3 Small-Cap Stocks With Room to Run Despite Tariff Headwinds

Key Points

• The Russell 2000 index, a benchmark for small-cap stocks, has shown recent upward momentum, climbing 15.7% over the last month.
• Small-cap stocks remain sensitive to interest rates and tariff uncertainties, but opportunities still exist.
• Advance Auto Parts, La-Z-Boy, and National Vision are three names that offer the right mix of analyst sentiment, valuation, and tariff protection.

This week's rally is particularly encouraging for investors who like to invest in small-cap stocks. The Russell 2000 index, widely considered to be the small-cap index, is up about 3.8% for the week. This continues the momentum that’s been building for the last month, in which the index has climbed 15.7%.

Small-cap stocks are particularly sensitive to interest rates. Many of these companies rely on debt for their operations, which means, in some cases, it would be harder for companies to absorb higher tariff charges. Interest rates may not be coming down as fast or far as these companies expected. In the case of tariffs, the progress between the U.S. and China is encouraging, but there’s a difference between working toward an agreement and having an agreement done.

That said, investors can expect more volatility in the next 90 days. But that shouldn't keep you away from the small-cap stocks in this article. Each has a reason investors can believe in, no matter what happens with tariffs and interest rates.

This Beaten-Down Stock Can Help Rev Up Your Portfolio

When it comes to auto parts stocks, there are other names you can consider. AutoZone Inc. NYSE: AZO and O’Reilly Automotive Inc. NASDAQ: ORLY are the two most frequently mentioned. But those are large-cap names that, for now, don’t have much upside according to analysts.

That's one reason Advance Auto Parts Inc. NYSE: AAP is an attractive choice. Short sellers have beaten this stock down, but analyst sentiment suggests that may have gone too far.

The analyst forecasts on MarketBeat give AAP stock a consensus Hold rating, but they have a $45.13 price target, which would be a 38% gain from its closing price on May 14, 2025.

AAP stock is trading near its 52-week low but has climbed over 5% in the past week amid renewed bullish market sentiment. The stock currently trades at around 42x earnings, which is pricey to itself as well as the sector. However, with short interest sitting above 17%, just a little bullish movement could force shorts to settle their position.

A short squeeze alone doesn’t justify owning AAP stock. But the company’s turnaround plan, which has included closing underperforming stores, appears to be working, particularly regarding its balance sheet.

Made in America Could Make This Stock a Comfortable Fit

The constrained housing market has taken away one source of discretionary spending. That’s been bad news for consumer discretionary stocks in general, and in particular, those of furniture makers like La-Z-Boy Inc. NYSE: LZB.

However, the maker of the iconic reclining chair may have a leg up, particularly if the tariff war gets hotter than expected.

That’s because the Michigan-based company is relatively well protected against tariffs. Much of its production happens in the United States. However, about one-third of its products are exposed to China. The company will also be affected by fluctuating commodity prices.

LZB stock is already having a good year. It’s up about 20%, and some of that may be due to its Made in America positioning. At around 14.9x earnings, LZB stock is a little expensive compared to itself, and the stock recently broke above its 50-day simple moving average (SMA).

Like many small-cap stocks, LZB doesn’t receive much analyst coverage. However, in late April, KeyCorp upgraded the stock from Sector Weight to Overweight and offered a $46 price target.

An Analyst Upgrade Makes This Stock’s Future More Clear

The first two names on this list may be familiar to many investors, who are also consumers. National Vision Holdings Inc. NASDAQ: EYE is most likely not a household name. However, this $1.47 billion eyecare company recently received a bullish upgrade from Bank of America NYSE: BAC.

The analyst raised EYE stock to a Buy from Underperform and increased its price target to $22 from $13.

The question for investors is why? National Vision is in the middle of executing a strategic plan that includes improved pricing strategies. In 2024, the company raised prices by 10% to 15% in some cases. So far, consumers are not resisting those prices.

That will be important because while National Vision has little exposure to tariffs, the company is anticipating about $10 to $15 million in increased costs, reflecting the 10% of the company’s cost of goods sold (COGS) tied to China.

One note of caution: Since the Bank of America upgrade, EYE stock has climbed over 50%. That means investors may want to wait for a pullback before taking a position or adding to their current one.