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8 Small-Cap Stocks to Buy for Their Outstanding First Quarter Earnings: BofA

While April’s jobs report was far from perfect, the U.S. economy is still largely on solid footing.

The Bank of America’s regime indicator, which measures earnings and economic growth expectations, as well as inflation and credit conditions, rose last month. It was the third straight increase and the biggest in more than two and a half years, the company’s strategists recently noted.

A sustained economic expansion, characterized by a relatively healthy labor market, is excellent news for smaller stocks, which tend to be the most exposed to the peaks and troughs of the business cycle.

Small and medium-sized businesses have long lagged the broader market due to a range of challenges, including higher interest rate expectations. The higher financing costs are troubling because smaller stocks often rely more heavily on variable-rate debt than their larger peers.

While those concerns are valid, BofA encouraged its clients to continue investing in the group.

“Despite the short-term risks to the Russell 2000 as a whole from continued Fed cuts, we still think parts of the SMID are poised to outperform – particularly those sectors locked in a cycle recovery and that are less sensitive to the risks of longer interest rates. wrote Jill Carey Hall, head of Bank of America’s U.S. small- and mid-cap strategy team, in late April.

However, the strategy head acknowledged that not all small- and mid-cap stocks are the same.

Within the so-called SMID caps, value-oriented companies and companies with a quality slant have performed best recently, Hall noted. The former has been the most consistent small-cap group in economic regimes like this, although quality stocks can also be a good choice. The definition of quality stocks varies among investment firms, but well-managed companies that can consistently grow earnings and have robust balance sheets generally meet the requirements.

“While quality has shown mixed results in recovery (50/50 hits both long and long-short), we would stick to high-quality small caps (avoid non-earners with duration risk),” Hall wrote.

8 SMID Cap Stocks Will Report Strong Gains

Bank of America recently shared a list of 13 buy-rated small- and mid-cap stocks that beat both earnings and revenue expectations last quarter and could beat consensus expectations again in the first quarter.

Five companies on this positive surprise screen have already reported first-quarter results. All the stocks beat earnings estimates – and some did so substantially – even though revenue was roughly in line or slightly missed Wall Street’s target.

Below are the other eight SMID cap stocks with earnings prospects that Bank of America is now bullish on. Each one lists the ticker, market cap, sector, Z-scores for earnings and revenue (higher is better), and the date of the first earnings report (the fastest is at the top).