Goldman Sachs likes these small caps with strong balance sheets, improving cash flows

An employee of Dick's Sporting Goods in Destiny USA mall delivers products to a shopper, as customers pick up goods from retailers offering curbside pick up as the coronavirus disease (COVID-19) restrictions ease in Syracuse, New York, U.S., May 15, 2020.
Zachary Krahmer | Reuters

(This story is for CNBC Pro subscribers only.)

After a stunning market comeback, small caps are still lagging their large-cap counterparts, leaving investors a good opportunity to pick out winners, Goldman Sachs said. 

The Wall Street firm found a number of small-cap names with strong balance sheets and improving cash flows, which stand the best chance to outperform in the near term as the lumpy economic recovery unfolds.

"While some of the focus on liquidity / balance sheet concerns has abated given the material tightening in credit spreads, we expect companies with strong financial positions to continue to stand-out as COVID-19 uncertainties persist," Deep Mehta, a vice president at Goldman, said in a note.

The small-cap Russell 2000 is still down about 12% this year, compared to the S&P 500's less than 4% loss.