Small-Cap Stocks Poised for Growth: Bank of America's Top 3 Picks for Economic Recovery
Bank of America Forecasts Economic Recovery, Highlights High-Risk Stocks for Growth
Bank of America analysts are projecting a potential economic recovery as early as next year, suggesting that investors may want to consider higher-risk small-cap stocks, which historically outperform during recovery phases. The financial institution has identified three higher-risk stocks that are well-positioned for growth in the coming year.
According to Bank of America’s Regime Indicator, the economy is currently in a downturn phase. However, recent actions by the Federal Reserve, including a 50 basis point rate cut, signal a shift towards a more accommodative monetary policy. The bank anticipates further rate cuts, with 75 basis points expected in Q4 2024 and an additional 125 basis points throughout 2025. These projections place the terminal rate between 2.75% and 3.0% by the end of 2025.
While investors typically favor quality, large-cap, and low-risk companies during economic downturns, Bank of America advises a dual strategy. The bank recommends maintaining positions in defensive, high-quality areas while also preparing for recovery by considering value, small-cap, and higher-risk stocks.
To identify potential high-growth opportunities, Bank of America analysts conducted a screening process focusing on market capitalization and valuation, targeting smaller and cheaper companies. The screen also accounted for riskiness by examining stocks with higher beta levels, which tend to exhibit more significant price movements relative to the market.
From the resulting list of stocks, three buy-rated companies stood out:
- Digital Turbine (APPS), with a beta of 3.1
- Shutterstock (SSTK), with a beta of 1.7
- Magnite (MGNI), with a beta of 3.3
These stocks, characterized by their higher beta values, offer greater potential for appreciation during an economic recovery phase.
As the economic landscape continues to evolve, investors may want to consider these higher-risk options as part of a diversified portfolio strategy. However, it is crucial to conduct thorough research and consult with financial advisors before making investment decisions based on these projections.
