Group of smaller stocks is primed for major gains, Oppenheimer says

October 8

Small- and mid-cap stocks are expected to see a boost as the Federal Reserve cuts rates, and Oppenheimer named a few of its favorite plays on the space. Stocks with smaller market caps, which are more sensitive to higher costs of borrowing, are expected to rebound and outperform as the Fed embarks on a rate-cutting cycle. In 2024, the small-cap benchmark Russell 2000 ‘s 8% rise still lags the S & P 500’s roughly 19% gain. However, Oppenheimer thinks there is further upside ahead for these names. “Although the S & P 600 and Russell 2000 are still below their July peak and their 2021 high, these small-cap benchmarks continue to defend support and maintain a bullish trend,” the firm wrote in a Monday note. Oppenheimer listed its top picks with a market cap between $1 billion and $10 billion. A few of the names are below, and the firm rates them all as outperform. Internet services provider Cogent Communications is an underappreciated artificial intelligence beneficiary, according to analyst Timothy Horan. “We believe the company has unrecognized, valuable assets in [Internet Protocol version 4] datacenters power/space and fiber that it should integrate and begin to monetize by year-end,” Horan said. The stock offers a 5% dividend yield and healthy — albeit “lumpy” — free cash flow growth, the analyst added. To be sure, shares are up just 1.1% year to date. Horan has a $90 price target on shares, which implies 17% upside potential from Monday’s close. CCOI YTD mountain Cogent Communications in 2024 Health-care services stock Chemed is another one of Oppenheimer’s favorites. Chemed has two segments: Vitas Healthcare, a hospice care provider company, and Roto-Rooter, a plumbing and drain cleaning company. This portfolio “offers an attractive mix of diversification and growth,” according to analyst Michael Wiederhorn. Wiederhorn thinks Chemed is well-positioned to benefit from aging demographic trends. “Due primarily to favorable demographics, strong market share gains, and a recovery from the pandemic lows, Vitas growth is trending above historical levels,” he wrote. “With a clean balance sheet, strong cash flow and an attractive growth profile, we believe Chemed remains an attractive stock to own for the next 12-18 months,” the analyst said. Year to date, shares are down by around 1%. Wiederhorn’s $650 price target suggests shares advancing 12.5% from where they closed on Monday. CHE YTD mountain Chemed in 2024 One way for small-cap investors to gain exposure to the rise in sports betting is through Genius Sports , according to Oppenheimer. The online sports-betting (OSB) data provider could surge more than 37%, based on the $10 price target Oppenheimer holds on shares. “GENI is firmly entrenched as a main player in the US OSB landscape after extending its National Football League and Football DataCo partnerships into 2028 and 2029, respectively,” said analyst Jed Kelly. Professional sports leagues can also use online sports-betting to generate greater fan engagement, he noted. Genius Sports shares have gained around 18% year to date. —CNBC’s Michael Bloom contributed to this report.

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