Small Business Optimism Rises Amid Coronavirus Fears: 5 Picks

Small business organizations’ bounced back in January following a setback in the prior month. The outbreak of deadly coronavirus in China, concerns about slowing U.S. and global economy, and geopolitical concerns failed to dampen the confidence of small business owners.

Small Businesses Bounce Back in January

On Feb 11, the National Federation of Independent Business (NFIB) reported that the NFIB Small Business Optimism Index rose to 104.3 in July from 102.7 in December. New job creation jumped in January as evident from an average addition of 0.49 workers per firm — the highest level since March 2019. Small business owners remained confident about recruiting more manpower, raising wages and capital spending to expand businesses.

The optimism regarding small businesses remains near an all-time high albeit a slowing U.S. economy. While optimism remains at historically high levels, the January figure reversed the loss posted in December, with six of the total 10 survey components increasing, two components declining and two remaining unchanged. Both capital spending and plans to order new inventories advanced in January.

Small Businesses Are Vital

Small corporates create a significant amount of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for big businesses.

Moreover, small companies are major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses more often than not form a vital cog in corporate America's customer base.

Domestic-Focused Nature of Small Businesses

In fact, owing to their predominantly domestic-focused business strategy, small business organizations are generally immune to any external shocks like the outbreak of the coronavirus. This feature helps small-cap stocks to outperform the broader market defying extreme volatility.

According to the NFIB chief economist William Dunkelberg, “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.”

Meanwhile, several recently released economic data reaffirmed the strength of the U.S. economy. A robust labor market with historically low-level of unemployment and growing wage rate, continuous growth of service-centric industries and likely rebound of manufacturing industries will pave the way creating more demand for small business operators. Further, soaring consumer confidence, indicating strong consumer spending, which constitutes 70% of the U.S. GDP will add to the demand.

Our Top Picks

Several small-cap stocks have popped in the past six months. So, a selection from these stocks may be difficult. Here, our VGM Score comes in handy. Each of our picks carry a Zacks Rank #1 (Strong Buy) and VGM Score of A or B. 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 six months.

MarineMax Inc. (NYSE:HZO) is the largest recreational boat and yacht retailer of United States. It sells new and used recreational boats, including pleasure boats, motor and convertible yachts, pontoon boats, fishing boats, ski boats and jet boats. The company has an expected earnings growth rate of 17.2% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved 15.8% over the last 30 days.

Metropolitan Bank Holding Corp. (NYSE:MCB) provides a range of business, commercial, and retail banking products and services to small businesses, middle-market enterprises, public entities, and individuals in the New York metropolitan area. The company has an expected earnings growth rate of 23.6% for the current year. The Zacks Consensus Estimate for the current year has improved 5.5% over the last 30 days.

Earthstone Energy Inc. (NYSE:ESTE) is an independent energy company, engages in the development and operation of oil and gas properties in the United States. The company has an expected earnings growth rate of 5.2% for the current year. The Zacks Consensus Estimate for the current year has improved 3.2% over the last 30 days.

Rite Aid Corp. (NYSE:RAD) operates a chain of retail drugstores in the United States. It operates through two segments, Retail Pharmacy and Pharmacy Services. The company has an expected earnings growth rate of 70.6% for the current year (February 2021). The Zacks Consensus Estimate for the current year has improved 1.7% over the last 30 days.

Vericel Corp. (NASDAQ:VCEL) is a commercial-stage biopharmaceutical company that researches, develops, manufactures and distributes cellular therapies for sports medicine and severe burn care markets. The company has an expected earnings growth rate of 255.4% for the current year. The Zacks Consensus Estimate for the current year has improved 12.5% over the last 30 days.

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