Small-cap stocks have enjoyed a stellar 2024, with the S&P 600 index soaring more than 14% year-to-date, driven by optimism surrounding President-elect Donald Trump’s fiscal policies.

This performance marked a significant milestone for the index, which recently closed at a record high of 1,544.

Small-caps benefited from their exposure to economically sensitive sectors such as financials and consumer discretionary, alongside limited reliance on technology compared to the S&P 500.

Trump’s proposed fiscal spending, estimated to inject tens of billions of dollars annually into the economy, fuelled investor enthusiasm.

The index, comprising companies with an average market capitalization of $3 billion, also stood to gain from expected tax cuts favouring domestic production.

Record inflows signal saturation

Net inflows into US small-cap funds have reached a record $30 billion this year, tripling last year’s figures, according to Bank of America.

However, history suggests this momentum may not sustain, as every year since 2010 that followed a record inflow to small-caps has subsequently experienced a net outflow.

This pattern indicates potential limitations for further investment into the asset class.

Dennis DeBusschere of 22V Research has cautioned against expecting further valuation gains in the near term.

“We don’t have another catalyst, near term, to justify a continued rerating higher in small caps…into year-end,” he noted.

This puts the onus on small-caps to deliver earnings growth that meets or exceeds expectations, a challenge given that current valuations already price in significant optimism.

Six small-cap stocks that could be resilient performers

To identify small-caps poised for sustained growth, analysts at Barron’s have focused on companies with strong earnings momentum and manageable valuations.

A recent screen of S&P 600 constituents by the publication highlighted 23 stocks meeting these criteria, including Steven Madden, Tripadvisor, Enova International, Allegiant Travel, LiveRamp Holdings, and Mr. Cooper Group.

Steven Madden, with a market cap of $3.2 billion, has consistently outperformed earnings expectations in seven of the past eight quarters.

The fashion brand anticipates mid-teens percentage growth in international sales, particularly in Europe, where it is gaining market share.

Analysts project the company’s revenue to grow by over 5% annually through 2026, with earnings per share (EPS) rising 12% annually, assuming stable product costs and marketing expenses.

Tripadvisor, valued at $2 billion, also stands out.

Despite competition from giants like Booking Holdings and Expedia Group, the company has achieved steady sales growth since 2020.

It derives revenue from hotel and airline advertising as well as restaurant reservations, supported by innovations like an artificial intelligence-powered assistant on its platform.

Analysts forecast annual revenue growth of nearly 7%, with adjusted EPS climbing 14% through 2026, thanks to improving margins and disciplined spending.

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US equity averages were little changed on Tuesday as investors waited for the release of inflation data and further economic cues later this week. 

At the time of writing, the Dow Jones Industrial Average was steady at 44,427.70 points, while the S&P 500 was at 6,053.44 points.

The Nasdaq Composite was also flat at 19,764 points. 

David Morrison, a senior market analyst at Trade Nation, said:

Now is the time for fund managers and others to engage in a bit of window-dressing to put the brightest gloss on their portfolios. Of course, that could be seen as an overly complacent view.

It could be that investors are getting a bit nervous now, as stock indices trade near record highs and as market-leading equities are overvalued by many important measures.

The major averages fell on Monday with the S&P 500 index and the Nasdaq Composite dropped about 0.6%. Nasdaq fell on Monday as shares of NVIDIA Corporation slid. 

The stock NVIDIA Corp was down on Tuesday as well after a Chinese regulator on Monday said it was investigating the company for possibly violating the country’s antimonopoly law. 

In contrast, Meta Platforms, which also fell on Monday, was 1% higher today. 

Investors are waiting for the release of the US consumer price index data on Wednesday.

The market will monitor the data closely to assess the Federal Reserve’s next move in terms of its monetary policy. 

Sirius XM shares plunge

Shares of radio operator Sirius XM plunged more than 10% on Tuesday after the company appointed a new chief operating officer and also announced cost-cutting measures. 

The firm said it will target an initial incremental $200 million of annualized savings as it exits 2025, citing “marketplace headwinds.”, according to a CNBC report.

The company said it will also move its marketing and other resources away from “high-cost, high-churn audiences in streaming”, as per the CNBC report. 

Shares of Alaska Air Group jump

Share of Alaska Air Group rose nearly 14% after the carrier raised its fourth-quarter earnings forecast and authorised a $1 billion stock buyback. 

The company now expects earnings to come in between 40 cents to 50 cents per share from its previous estimates of 20 cents to 40 cents per share.

Analysts at FactSet were expecting earnings of 49 cents per share for the fourth-quarter. 

