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5 Small-Cap Stocks That Surged in May and Still Have Momentum

Nalak Das

The bull run of Wall Street is continuing in May after a fabulous April. All three major stock indexes — the Dow , the S&P 500 and the Nasdaq Composite — are in positive territory defying the well-known financial-world adage "Sell in May and go away."

Besides these three large-cap centric indexes, the small-cap specific Russell 2000 Index is performing strongly in May. Several small-cap stocks have skyrocketed more than 25% in the past month. Here we have selected five with a favorable Zacks Rank and strong growth potential in near future. 

Small-Cap Stocks Rally Despite Coronavirus Woes

The Russell 2000 has advanced 3.4% so far this month, well above the1.5% gain of the S&P 500 — popularly known as the market's benchmark — and 0.5% increase in the Dow. The tech-laden Nasdaq Composite is the only index that that outpaced the Russell 2000 with a month to date rally of  4.9%.

For the week ended May 22, the Russell 200 jumped 7.8% while the Dow, the S&P 500 and the Nasdaq Composite climbed 3.3%, 3.2% and 3.4%, respectively. This indicates that the Wall Street bull run, which started in April and is continuing in May, is broad-based.

Owing to their predominantly domestic-focused business strategy, small businesses are highly dependent on the spending of U.S. consumers as well as businesses. However, the lockdown imposed by a large number of states significantly reduced demand from both individuals and medium and large businesses.

Also, given their small-scale of operations, small businesses are generally cash-starved in nature. These organizations operate on a thin profit margin and most new businesses are yet to achieve profitability.

Reopening of the Economy

Meanwhile, 43 states have decided to ease lockdown restrictions and open up their economies in some form by this month end including portions of the hard hit New York. States like Alaska, Georgia, South Carolina, Tennessee and Texas have already started allowing restaurants, salons, spas and barbershops to serve customers. Mike DeWine, governor of Ohio, has decided to reopen retail stores and other service industries.

Market's worst is behind us as negative estimates are already factored in market valuation. Moreover, a gradual decline in new COVID-19 cases and the possibility of U.S. and global economies opening phase by phase after 2-3 months of lockdown will instill confidence in market participants.

Our Top Picks

We have narrowed down our search to five small-cap stocks that have skyrocketed more than 25% in the past month with strong growth potential and robust earnings estimate revisions. Each of our picks sports a  Zacks Rank #1 (Strong Buy). 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 in the past month.

 

Veritone Inc. VERI is an artificial intelligence (AI) company offering the Veritone Platform, which unlocks the power of AI-based cognitive computing to transform and analyze unstructured public and private audio and video data for clients in the media, politics, legal and law enforcement industries. The company has an expected earnings growth rate of 42.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 7.8% over the past 30 days. The stock price has jumped 100.8% in the past month.

United Natural Foods Inc. UNFI distributes natural, organic, specialty, produce, and conventional grocery and non-food products in the United States and Canada. It operates through Wholesale and Other segments. The company has an expected earnings growth rate of 30.8% for the current year (ending July 2020). The Zacks Consensus Estimate for current-year earnings has improved by 95.7% over the past 30 days. The stock price has soared 47.4% in the past month.

ChannelAdvisor Corp. ECOM offers cloud-based e-commerce solutions and services. It solutions include marketplaces, comparison shopping, paid search, social campaigns, flex feeds, web stores and rich media. The company has an expected earnings growth rate of 62.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 32.7% over the past 30 days. The stock price has climbed 40.2% in the past month.

Tutor Perini Corp. TPC provides diversified general contracting, construction management, and design-build services to private customers and public agencies worldwide. It operates through three segments: Civil, Building, and Specialty Contractors. The company has an expected earnings growth rate of 200% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 16.7% over the past 30 days. The stock price has advanced 39.4% in the past month.

Calix Inc. CALX provides cloud and software platforms, and systems and services required to deliver the unified access network in the United States, the Middle East, Canada, Europe, the Caribbean and internationally. The company has an expected earnings growth rate of 266.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 22.2% over the past 30 days. The stock price has appreciated 27.3% in the past month.

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