These beaten-down small and mid-cap stocks are poised for a rebound, Barclays says

Published Thu, Jul 23 20207:54 AM EDT

(This story is for CNBC Pro subscribers only.) Small and mid-cap companies with typically weaker credit profiles have generally taken a harder hit by the unprecedented coronavirus pandemic. This created a stock-picking opportunity for investors in the space as many companies are due for a rebound, according to Barclays. The Wall Street firm screened its small- and mid-cap universe of nearly 400 stocks and found a number of high-conviction names with improving near-term fundamentals and resilient business models in the midst of the pandemic. "Our selections are poised for a rebound in their fundamentals after showing signs of bottoming out," Venu Krishna, Barclays' analyst, said in a note on Wednesday. "We are also seeing business models that are uniquely equipped to better handle the COVID-19 environment relative to their peers." These names have seen a recovery in margins and top-line growth, leading the analyst to believe their fundamentals have bottomed in 2020. Meanwhile, the companies have more non-U.S. sales exposure, less corporate travel exposure as well as higher sales exposure of ventilation systems, according to Barclays. DiamondRock Hospitality , a full-service lodging REIT, has tumbled more than 50% this year after the coronavirus devastated travel demand. However, Barclays believes the company should benefit from its greater exposure to "drive-to resorts" in markets that rely less on corporate transient and international travel demand this year. Online health insurance company eHealth has seen an increase in demand this year amid the pandemic, which pushed its stock up about 20%. Still Barclays said the company is expected to experience high single-digit to low double-digit growth over next few years. Ralph Lauren is also one of Barclays' recommended names. After its stock has dropped 40% this year, Barclays said a rebound is on the horizon as the firm is bullish on the retailer's long-term global expansion and its strong balance sheet that enables it to weather Covid-19 disruptions. Other top picks include Targa Resources , Science Applications and MGIC Investment.

Customers exit a Ralph Lauren Corp. store in downtown Chicago, Illinois.

Christopher Dilts | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Small and mid-cap companies with typically weaker credit profiles have generally taken a harder hit by the unprecedented coronavirus pandemic. This created a stock-picking opportunity for investors in the space as many companies are due for a rebound, according to Barclays.

The Wall Street firm screened its small- and mid-cap universe of nearly 400 stocks and found a number of high-conviction names with improving near-term fundamentals and resilient business models in the midst of the pandemic.