Small-cap stocks surged in the first few weeks of January, confirming the typical outperformance early in the new year. This is a trend that investors want to buy before it potentially fades. So far this year, the Russell 2000 Index, which tracks small caps, is up 7.4% to Monday’s close, beating the Russell 1000 for large caps, which is up 5%. Small caps have also outperformed his S&P 500, up about 4.5%. The so-called January effect rally, where small-cap stocks outperform large-cap stocks, is common. The move could start in mid-December as tax loss selling subsides and new funds enter the market. According to the Stock Trader’s Almanac, small caps generally lead big companies until May, but that trend begins to wane in March. According to Jefferies in his Jan. 24 memo, even among small-cap stocks, the companies with the smallest market share perform the best. “As the calendar rolls into the new year, we’ve seen a wonderful rally of relief in the smallest of the sub-$500 million small-cap names. [in market capitalization] Jefferies small cap strategist Steven DeSanctis writes, “These stocks are the cheapest part of the market, yet they’ve been ignored until now.” But we talked about wanting to emphasize quality, and there were objections that this would be difficult to achieve.” With a market capitalization of less than $3.5 billion, Jefferies has the highest quality and a strong balance. We narrowed the list of potential buys among small-cap stocks by limiting our search to buy-rated companies that provide sheet scores. Momentum measured by month-to-month change in the 200-day moving average. Bloomin’ Brands, a restaurant that owns chains such as Outback Steakhouse and Bonefish Grill, and Dave & Buster’s top the Jefferies small-cap list. With higher quality themes. Both have double-digit surges in 2023 and are highly regarded on Wall Street. Bloomin’ Brands is up about 18% this year, with Dave & Buster surging his 27%, according to FactSet data. The lone energy stock on the list, Arch Resources, also benefited from the sector’s outperformance in 2022, rising more than 57%. However, Arch has even more upside potential, as analysts’ average price targets are expected to rise 22% over the next year. Others influence new trends that investors should watch out for, such as Addus HomeCare, which provides personal care, home health care and hospice services for seniors. Analysts expect him to rise more than 12% in the next year. Manufacturer Methode Electronics also made screens. Wall Street expects a gain of more than 17% next year.
