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What are we looking for?

U.S. small-cap stocks showing upside momentum.

The Russell 2000 is a stock market index comprising 2,000 small-capitalization U.S. companies that tend to be domestically focused. Investors can track and invest in the index using the iShares Russell 2000 ETF (IWM). The index started to outperform the larger cap S&P 500 and Nasdaq Composite Index in early December.

Looking at indexes year-to-date, the Russell 2000 index is up a bit more than 9 per cent, maintaining its outperformance over other North American benchmarks. The S&P/TSX Composite index is in second place with a year-to-date gain of 3.8 per cent, followed by last year’s best performing index, the Nasdaq, which is up 2.5 per cent so far this year after returning an impressive 43.6 per cent in 2020. The S&P 500 is up 1.6 per cent in 2021.

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We will continue to look for opportunities in trending markets this week by digging into small-cap U.S. stocks.

The screen

We will be using Trading Central’s Strategy Builder to search for U.S. small-cap stocks that are showing bullish momentum.

We begin by setting a market capitalization range in between US$500-million and US$3-billion in order to screen for companies that match the market caps represented in the Russell 2000.

Next, we will filter for stocks that are within 10 per cent of their 52-week high, which helps us identify stocks in an uptrend making higher highs and higher lows. Finally, we want stocks that are indicating above average momentum strength. Trading Central Strategy Builder measures the momentum oscillator (a tool used in technical analysis that tracks a security’s price over a specified time frame) on a scale of one to five, with five being the strongest momentum signal.

For informational purposes, we have also included the recent stock price, price-to-earnings ratio and dividend yield. (Small-cap stocks tend to have minuscule yields or pay no dividend at all.)

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.

What we found

Our screener ranks the list based on all performance and revenue criteria.

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Topping our list is Group 1 Automotive Inc., based in Houston. The company owns and operates more than 180 automotive dealerships in the United States, Britain and Brazil. The company has the highest market cap on our list at US$2.73-billion. Its stock has been in an uptrend since the March pandemic low and is now within 8.2 per cent of its record high. The momentum indicator is at 4.2 out of five, which is one of the highest on our list. The company is slated to report its fourth-quarter earnings on Feb. 5.

Container Store Group Inc. has the best year-to-date performance on our list at 32.8 per cent, and it’s only the second trading week of January. The company offers home storage and organizational products for delivery throughout the U.S. and most recently, Canada. The company has certainly seen sales increase because of the pandemic-induced stay-at-home trend as people reorganize their living spaces. The momentum indicator is at the highest level of five as the stock price trades near record highs. We anticipate the company to report third-quarter earnings on Feb. 4.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had an annualized return of 21.8 per cent compared with 15.3 per cent for the S&P 500.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

U.S. small caps showing upside momentum

RankCompanyTickerMkt. Cap. (US$ Bil.)Chg. from 52W High (%)Price Perf. YTD (%)1Y Perf. (%)Mom. IndicatorP/EDiv. Yld. (%)Recent Price (US$)
1Group 1 AutomotiveGPI-N3-8.2013.849.904.211.80.4152.05
2Container Store GroupTCS-N1-8.5032.8166.20533.30.912.8
3MarineMax Inc.HZO-N1-3.5020.3141.73.312.5n/a42.93
4Summit Materials Inc.SUM-N3-6.0018.42.84.219.7n/a23.91
5Central Garden & PetCENT-Q2-8.805.827.6318.6n/a41.36
6MagnaChip Semicond.MX-N1-3.903328.8552.9n/a18.01
7PC Connection Inc.CNXN-Q1.35-4.608.7-1.23.722.10.651.66
8Blue Bird Corp.BLBD-Q0.56-9.3012.8-7.64.245.8n/a20.85
9Shoe Carnival Inc.SCVL-Q0.59-4.807.4153.348.90.843.09
10NeoPhotonics Corp.NPTN-N0.50-3.509.816.73.352.5n/a10.48

Trading Central

Gary Christie is head of North American research at Trading Central in Ottawa.

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