4 Small Cap Stocks To Get Rid Of Before Entering 2020
Zacks Investment Research | Dec 10, 2019 08:34PM ET
The Russell 2000 Index (index of the small-cap U.S. companies) has gained a little more than 20% so far this year compared with the S&P 500’s rally of 24.1%. The financial performance of small-cap companies is primarily tied with that of the domestic economy.
Notably, in third-quarter 2019, the country’s real GDP expanded at an annual rate of 2.1% (second estimate). In the second quarter, it was 2.0%, while in the first quarter real GDP was 3.1%. Thus, economic growth along with lower tax rates was primarily the reason behind majority of the gain in the Russell 2000 Index.
While certain geopolitical concerns — including uncertainty related to the impact of Brexit along with the ongoing trade war and expectations of gradual economic slowdown — are likely to hamper all the U.S. companies to some extent in the near term, small-cap stocks will not be affected much as they are less susceptible to global concerns.
Moreover, the small-cap stock market rally is expected to continue going forward, given the recent optimism over trade talks. It is expected that small-cap companies may even outperform their larger counterparts next year and are hence gaining favor.
Although the near-term outlook for small-cap stocks looks bright, not all companies within the group will be able to capitalize on the favorable trends. Certain factors like increased competition and/or weak fundamentals might hurt the performance of some of the companies to an extent.
While you should still hold small-cap stocks in your portfolio, there are some of the companies that you should get rid of before entering 2020 because of their weaknesses and lack of earnings growth potential.
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While it is difficult to pick small-cap stocks that are likely to disappoint in 2020, we have taken the help of the Zacks Investment Research
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