5 Top-Ranked Small-Cap Stocks To Boost Your Portfolio In 2021

Wall Street has been performing very well during the pandemic despite volatile trading in September and October. The resurgence of coronavirus cases has failed to dampen market participants' sentiments owing to positive developments on the vaccine front and hopes of a Congressional agreement for a fresh round of fiscal stimulus.

Aside from large-cap stocks, small-cap stocks have also performed impressively in 2020. Year to date, large-cap-specific indexes — the Dow, the S&P 500, and the Nasdaq Composite — have rallied 5.1%, 13.5%, and 38.3%, respectively. The small-cap centric Russell 2000 and the S&P 600 indexes have jumped 15.2% and 7.3%, respectively.

Several small-cap (market capita < $1 billion) stocks have skyrocketed in this year so far. At this stage, investment in top-ranked stocks with strong growth potential for next year will be prudent.

Stimulus Helps in Revival of Small Businesses

In March 2020, the U.S. government provided more than $800 billion to small businesses as part of the CARES Act, which ended in July.  In June 2020, the Fed initiated a lending program of up to $600 billion to small and mid-sized businesses. Under this program, businesses with up to 15,000 employees or revenues of up to $5 billion will get a loan in the range of $250,000 to $300 million for 5 years at floating rate.

On Oct 30, the central bank reduced the minimum loan size to $100,000 from $250,000 and decided to ease restrictions on debt for companies already participating in the Paycheck Protection Program. The central bank will encourage retail banks to lend out to struggling companies and will purchase 95% of each loan extended under the facility.

Given their small-scale of operations, small businesses are generally cash-starved. These organizations operate on a thin profit margin and most new businesses are yet to achieve profitability.

Expectations for More Stimulus

On Dec 1, a bipartisan group of lawmakers proposed a $908 billion fresh coronavirus-aid package. The major components of the proposed bipartisan relief bill includes $160 billion for state, local and tribal governments, $180 billion for additional unemployment insurance, and $288 billion as support to small businesses including the Paycheck Protection Program.

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