Oracle and NVIDIA slip

Shares of Oracle slipped nearly 8% on Tuesday after its quarterly revenue fell short of Wall Street expectations. 

The company reported $14.06 billion in second-quarter revenue, which was below analysts’ expectations of $14.11 billion as per LSEG.

However, revenue was 9% higher compared with the previous year. 

Meanwhile, shares of NVIDIA Corp extended losses after China launched an investigation into the company possibly violating the country’s antimonopoly law on Monday.

The stock was down nearly 2% on Tuesday after falling 2.6% in the previous session.

According to CNBC, this marks NVIDIA’s longest losing streak since September.  

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CVS Health stock price continued to underperform the market this year as the pharmacy industry faced significant challenges. It has dropped by over 30% this year, while the S&P 500 and Nasdaq 100 indices have soared to a record high. 

Pharmaceutical retailers are in a crisis

CVS Health and other companies in the industry are in a crisis mode as growth slows, costs rise, and competition escalates.

Rite Aid, one of the biggest players in the industry, has already filed for bankruptcy, while Walgreens Boots Alliance has been kicked out of the Dow Jones index. Media reports suggest that the company may be taken private soon.

CVS Health Group is also not doing well. It recently concluded its restructuring, and the company has hinted that it may change its business strategy soon.

One of the things being considered is spinning off its Aetna business, which it acquired for $69 billion in 2018. Such a spin-off would give Aetna a smaller valuation since the combined company is now valued at $70 billion.

CVS is facing major challenges. Wages in its shops have risen in the past few years as many states have been forced to add salaries. At the same time, the company is struggling with retail theft and has been forced to lock up some products, a solution that has pushed more customers away. 

Further, CVS and Walgreens were forced to pay over $10 billion to settle opioid claims, with the former agreeing to pay $5.7 billion over 10 years. 

The company is also facing strong competition from companies like Amazon and Walmart, which have spent billions investing in the pharmaceutical industry. 

More customers are using these retailers to do their shopping, partly because of their subscription packages like Walmart+ and Amazon Prime.

Read more: Why CVS Health stock could appreciate 35% from here

Good top-line growth, but weak  bottom-line momentum

CVS Health are seeing weak top-line and bottom-line growth. The most recent financial results showed that its top-line growth did well. Its total revenue rose to $95 billion in the last quarter from $89 billion in the same period last year.

CVS Health’s nine-month revenue rose to over $275 billion from the previous $263 billion. Most of this revenue growth was because of its premiums, which rose to over $30 billionn, and services, which rose to $4.27 billion.

CVS reported a net income of just $87 million, a big drop from the $2.26 billion it made last year. This significant decline was partly because of the $1.1 billion restructuring costs that it spent. Assuming that it had not these restructuring costs, its net income would have been much lower than last year.

Analysts expect that CVS Health’s revenue rose by 3.53% to $97.1 billion in the current quarter. Its annual revenue this year will be $371 billion, followed by $386 billion in the next financial year.

CVS Health’s earnings per share is set to drop to $5.31 this year from $8.74 last year. The profitability will then recover to $6.38 next year. This performance, coupled with its planned restructuring means that the stock will bounce back. It has also replaced the former CEO Karen Lynch with David Joyner.

CVS Health stock price analysis

CVS chart by TradingView

The daily chart shows that the CVS share price has been in a strong bearish trend. It has found a strong support at $53.76, where it has failed to move below several times since June this year.

There are signs that CVS has formed a triple-bottom pattern, a popular bullish sign in the market. The 50-day and 100-day Exponential Moving Averages (EMA) have remained above the price.

Therefore, a contrarian case for the CVS Health stock price can be made. If this happens, the next point to watch will be at $66.92, the triple-bottom’s neckline, which is about 21.5% above the current level.

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Alphabet Inc. shares (GOOG) surged 6.3% Tuesday, marking the biggest jump since October, following the announcement of a significant quantum computing milestone.

The Google parent introduced the Willow quantum chip, claiming it could solve problems in just five minutes that would take supercomputers 10 septillion years.

This breakthrough underscores Google’s decade-long commitment to quantum computing, a journey initiated by CEO Sundar Pichai in 2012 with the establishment of Google Quantum AI.

The announcement propelled Alphabet shares to their highest level since July, building on a 25% rally from a September low. By 11:10 am, GMT+5, the stock had given up some of the gains and was trading higher by 3.8%.

Why is the Willow quantum chip a breakthrough?

While introducing Willow on X, Pichai described it as a breakthrough “that can reduce errors exponentially as we scale up using more qubits, cracking a 30-year challenge in the field”.

