5 Must-Buy Small Caps For Big Returns In 2020

This year, the major benchmarks skyrocketed, hitting fresh all-time highs. And why not? Several factors have boosted the economy in 2019, from Fed’s interest rate cuts, to easing of the U.S.-China trade war and strong economic data.

Considering these factors, investing in small-capitalization stocks in 2020 should be quite attractive. This is because these stocks are generally smaller in size and have more room to grow. The positive development in the economy will surely boost its growth.

Factors to Boost Economy in 2020

The Federal Reserve’s recent monetary policy has boosted the economy by making borrowing cheaper. This is because the Fed has trimmed the rate three consecutive times this year. On Dec 11, at the Fed’s last meeting of 2019, it was made loud and clear that unless there is any drastic change in the economic outlook, the central bank plans to keep interest rates unchanged in 2020.

The U.S. economy is expanding for 11 years now has also held up strong with a 2.1% annual growth in GDP rate in third quarter of 2019. Healthy American consumers, who account for 70% of the U.S. economy, are the driving force behind the economy’s growth. Consumer sentiments are well supported by soaring job growth and historically 50-year low unemployment rate for 21 consecutive months.

This is accompanied by a rebound in the manufacturing sector, which accounts for 11% of the U.S. economy. Manufacturing nudged up by 1.1% in November as factory output increased against October’s 0.7% dip. Additionally, the U.S. housing space is going northward due to a low-mortgage rate and a robust homebuilding market. The U.S. Home Builder’s confidence hit an all-time high in December jumping to 76, highestsince June 1999. Nonetheless, housing starts and building permits data have been encouraging. In fact, building permits for privately owned houses has surged to a more than a 12-year high.

Another obstacle to the economy’s growth, the protracted U.S.-China trade war, finally seems to be easing with a phase one deal due to be signed in January 2020. The United States has suspended tariffs on roughly $160 billion of Chinese goods, while China had recently announced a tariff cut on several American products, starting Jan 1.

On the other side, the U.S.-Mexico-Canada (USMCA) deal that remarkably drew investors’ attention is now expected to be approved by the Senate in 2020. President Donald Trump apprehendsthat there has been loss of innumerable U.S. industrial jobs to low-wage Mexican workers due to the NAFTA deal signed in 1994. So, the passing of this deal would definitely boost the U.S. economy.

Small-Cap Stocks are Sure Winners

Given the positive development this year, investing in highly flexible small-cap stocks seems prudent. Compared to large caps and mid caps, small caps have more growth potential and offer better returns, especially over the long term. These stocks are less tousled by a global economic turmoil and depend more on the domestic economy. Small-cap stocks can quickly change direction and capitalize on opportunities due to their small size, ($300 million and $2 billion).

5 Stocks to Buy Now

The low interest rates and the positive development in the economy will help small-cap stocks gain momentum in the near term. Hence, we have shortlisted five stocks that flaunt a Zacks Rank #1 (Strong Buy).You can see Zacks Investment Research

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Written By: Zacks Investment Research