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The time may have finally come for small-cap stocks to have their moment in the sun, according to Jefferies. So far, large-cap technology stocks have largely led the market’s moves to new heights. Nvidia , Wall Street’s poster child of the artificial intelligence-propelled rally, has soared 110% this year and ended Thursday 9% higher after posting a blockbuster earnings report for its fiscal first quarter. Many investors have predicted the market rally would broaden this year, and it appears that the time may have finally come for small-cap names to outperform. “We have seen some improvement in absolute and relative performance and think we could have hit an inflection point,” wrote Jefferies strategist Steven DeSanctis. Still, he said there’s one caveat: small-cap earnings look weak on an absolute basis. “However, in the Q1 reporting season earnings are ahead of forecast by over 10% down cap, better than average and better than large,” he added. “As the year rolls along, small-cap earnings are set to broaden, accelerate, and play a game of catch-up with large.” In the same report, the bank identified 17 buy-rated names that are under $4 billion in market capitalization and currently have enough liquidity for investors to get behind. Specifically, these stocks trade at least $10 million worth of daily volume. Here are some of the names that made the list: One name DeSanctis highlighted was drink company Boston Beer . The stock has declined nearly 23% in 2024, but the bank believes that its margins could continue improving as supply chain costs ease alongside higher efficiency and in-house production. Additionally, Boston Beer’s portfolio provides a strong pipeline for continued upside. “Truly has started to stabilize which has been the main overhang on the stock’s multiple for years. Twisted Tea, now the company’s largest brand by volume, will likely continue its double-digit growth momentum, allowing the company to return to volume growth for the first time since 2021,” Jefferies wrote. The bank’s $360 price target implies that shares of Boston Beer could rally nearly 35% from their Thursday closing price. Software technology stock Schrodinger also made the list. Shares are down 39% this year, but Jefferies’ $40 price target corresponds to nearly 77% upside for the stock. “The company has a growing software business that has consistently come in at the high-end of guidance each of the last few years, benefiting from accelerating R & D investments into machine learning and AI,” the bank wrote. “We believe interest from pharma serves as a tailwind to the stock, and SDGR’s physics-based platform stands out which attracts big returning customers with multi-year multi-million contracts.” Jefferies added that Schrodinger’s pipeline of cancer development drugs serve as another catalyst for its stock. Trucking company ArcBest could also rally based on its leg up over its peers, Jefferies wrote. The stock, which is down 11% year to date, is also trading at the low end of its 10-year range. “The potential for faster earnings growth and higher returns/cash flow generation than your traditional LTL companies (ODFL, SAIA, XPO) we think is underappreciated,” the bank wrote. “When the freight cycle turns (Recall we’re at the bottom of what has been the worst freight recession since 08/09), not only will LTL fundamentals accelerate, but also ARCB should see faster earnings growth compared to its LTL peers as the asset-light business rebounds off trough levels.” Jefferies’ price target of $140 is nearly 32% higher than where shares of ArchBest closed on Thursday afternoon.
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