Wall Street has been on a stellar ride since hitting its bottom in late March. The S&P 500 and the Nasdaq Composite Index are continuing to hit new record highs. No doubt the slew of stimulus measures adopted by the government and the central bank is driving stocks higher but new developments in the treatment of coronavirus have added a fresh vigor in investments this week.

This is especially true as the Food and Drug Administration approved the use of convalescent plasma — the antibody-rich component of blood taken from recovered COVID-19 patients — as a treatment for serious coronavirus cases. At the same time, the Trump administration is seeking emergency use authorization for an experimental vaccine being developed by AstraZeneca (AZN - Free Report) and Oxford University ahead of the Nov 3 presidential election, according to the Financial Times. The rounds of news have led to expectations of a faster-than-expected economic rebound.

Additionally, a number of companies are working on a COVID-19 vaccine with Moderna Inc. (MRNA - Free Report) leading the way. The biotech company began its phase 3 clinical trial called the COVE (Coronavirus Efficacy) study of a coronavirus vaccine on Jul 27 in collaboration with the National Institute of Allergy and Infectious Diseases. Two of the four potential COVID-19 vaccines from Pfizer (PFE - Free Report) in collaboration with German biotech firm BioNTech have received fast track designation from the U.S. health agency. Meanwhile, Johnson & Johnson (JNJ - Free Report) is expected to begin phase 1 trial for its coronavirus vaccine by September 2020.

Merck (MRK - Free Report), Novavax (NVAX - Free Report), AstraZeneca (AZN - Free Report), Inovio Pharmaceuticals and Sanofi (SNY - Free Report) are among the others that have also joined the vaccine race.

Sectors Set to Bloom

While the prospect of a COVID-19 treatment will lead to broad-based gains, some investing areas are expected to benefit the most. From a sector look, cruise lines, airlines, hotel and casino operators, and travel and entertainment-booking companies will likely be the frontrunners as these were most beaten down by the pandemic. A vaccine could bolster the demand for air travel and leisure as people will not hesitate to go out of their homes or avoid direct contact.  

As per Marketwatch, an analyst from Swiss Bank UBS believes that cyclical stocks, which are more sensitive to the economic cycle, outpaced defensive stocks on days when major developments in vaccine candidates were announced. The analyst indicated the potential for around 10 percentage points or more of outperformance by cyclical stocks over the defensive ones if a vaccine is fully priced and implemented.

Swiss Bank UBS also noted that small caps outperformed large caps by around 2 percentage points on days when there was any major vaccine news. If a well-functioning vaccine is found, the firm believes that small stocks may outperform stocks with a large market capitalization by about 13 percentage points. Investors should note that small-cap stocks are closely tied to the U.S. economy and thus outperform on improving domestic economic health.

Stocks to Consider

Given the optimism building around a vaccine, we have presented five stock picks from the above-mentioned sectors with the help of the Zacks Stock Screener that could be compelling for investors. These stocks have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), a Growth Score of B or better, a positive estimated earnings growth for this year, and a market cap of below $2 billion. 

Civeo Corporation (CVEO - Free Report)

This Zacks Ranked #1 company is a provider of long-term and temporary remote site accommodations, logistics and facility management services. It has estimated earnings growth of 100% for this year and a market cap of $146.7 million. The stock has a Growth Score of A.

Mesa Air Group Inc. (MESA)

This Zacks Ranked #3 company provides airline services. It offers passenger transportation and regional air services. The stock has an estimated earnings growth rate of 2.5% for the fiscal year (ending September 2021) and a Growth Score of B.

Malibu Boats Inc. (MBUU - Free Report)

This Zacks Ranked #3 company operates as a designer, manufacturer and marketer of sport boats primarily in the United States. With a market cap of $1.1 billion, the stock has estimated earnings growth of 23.1% for the fiscal year (ending June 2021) and sports a Growth Score of A.

Jack In The Box Inc. (JACK - Free Report)

This Zacks Ranked #2 restaurant company operates and franchises through Jack in the Box quick-service restaurants, and is one of the nation’s largest hamburger chains. It has a market cap of $1.9 billion and estimated earnings growth of 5.4% for the fiscal year (September 2021). Jack In The Box has a Growth Score of B.

Carrols Restaurant Group Inc. (TAST - Free Report)

This Zacks Ranked #2 company is the largest BURGER KING franchisee in the United States with over 800 restaurants. The company has an estimated earnings growth rate of 122.2% for this year. It has a market cap of $350.1 million and a Growth Score of A.