Yahoo Finance

Small-cap stocks are like hidden gems which come into the limelight when there is a marked improvement in market conditions. Over the last three months, major indices like S&P 500 and the Dow Jones Industrial Average rallied a respective 2.34% and 3.13%, buoyed by the recovery in crude price and improvement in U.S. economic data.

Despite the risks involved, small cap stocks possess the ability to generate superlative returns. However, factors like business model, management quality and financial track record should be taken into consideration before investing in this category of stocks.

Year to date, the S&P Small cap 600, which measures the small-cap segment of the U.S. equity market, witnessed 2.27% improvement in returns, outpacing both S&P 500 and the Dow Jones Industrial Average returns of 0.77% and 1.49%, respectively.

Such data underpin the strategy to invest in stocks which are raking in above-market returns over the last three months while the market is witnessing a recovery.

6 Promising Stocks

Small cap stocks are always the best investing option for those who seek high returns over the short term.

We have highlighted six stocks with a Zacks Rank #1 (Strong Buy), VGM score of ‘A’ and market cap less than $1 billion that have rallied more than 10% over the past three months and still have room for more upside. We have used the Zacks Stock Screener to narrow down on stocks with solid growth prospects at the moment.

Our first pick is Gibraltar Industries, Inc. ROCK which manufactures and distributes products to the industrial and buildings market and continues to gain significantly from its value-creating growth strategies. Moreover, the acquisition of the RBI business has unlocked considerable synergies. Meanwhile, increasing demand for solar racking products have been boosting the company’s top as well as bottom-line results.

The company has rallied more than 18% over the last three months.

Our next choice is Central Garden & Pet Company CENT – a leading producer and marketer of premium and value-oriented products focused toward the lawn & garden and pet supplies markets in the U.S. Management stated that organic growth, accretive acquisitions such as that of the pet bedding business and divestment of non-strategic assets helped the company to enhance its portfolio, leading to an improved performance.

This company’s shares have scaled above 22% in the last three months.

Another compelling pick at the moment would be Carmike Cinemas Inc. CKEC – one of the largest motion picture exhibitors in the U.S. The launch of hit releases coupled with a strong movie line-up for 2017 will certainly propel growth at the company.

This company has witnessed a 32% appreciation in its share price over the last three months.

Our fourth pick is Superior Industries International, Inc. SUP which designs and manufactures cast aluminum road wheels primarily for the domestic original equipment manufacturer (OEMs) market. Improvement in the auto market coupled with other macro factors has triggered a 23% upward movement in stock price over the last three months. In 2016, the company expects to witness an improvement in its manufacturing and operational initiatives, which will eventually lead to higher profits.

Next, American Public Education, Inc. APEI is an online provider of higher education, primarily focused on serving the military and public service communities. The company has adopted a geographical approach to marketing, which focuses on using cost-effective channels and aims to reach out to students who are more likely to succeed. Moreover, the launch of APU mobile app is a growth driver for the company.

This stock witnessed more than 12% growth in the last three months.

Our last pick in this category is Delta Apparel Inc. DLA – a vertical manufacturer of knitwear products which also produces finished products for America's leading retailers, corporate industry programs and sports licensed apparel marketers.

Delta Apparel has gained nearly 39% in the past three months.

The Hidden Gems

These stocks have managed to avoid the limelight so far but are sure to grab attention as the macro economic conditions improve.