TSX lower after index logs fresh record closing high
Investing.com -- Small and mid-cap (SMID) stocks are beginning to attract renewed interest after a long stretch of underperformance, according to Bank of America strategists, with signs of profit recovery and optimism around Federal Reserve cuts helping sentiment.
Still, many names remain “in the penalty box,” and valuation gaps versus large caps persist.
Earnings season has been particularly punishing for smaller companies. BofA noted that SMIDs missing estimates underperformed by an average 16–18 percentage points in Consumer and Tech sectors, far outweighing the modest gains enjoyed by stocks that beat expectations.
BofA pointed to growing evidence of renewed interest in the space, with attendance at the bank’s SMID virtual conference up 120% year-on-year and inflows into small caps continuing despite ETF selling.
Technical strategist Paul Ciana said the Russell 2500 is showing an “optimistic setup,” but stressed that “the burden is on the bulls to push the index to new highs.”
Against this backdrop, BofA highlighted 13 Buy-rated SMID cap stocks that have either suffered outsized sell-offs or significantly lagged peers but where analysts see conviction in a rebound.
On average, these names are trading about 30% below their 52-week highs and trailing the Russell 2500 by 20 percentage points year-to-date.
The list spans health care, technology, consumer, industrials, and real estate. Acadia Realty Trust has been marked down heavily relative to other retail REITs, but analysts expect above-peer net operating income growth.
Allegro MicroSystems is positioned to benefit from electric vehicle and ADAS adoption, while Bath & Body Works is expected to build on recent sales inflection with new products and a Disney partnership.
In biotech, BioCryst Pharmaceuticals, Catalyst Pharma, and Janux Therapeutics all carry near-term catalysts despite sharp share declines.
Inspire Medical Systems is down around 50% this year on product launch delays but could reaccelerate growth with its new Inspire V device.
Gitlab, flagged as an “underappreciated DevSecOps share gainer,” sold off on conservative guidance yet is seen continuing to take market share.
Other picks include Cellebrite, Henry Schein, Kirby Corp, Life Time Group Holdings, and Silgan Holdings.
BofA noted that several, including Gitlab , Acadia, BioCryst, and Catalyst, remain underowned by SMID funds, creating room for positioning to add support.
Ciana also pointed to favorable technical patterns forming in Silgan, Cellebrite, Janux, and Catalyst, suggesting potential bottoms and rebound setups.