- Small caps are sprinting forward in 2026, with the Russell 2000 outperforming the opposite main indices.
- After years of mega-cap tech dominance, capital is lastly rotating towards worth and cyclicals.
- Under, we spotlight 5 small-cap shares positioned to capitalize amid the present market setting.
After years of slim management dominated by the “Magnificent Seven” (Apple (NASDAQ:), Microsoft (NASDAQ:), Nvidia (NASDAQ:), Amazon (NASDAQ:), Meta (NASDAQ:), Alphabet (NASDAQ:), Tesla (NASDAQ:)) and mega-cap tech shares, capital is aggressively rotating into broader, extra economically delicate areas.
Within the first weeks of 2026, the – the bellwether for small-cap US shares – has surged previous its bigger friends, fueled by a rotation out of tech and into worth and cyclicals as macro and micro catalysts align of their favor.
Supply: Investing.com
This rotation suggests a more healthy, extra resilient market section, much less reliant on just a few names and extra tied to actual financial exercise. Nevertheless, it’s not with out dangers: volatility from geopolitical occasions, tariff uncertainties, or Fed coverage shifts may interrupt the pattern.
Nonetheless, many strategists view it as structural, with small caps and cyclicals positioned for multi-quarter outperformance if earnings speed up and charges stabilize.
Listed here are 5 shares that buyers ought to contemplate rotating into amid the present early-2026 setting of sector rotation from mega-cap tech dominance towards worth, cyclicals, and small caps:
1. Willdan Group
- YTD Return: +22.6%
- Market Cap: $1.87 Billion
Willdan Group (NASDAQ:) is a powerhouse in power and infrastructure consulting, contemporary off a 262.5% 1-year return and an all-time excessive. Q3 earnings crushed estimates, and new contracts, like Alameda County’s $97 million challenge, gasoline double-digit income development.
Supply: InvestingPro
With a ahead PEG of 0.16 (deep worth by development requirements) and a “Sturdy Purchase” consensus, Willdan displays the market’s starvation for sustainable infrastructure and effectivity performs.
2. The Gorman-Rupp Firm
- YTD Return: +19.2%
- Market Cap: $1.50 Billion
Gorman-Rupp (NYSE:) designs and manufactures industrial pumps, serving important sectors from water to power. The inventory is up 53.4% over the previous 12 months, pushed by strong income development, regular dividend payouts, and a ‘GREAT’ monetary well being rating of three.30.
Supply: InvestingPro
With a ahead PEG of 0.89 and a consensus “Sturdy Purchase,” GRC combines resilience with upside. Analyst targets suggest a possible 39.8% achieve from present ranges.
3. HCI Group
- YTD Return: -18.4%
- Market Cap: $2.03 Billion
HCI Group (NYSE:) is a diversified insurance coverage and tech participant, driving regulatory tailwinds and tech-driven underwriting outperformance. It boasts a 3.72 monetary well being rating, 130.4% EPS development forecast for 2026, and a 20.7% ROIC, figures that dwarf most friends.
Supply: Investing.com
Whereas shares are down YTD, analysts goal a giant upside of practically 57% from present ranges as its Exzeo tech spinoff and Florida reforms play out.
4. DiamondRock Hospitality
- YTD Return: +3.7%
- Market Cap: $1.90 Billion
Diamondrock Hospitality (NYSE:) owns a portfolio of premium resorts and resorts, thriving as journey rebounds. The inventory hit a 52-week excessive and provides a 5.2% dividend, with analyst upgrades and a 134% EPS development forecast for full-year 2026.
Supply: InvestingPro
Its 7.9% shareholder yield and robust purchase consensus mirror confidence in continued demand for leisure journey and asset-light hospitality fashions.
5. Inexperienced Plains
- YTD Return: +25.7%
- Market Cap: $860.4 Million
Inexperienced Plains Renewable Vitality (NASDAQ:) is a number one low-carbon ethanol producer, uniquely positioned because the power transition accelerates. Shares are up 41.8% in a 12 months regardless of risky earnings, with a ahead PEG of 0.10 and 107.6% EPS development forecast for This autumn 2025.
Supply: InvestingPro
UBS simply raised its goal to $12.00, whereas InvestingPro Truthful Worth fashions level to 7.5% upside to $13.24/share.
Backside Line
With sector rotation in full swing, the market is rewarding nimble buyers who look past the tech behemoths. The lesson: Management modifications quick on Wall Avenue, and at present’s laggards might be tomorrow’s winners.
Whether or not you’re a novice investor or a seasoned dealer, leveraging InvestingPro can unlock a world of funding alternatives whereas minimizing dangers amid the difficult market backdrop.
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Disclosure: This is not financial advice. Always conduct your own research.
At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF, and the Invesco QQQ Trust ETF. I am also long on the Technology Select Sector SPDR ETF. I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for extra inventory market evaluation and perception.
