Think Small-Caps Poised for Growth? Check Out These Professional Stock Recommendations

Small-Cap Stocks Take the Lead in Early 2026

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In the opening weeks of 2026, the S&P 600 and Russell 2000 indices have outperformed the broader stock market.

Main Highlights

• Both the Russell 2000 and S&P 600 have climbed over 4% during the first trading sessions of the year.
• Bank of America Global Research identified 30 stocks with 12-month price targets suggesting an average potential gain of nearly 30%.

Stocks that have often been overlooked may be poised to become market leaders.

Small-cap companies, typically valued between $250 million and $2 billion, are expected by analysts to outperform larger firms this year. Their strong start in 2026, with the S&P 600 and Russell 2000 both gaining over 4%, reinforces this outlook.

This isn't the first time experts have predicted a surge for smaller companies, only to see them lag behind. However, this year, several factors could finally give small-caps the edge: anticipated earnings growth, a more supportive monetary environment, and the potential removal of certain tariffs.

Why This Is Important

Large-cap stocks have dominated returns in recent years, but some strategists now expect gains to be more evenly distributed across the market.

According to Jill Carey Hall, who leads U.S. small- and mid-cap strategy at Bank of America, "Earnings outperformance should drive small caps to lead."

In a recent update, Hall shared a selection of 30 "smid-cap" stocks with 12-month price targets indicating an average upside of close to 30%.

She noted that roughly 90% of these stocks have seen positive consensus earnings-per-share revisions in the past quarter, with a median projected earnings increase of 23% over the next year.

Additionally, Bank of America economists are forecasting three interest rate cuts before year-end. Lower rates typically benefit small-cap companies, which often have higher debt loads than larger firms, as reduced interest expenses can improve their profit margins.

Among the bank’s top picks for this segment are Alaska Air Group (ALK), Birkenstock (BIRK), Duolingo (DUOL), e.l.f. Beauty (ELF), Vita Coco (COCO), and Wayfair (W).