Strategists and investment managers surveyed by Barron’s have highlighted 12 small- and mid-cap companies that investors should watch amid expectations of Fed rate cuts, which traders believe could start as early as September.

Betting on value and quality

Within small caps, the best-performing styles during Fed easing cycles have been value over growth and quality over risk, according to Jill Carey Hall, equity & quant strategist for BofA Securities, whose note was cited by Barron's.

Hall and her team ran a screen of the Russell 2000 to find companies with attractive valuations, a recent history of paying dividends, and/or buying stock, as well as healthy returns on invested capital.

Several consumer discretionary stocks made the cut:

  • construction companies Meritage Homes (market capitalization $5.3 billion) and Taylor Morrison Home ($6.6 billion);

  • automotive-related companies Visteon ($3.3 billion), Asbury Automotive ($4.7 billion), and Group 1 Automotive ($5.8 billion);

  • school bus manufacturer Blue Bird ($1.8 billion);

  • commercial truck dealer Rush Enterprises ($4.4 billion).

Financial, industrial, consumer

Francis Gannon, co-CIO with Royce Investment Partners, also spoke to Barron's about a possible broadening of the rally to small caps. Gannon says small-cap companies should benefit more directly from expected Fed rate cuts, while the stimulus and tax cuts resulting from the recently passed One Big Beautiful Bill should help, too.  

Gannon offered five names he likes:

  • Evercore Investment and Financial Group (market capitalization $11.75 billion);

  • welding tools manufacturer ESAB ($6.8 billion);

  • air conditioner equipment maker AAON ($6.5 billion);

  • outdoor gear maker Yeti ($2.8 billion);

  • Advance Auto Parts ($3.4 billion).

James Ragan, director of investment management and research at D.A. Davidson Wealth Management, did not name specific stocks, but noted that the Russell 2000 has a higher concentration of financials, industrials, and healthcare stocks, noting that these are “three sectors that jump out as still having value.”

Smaller companies are particularly cheap right now, Barron's points out. The S&P 600 is trading at about 17 times earnings estimates for 2025, nearly 30% below the broader-market S&P 500’s multiple. The S&P 600 has typically traded at only about a 25% discount.

The AI translation of this story was reviewed by a human editor.

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