The second quarter of 2024 is set to be a mixed bag for investors as market growth expectations on Wall Street contend with the Federal Reserve’s monetary policy indecision.
At the beginning of the year there was widespread optimism the Fed would cut rates for the first time since Q1 2020, perhaps as early as March. Stubborn inflation levels, however, slowed some of the hopes for clearing this headwind. Now, the prospect of any cuts taking place in the first half of the year appears to be evaporating. The cooling market sentiment has caused some chip stocks to decline in recent weeks.
Despite this, the overall outlook for 2024 appears to be bright. Investment giant BlackRock confirmed that expectations for S&P 500 earnings growth this year have been revised up, with the tech sector set to account for half of the index’s earnings.
This indicates that Q2 2024 may be a little more volatile as markets wait for the Fed to signal how its more dovish stance on monetary policy will play out. Still, many high-potential small-cap stocks can rally throughout the coming months, including the three key candidates highlighted below.
ACM Research (ACMR)
Despite a modest market capitalization of around $2 billion, ACM Research (NASDAQ:ACMR) is a stock that consistently wins the backing of institutional investors. Recently Vanguard Group increased its exposure to the company by adding 399,854 shares, bringing its total holdings to 4,082,835 for a total stake worth $73,920,000.
The strong institutional support also helped its stock rally higher in recent months. Shares grew 81.6% in Q1 2024 and doubled in size during the 2023 calendar year.
As a company with exposure to the booming semiconductor industry, ACM Research’s reputation as a cheap growth company has served it well and earned it a ‘strong buy’ rating from Seeking Alpha’s Quant system.
In addition to institutional support, ACMR also boasts strong fundamentals. With a three-year sales growth rate of 53% and a three-year earnings-per-share (EPS) growth rate of 62%, there’s plenty of optimism flooding into this small-cap stock. The semiconductor equipment maker could see its value continue to rally throughout the second quarter of 2024 and beyond.
Titan Machinery (TITN)
At a market capitalization of $540 million, there appears to be plenty of room for growth for agricultural and construction equipment seller Titan Machinery (NASDAQ:TITN). Consistent growth in company earnings and recent share price underperformance appear to have made the stock an attractive prospect for investors.
For the fourth quarter, Titan’s revenue increased to $583 million, up from the $507.6 million reported in Q4 2022. Gross profit also increased to $108.9 million compared to $94.2 million the previous year.
Despite this, the stock has struggled to build momentum. From a March 2023 peak of $47.17, shares have instead fallen nearly 50% since. Yet the company’s current earnings power and a recent series of strategic acquisitions make the stock look cheap. Investors may be tempted to back TITN to recapture its early 2023 performance and build a solid recovery starting in this quarter.
According to Titan’s price-to-earnings (PE) ratio of 4.9x, the company is trading far below its peer average of 13.27x. This highlights that the stock is trading at a lower price than the wider trade distributors industry. As a result, we may see a more optimistic outlook for the firm resulting in stronger institutional interest for the discounted stock. An upturn in wider market fortunes could result in TITN accelerating at a faster pace than other industry players.
Stride (LRN)
Thanks to whirlwind growth in 2023, online education firm Stride (NYSE:LRN) is now trading at a new all-time high following its 2007 debut on the NYSE.
Following growth of around 80% over the past calendar year, the stock has had a cooler start to 2024. However, this hasn’t stopped the $2.7 billion market cap firm from positioning itself as an excellent market opportunity for investors.
Impressively, Stride’s earnings-per-share growth of 47% over the past three years illustrates the form that the company has experienced of late and points to a company undergoing a successful scaling operation.
Stride’s fundamentals also offer cause for optimism. Revenue grew 10.13% to $504.87 million year-over-year in the fourth quarter, while net profit also grew an impressive 31.81% over the same period to $66.84 million. Crucially, Stride generated a seismic 1,203.15% acceleration in net profit margins between Q3 and Q4 2023.
This has increased optimism for the company, helping to build a steady platform to secure further momentum throughout the quarter ahead and beyond.
On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
