The market finished strong yesterday due to more positive news on the vaccine front and stimulus checks that should soon reach American’s bank accounts. This optimism has been outweighing worsening coronavirus trends, as the new strain found in the UK was just discovered in the U.S. 

With one more trading day left for the year, it’s time to look ahead to 2021. As the vaccine continues to roll out, the economy should begin to see a stronger recovery, especially with a favorable monetary policy and new fiscal stimulus. That’s why I am recommending investors start to consider small-cap stocks that could benefit from faster economic growth, including NETGEAR, Inc. (NTGR), ADTRAN, Inc. (ADTN), and Apogee Enterprises, Inc. (APOG).

But before we get into those stocks, let’s take a look at the markets over the past few days.

Market Commentary

The market started strong on Monday after President Trump signed the long-awaited $2.3 trillion spending bill. Then on Tuesday, all three major indices hit intraday record highs before turning negative. Investors were initially optimistic that they would receive larger stimulus checks, but that hope dimmed later in the day after Senate Majority Leader Mitch McConnell blocked a vote for $2,000 stimulus checks. 

Stocks were in the green yesterday, with the Dow Jones Industrial Average hitting a record closing high. The S&P 500 and Nasdaq Composite also closed near their own closing highs. The market was boosted by more positive vaccine news as AstraZeneca’s (AZN) vaccine became the second vaccine authorized in the UK. Stocks were also driven by Treasury Secretary Steven Mnuchin’s announcement on Tuesday that $600 stimulus checks could begin arriving this week.

Market Outlook

As we head into the new year, the economy looks primed for faster growth due to several factors. First, Fed Chair Jerome Powell has indicated that he will keep interest rates near zero for as long as it takes to bolster the economy and the markets. With rates so low, the market’s rise should continue for quite some time. 

The economic recovery is already underway as economic activity rebounded in the third quarter. We are also seeing improving forecasts for earnings and revenues for 2021. The new stimulus bill should also help. Second, the news on the vaccine front continues to provide hope that the end of the pandemic is near. While the rollout hasn’t been perfect, we now have four companies in the process of providing vaccines.

One area that I see benefiting from a strong economy is small-cap stocks. Small-cap companies have historically benefited from faster economic growth. There is already a jump in improved forecasts for small-cap stock earnings. The Russell 2000 index, which tracks small-cap stocks, is up 28.3% since late October. I expect that to continue as we head into 2021. That’s why I am highlighting three small-cap stocks that I am bullish on.

NETGEAR, Inc. (NTGR)

NTGR is a provider of networking solutions. The company offers Internet-connected products for networking, broadband access, and network connectivity. NTGR has already benefited from the work from home trend as it saw strong demand for connected home products. The company holds a competitive edge in Wi-Fi with 44% and 49% of the share in U.S. retail Wi-Fi and switch markets.

Even as people get back into the office, the company is poised to continue growing due to its latest technological innovations. Due to the increasing demand for cloud-based applications for businesses, the company is introducing next generation commercial products. Earnings estimates for both the current year and next year have increased by 28.8% and 21.7%.

The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and a “B” for Industry Rank. It is also ranked #9 in the Technology – Communication/Networking industry.

ADTRAN, Inc. (ADTN)

ADTN is another provider of networking and broadband infrastructure solutions. The company serves a diverse domestic and international customer base in multiple countries, including Tier-1, 2, 3 service providers, cable, and distributed enterprises. Its solutions and services enable voice, data, video, and internet communications across a variety of network infrastructures.

The company is benefiting from fiber access advancements, which should drive future growth. Earnings are expected to grow 95.5% next quarter. The company expects a pickup in corporate capital spending that should drive growth in its domestic markets for ultra-broadband and Fiber-To-The-Home solutions.

The stock is rated a “Buy” in our POWR Ratings system. It holds a grade of “A” for Trade Grade and a “B” for Buy & Hold Grade, Peer Grade, and Industry Rank.

Apogee Enterprises, Inc. (APOG)

APOG manufactures architectural glass and metal glass framings and provides building glass installation services. The company is poised to gain from an increase in market share, an expansion into new markets, and the launch of new products. APOG has a large backlog in its Architectural Services segment, which should drive growth over the short and mid-term.

In fact, the company’s Architectural Services segment continues to win new projects as it sees strong demand from new construction activities. APOG has also undertaken cost-cutting initiatives that have not only bolstered its latest earnings report but should also improve its working capital and cash flow.

The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” for Trade Grade and Buy & Hold Grade, and a “B” for Industry Rank. APOG is also the #14 rated stock in the Industrial-Building Materials industry.

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NTGR shares . Year-to-date, NTGR has gained 66.91%, versus a 17.73% rise in the benchmark S&P 500 index during the same period.

About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...

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