Willow achieved a groundbreaking milestone, completing a standard benchmark computation in less than five minutes—a task that would take today’s fastest supercomputers an astonishing 10 septillion years (10²⁵), a timespan far surpassing the age of the universe.

The program aims to harness the principles of quantum mechanics to drive scientific progress and tackle global challenges.

The announcement elicited a succinct but striking response from Tesla CEO Elon Musk, who shared his amazement with a single word, “wow,” on the social media platform X, emphasizing the magnitude of Google’s achievement in the quantum realm.

While Alphabet has not disclosed immediate applications for this breakthrough, analysts have praised it as a pivotal step toward the commercialization of quantum computing.

Colin Sebastian, an analyst at Baird, noted that while widespread adoption of quantum technology is still years away, Willow highlights Alphabet’s technological leadership.

Bloomberg Intelligence added that quantum advancements could enhance AI training and inferencing while solidifying Alphabet’s chip advantage over other tech giants.

Small quantum stocks ride the wave

The ripple effects of Alphabet’s announcement extended to other quantum-related stocks.

Rigetti Computing soared 29%, while D-Wave Quantum and IonQ gained 6.7% and 5.4%, respectively, in Tuesday’s trading.

Rigetti has experienced a remarkable 600% surge since September, demonstrating the growing investor interest in quantum technology.

Options traders also showed heightened interest in Alphabet, with over 400,000 call options traded by mid-morning, nearly five times the volume of put options.

This spike underscores optimism about Alphabet’s potential to leverage quantum computing innovations for long-term growth.

Challenges and opportunities ahead

Despite the enthusiasm, Alphabet faces hurdles, especially including antitrust lawsuits.

Additionally, the potential US ban on TikTok in 2025 could offer limited upside for Alphabet’s YouTube platform.

Analysts estimate that every 10% of TikTok’s reallocated user engagement could add $921 million in YouTube revenue, though profitability gains would be modest due to lower margins.

As Alphabet approaches the year-end, its stock has gained about 32%, narrowly outperforming S&P 500 which has grown by close to 28% during the same period.

However, it continues to lag behind most “Magnificent Seven” tech giants barring Microsoft and Apple, signalling that while quantum breakthroughs are promising, broader challenges still loom.

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Deutsche Bank expects seven UK stocks to do well amidst an uncertain market environment in 2025.

These include Experian, Diploma, PageGroup, Rentokil, JTC, XPS Pensions, and Renew Holdings.

Other than XPS, all of these companies are listed in the United States as well.

Within these names, the investment firm is most bullish on PageGroup PLC (LON: PAGE) that it expects will hit £55 next year.

Deutsche’s price target translates to about a 50% upside in shares of the recruitment company from current levels.

Why is Deutsche Bank positive on PageGroup stock?

Deutsche Bank is uber bullish on PageGroup as it’s a cyclical stock.

What that means is PAGE will likely recover sharply once economic activity takes off. Shares of the London-listed firm have lost about 25% over the past eight months.

The investment firm recommends buying PageGroup stock at the current discount because it has “a presence in the permanent recruitment market.”

Deutsche analysts see significant potential in PAGE for “strong positive earnings momentum when recruitment markets improve,” as per their research note on Tuesday.

In October, PageGroup reported a decline in its quarterly profit due to a hiring slowdown in a few of its key markets.

“While most markets were sequentially stable, we experienced softer activity and trading in a number of European countries, including France and Germany,” the company told investors at the time.

PAGE took a 19% hit to gross profit in its largest market (Germany) and a 16% hit to gross profit in its second-largest market (16%) in the third quarter.

Nonetheless, PageGroup shares currently pay a lucrative dividend yield of 4.43% that makes it worth owning for the long term, as per the Deutsche Bank analysts.

Deutsche Bank is also bullish on Diploma stock

Diploma PLC (LON: DPLM) shares have already rallied more than 30% since the start of 2024.

Still, experts at Deutsche Bank continue to see this supply chain and distribution stock as a “top compounder, well placed for 2025.”

The investment firm expects DPLM to maintain its operating margin at a solid 21% next year as it has a high-quality “portfolio of decentralised businesses that increasingly serve structurally growing markets.”

Deutsche likes Diploma stock as it relies predominantly on the US for production and, therefore, may prove to be resilient against a potential increase in tariffs under the Trump administration.  

The bank recently raised its price target on DPLM to £51 that indicates potential for another 15% increase from current levels.

Much like PageGroup, Diploma is also a dividend-paying stock.

While its yield at 1.31% is significantly modest compared to PAGE, it, nonetheless, is attractive for those interested in generating passive income over the long term.

Last month, DPLM forecast organic revenue growth of about 6.0% for fiscal 2025.  

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