3 Small Caps That Could Deliver Big Gains by Year-End

The Russell 2000 Index has been showing some strength lately as investors are beginning to take more risk with their portfolio allocations. At the end of last week, more than 80% of the companies in the small-cap index were trading above their respective 50-day moving average, an improvement from 56% of the index trading above their 50-day trendlines two weeks ago.


The improving breadth of the "risk on" trade (i.e., investors taking more risks by buying small-cap stocks) is an indication that the last quarter of the year is likely to finish strong for stocks. With that in mind, we thought it would be valuable to look at some stocks that are likely to lead the small-cap universe higher through the rest of the year.

To do this, we scoured the Russell 2000 Index companies for stocks that are trading above their 50-day moving averages and trending higher. In addition, we added criteria to find companies with a higher chance of analyst upgrades and short interest squeezes, both of which would help to boost prices.

The table below displays the top 10 small-cap companies that are in a position to lead the Russell 2000, and the rest of the market, higher.

Let's take a look at a couple that stand out to us.

First, the homebuilders on the list. Both KB Homes (NYSE: KBH) and Ryland Group (NYSE: RYL) are members of the residential construction sector, a group of stocks that has grabbed a bid as of late.  (more)