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Jeff Reeves's Strength in Numbers

Jeff Reeves

May 21, 2020, 8:09 a.m. EDT

Ride the momentum with these 9 surging small-cap stocks

These stocks range from flowers to games to a provider of aviation services

By Jeff Reeves, MarketWatch


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Despite the stock market’s recent rally, most U.S. stocks still have losses for the year. And smaller firms are generally doing even worse than their larger peers.

Case in point: The S&P 500 index (S&P:SPX)  index of the 500 biggest domestic companies is down roughly 9% since Jan. 1, but the Russell 2000 index (USA:RUT) , which excludes the biggest 1,000 firms listed on U.S. markets and focuses on the next 2,000, is down 20%.

While it’s true that smaller companies tend to be more sensitive to economic downturns, that doesn’t mean every small stock is down and out right now. These nine companies are doing remarkably well with gains of at least 30% so far this year — and in one case, 260%.

These are not microcaps just subject to sentiment swings. They all are U.S.-based companies with average daily volume of more than 400,000 shares and a market capitalization between $400 million and $2 billion. Development-stage biotech stocks are excluded, given the very volatile nature of this subsector.

1-800-Flowers

• Sector: Consumer discretionary

• YTD return: 60%

When you can’t have in-person birthday parties or make brunch reservations on Mother’s Day, sending some love via 1-800-Flowers.com (NAS:FLWS) is the default option.

/zigman2/quotes/204552624/composite FLWS 28.99, -0.74, -2.47%

Sales have surged thanks to coronavirus, but it also has helped that the stock had started 2020 with signs of a turnaround after admittedly disappointing earnings for most of 2019. After hitting a 52-week low close to $11 around Thanksgiving, the stock had topped $14 by New Year’s Day — and since the worst of the coronavirus fears in March, it has been off to the races.

ACM Research

• Sector: Technology

• YTD return: 260%

ACM Research (NAS:ACMR)  provides services that remove lingering chemical and particle contaminants from newly manufactured microchips. This business is incredibly specialized but obviously a crucial part of the tech supply chain.

/zigman2/quotes/205487080/composite ACMR 112.29, +4.35, +4.03%

This fast-growing small cap is on track to record nearly 30% revenue growth this fiscal year and another 30% in fiscal 2021 if forecasts hold. Profits are set to surge more than 20% this year and 30% in 2021 on top of that.

Atlas Air

• Sector: Industrial

• YTD return: 44%

It may seem dangerous to consider this stock amid talk of possible passenger airline bankruptcies. But Atlas Air Worldwide (NAS:AAWW)  is unique for several reasons. The U.S military is a major client, as are private customers who want to avoid public flights. Those business lines remain quite strong. Also, AAWW leases its planes for freight forwarding and “dry leasing” — a pretty attractive model amid strong shipping demand coupled with cheap jet fuel prices.

/zigman2/quotes/200338181/composite AAWW 56.15, -1.61, -2.78%

With earnings revisions hinting at solid margins for the rest of 2020 and a recent labor agreement with its pilots union, this small-cap stock could continue to fly high for the foreseeable future.

Celsius

• Sector: Consumer staples

• YTD return: 65%

Fast-growing “performance beverage” company Celsius Holdings (NAS:CELH)  has a line of zero-calorie fitness drinks that it claims will help accelerate your metabolism and burn body fat. The appeal of this kind of product is obvious, and while the company is still unprofitable, it is plotting nearly 50% top-line growth this year and nearly 30% in fiscal 2021.

/zigman2/quotes/205976348/composite CELH 20.83, +5.18, +33.10%

Momentum investors love this flavor of consumer growth small-cap with a great story and big numbers to back it up.

Consolidated Communications

• Sector: Telecommunications

• YTD return: 38%

Small-fry telecom Consolidated Communications Holdings (NAS:CNSL)  was mostly shunned by Wall Street over the last few years, as it barely operated in the black and boasted a small and stagnant business. However, its multiyear slide changed in a hurry as its rather modest portfolio of about 800,000 internet connections became quite valuable in the era of coronavirus.

/zigman2/quotes/209212218/composite CNSL 7.78, +0.11, +1.43%

Beyond the short-term lift of current customers using more bandwidth, the company promoted some shrewd partnerships with small school districts to help win much-needed attention from new customers and investors.

Predictions are now for a relatively impressive 26 cents in earnings per share in 2020 compared with just 2 cents a year earlier.

Glu Mobile

•Sector: Technology

•YTD return: 60%

You or your kids may have become rather loyal Glu Mobile (NAS:GLUU)  customers in the past several weeks as coronavirus quarantines have prompted many to download time-killing games to their phones. Glu titles include cooking games, fashion games, sports games and even licensed titles with stars including Kim Kardashian and celebrity chef Gordon Ramsay.

/zigman2/quotes/208078352/composite GLU 16.61, +0.08, +0.48%

The stock was already riding a strong history of earnings surprises before this outside trend boosted numbers — and if shut-in gamers stick with some of these titles, the growth trend may stick at the company too.

Overstock

•Sector: Consumer discretionary

•YTD return: 150%

Yes, Overstock.com (NAS:OSTK)  has given plenty of investors whiplash in recent years. A few years ago, it billed itself as a blockchain company and saw shares surge from around $15 to more than $60 by early 2018. Then it cratered in part because of the antics of its controversial founder and CEO .

/zigman2/quotes/200022359/composite OSTK 94.14, +0.29, +0.31%

Now material growth in its core e-commerce business is in focus again and investors like what they see — but more fireworks may loom as the company prepares a controversial “ digital dividend ” of preferred shares. So far volatility has moved in the right direction for shareholders, however, so this high-octane small-cap remains noteworthy.

PetMed

•Sector: Health care

•YTD return: 40%

The industry designation of “health care” may be a tad misleading here, as PetMed Express (NAS:PETS)  caters to pet owners looking to order treatments for heartworm as well as common items like cat food, doggy beds and those absurd pet strollers to take critters for a walk without … you know, them actually walking.

/zigman2/quotes/203606847/composite PETS 31.62, -0.03, -0.09%

This stock is at the intersection of some powerful trends, as coronavirus fuels both e-commerce shopping and the need for pet companionship. Throw in the fact that pet spending is approaching $100 billion annually in the U.S. , and it’s easy to see the appeal of this smaller and specialized retailer.

United Natural Foods

Sector: Consumer staples

YTD return: 111%

One of the more recent breakouts on this list, United Natural Foods (NYS:UNFI)  is a grocery distributor with a special focus on natural, organic and healthy products. Organics represent only about 6% of U.S. food sales at present, but that’s good for about $50 billion and steadily growing.

/zigman2/quotes/202981234/composite UNFI 20.52, -0.64, -3.02%

The short-term boost for in-home foods given by restaurant closures has created a tailwind for this small-cap stock. Throw in a massive first-quarter earnings beat and raised guidance this month, and shares have surged from under $11 at the start of May to more than $18 at present.

Jeff Reeves writes about investing for MarketWatch. He doesn’t own any of the stocks mentioned in this article.

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