BMO: These 15 top stocks will continue to outperform the market as an explosive rally for small caps gains momentum

  • Small caps have outperformed their larger counterparts during a broader market rally.
  • Investors are getting optimistic about falling inflation and the resilient economy.
  • BMO Capital Markets shared its 15 favorite small stocks to buy right now.

So far, 2023 has been a year of reversals in the stock market.

High-flying energy stocks have taken a breather recently while beaten-down technology companies, international equities, and small caps have made a comeback. The reversal came as inflation fell and investors began to hope that there won’t be a recession in the US after all.

Smaller stocks don’t steal headlines like their large-cap peers, but they’ve actually had a better year so far. In January, the small-cap-focused Russell 2000 index beat the Russell 1000 by 3.1 percentage points, which was the largest spread in 12 months, according to Bank of America.

But the Russell 2000’s gains last month look modest compared to those of the top 15 small-cap names that strategists at BMO Capital Markets put together. These picks from the Montreal-based firm rose 13% in January while the small-cap index climbed 8.1% when translated to Canadian dollars. (In US-dollar terms, BMO’s basket appreciated by 15.6% while the Russell 2000 was up 9.7%.)

BMO small caps

BMO Capital Markets

15 small-cap stocks to buy now

Small caps have a history of seeing huge rallies. Last year, the Russell 2000 rose 22.5% from June 16 to August 16, only to give up nearly all of those gains by late September. And from late October 2020 until mid-March 2021, the small-cap index soared about 53%.

And if the Russell 2000 keeps its recent rally going, BMO’s small-cap picks will outperform this year as well.

Below are the 15 small-cap stocks that BMO Capital Markets recommends most right now, along with the ticker, market capitalization, and price-to-earnings (P/E) ratio for each. All except one of these stocks rose last month, wrote Brian Belski, the firm’s chief investment strategist, in a February 1 note.