After rebounding in the latter part of 2020, smaller company stocks are on a roll. As of early March, they had outpaced the broad Morningstar US Market Index by seven percentage points so far this year, Susan Dziubinski, director of content for Morningstar.com, wrote in a blog post.
Small-caps lagged the broader market last year as investors were concerned about their ability to survive the pandemic, according to Morningstar chief market strategist David Sekera.
“But now, with the vaccine rollout well on its way and a clear pathway to economic normalization on the horizon, small-cap stocks have outperformed as the market is pricing in a strong earnings rebound in the near term,” Sekera said.
The firm’s analysts looked at high-quality small-cap stocks that were undervalued. They screened for companies with Morningstar Economic Moat Ratings of wide and narrow — in other words, well-positioned to fend off competitors — that land in the small-cap portion of the Morningstar Style Box. The stocks have Morningstar Ratings of 4 and 5 stars.
See the gallery for the 14 small-cap stocks that made the cut. We’ve ranked b them by their year-to-date returns as of Thursday.
Pictured: Twinkies are made by Hostess Brands, whose stock is No. 12 on this list. (Photo: Adobe Stock)