Assertio Management Inc. (ASRT – free report).
Short term concerns
The major problem for small businesses in the United States is runaway inflation, which is currently at its highest level in 40 years. The global collapse of supply chain systems due to the pandemic and labor shortages has hurt these companies the most. Small businesses are unable to pass on the full increase in input costs to their final products, which deteriorates their financial conditions.
The NFIB Small Business Optimism Index fell for the second consecutive month to 95.7 in February 2022. It was the lowest reading for the index since January 2021. For the first time, the reading of this index has fallen below its 40-year average of 98 in two consecutive months.
The Fed will raise the benchmark interest rate in March for the first time in three years. The central bank is likely to raise several times in 2022 to fight inflation. A higher interest rate will be detrimental to their businesses as these businesses are usually cash-strapped.
These businesses operate with a low profit margin and most new businesses will take time to reach profitability. Additionally, these organizations; have virtually no geographic diversification and are dependent on US consumers. A higher inflation rate due to the Russian-Ukrainian war would worsen their financial situation.
Year-to-date, the three large-cap-centric stock indices – the Dow Jones, S&P 500 and Nasdaq Composite – have fallen 8.7%, 10.6% and 16.1%. The small-cap specific Russell 2000 has also fallen 10.4% since the start of the year. On March 8, the index broke out of bearish territory and is currently in the correction zone.
5 high-flying small caps despite the obstacles
We narrowed our research to five small-cap stocks that have delivered double-digit year-to-date returns, contrary to the southward movement of all major indexes. These stocks have positive growth potential for 2022 and have seen strong earnings estimate revisions over the past 30 days. Finally, each of our picks carries a Zacks rank #1 (Strong Buy). You can see the full 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
American truck is engaged in the transportation of general cargo in interstate and foreign trade. Geographically, USAK operates in the United States, Mexico and Canada. USA Truck operates through two segments, Trucking and USAT Logistics.
USAK forecasts profit growth of 26.9% for the current year. Zacks’ consensus estimate for its current-year earnings has improved 39.6% over the past 30 days. The stock price has jumped 12.1% since the start of the year.
Timken Steel is engaged in the manufacture of alloy steel, as well as carbon and micro-alloy steel. TMST provides precision air-cast alloy steel bars, tubes, and components, as well as value-added services including heat treatment and machining in the United States and around the world. TimkenSteel operates in SBQ steel bars, seamless engineering steel tubes and billets; and the Precision Value Added Products and Services segments.
TMST forecasts a profit growth rate of 2.8% for the current year. The Zacks consensus estimate for next year’s revenue has improved 8.2% over the past 30 days. The share price is up 17.1% since the start of the year.
JAKKS Pacific is a multi-brand company that has been designing and marketing a wide range of toys and consumer products since 1995. JAKK recently realigned its products into two reporting segments to better reflect the management and operation of its business. JAKKS Pacific’s segments are Toys/Consumer Products and Halloween.
JAKK forecasts a profit growth rate of 8.5% for the current year. The Zacks consensus estimate for next year’s revenue has improved 1.9% over the past 30 days. The share price has jumped 45.1% since the start of the year.
United Fire Group is engaged in the underwriting of property and casualty and life insurance in the United States. UFCS products include commercial insurance, personal insurance, life insurance and surety bonds. United Fire Group underwrites and negotiates a limited amount of overage and excess lines insurance.
UFCS has an expected profit growth rate of 18.3% for the current year. Zacks’ consensus estimate for next year’s revenue has improved more than 100% in the past 30 days. The share price has appreciated 17.7% since the start of the year.
Assercio Holdings is a specialty pharmaceutical company. ASRT’s portfolio includes brand name drugs for neurology, inflammation and pain. Assertio Holdings’ business development includes acquisitions, licensing and mergers.
ASRT has an expected earnings growth rate of over 100% for the current year. The Zacks consensus estimate for next year’s revenue has improved by 75% over the past 30 days. The stock price is up 13.8% since the start of the year.