Many small-cap stocks took a beating in 2022, as sharply rising costs hurt profits, but the situation could be reversing, Goldman said, creating an opportunity for investors if they know where to look. “With inflation expected to moderate, companies that can at a minimum stabilize their gross margins this year and meaningfully expand them beyond that should be well positioned in our view,” said analyst Deep Mehta in a research note. The consumer price index has fallen from a peak 9.1% rate last June, but remains high. In December, consumer prices were up 6.5% from the prior year. Economists are expecting the trend to continue , as the Federal Reserve hikes interest rates to cool things off. Inflation and the Fed’s rate hikes have weighed on stocks. Last year, the Russell 2000 fell 22% from 2021, its worst annual performance since 2008. By scanning small-cap names that underperformed as quickly rising costs cut into earnings, investors may find stocks that are likely to show the biggest benefits as the price of energy, transportation and other materials ease. Goldman screened small-cap stocks that are expected to show gross margin expansion through 2024. The bank found companies that reported gross margin declines of more than 50 basis points, and those that could see gross margins expand at least 100 basis points from 2022 to 2024. A basis point equals 0.01 of a percentage point. The following names showed the biggest gains between the two time periods, making them Goldman’s picks as inflation decelerates. Allegiant Travel , the parent of low-cost airline Allegiant Air, is expected to see its margins increase. Airlines were hurt by rapidly rising energy costs last year. But lower energy costs are one of the factors driving consumer prices down. Goldman said there is a risk of a trade down as the economy slows. That would reverse Allegiant’s key 2022 tailwind: the pent-up desire to travel. Apparel and accessories retailer Gap is estimated to see its margins…
2023-01-24 22:12:00
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