Small-cap stocks have had a shaky start to 2024, but UBS believes the sector is worth considering as a potential broader market rally could revive the sector. Year to date, the Russell 2000 small-business index is up 2%, while the S&P 500 index has gained 6.6%. But in the last month alone, the roles have reversed, with the Russell 2000 up 6.7%, far outpacing the S&P 500’s 2.7% gain. All sectors except two, utilities utilities and real estate, are positive in 2024. Combined with the With the Federal Reserve’s expected reduction in borrowing costs this year, small-cap stocks could maintain their recent hot hand. “We view expectations regarding falling interest rates as an increasingly favorable backdrop for SMID stocks,” UBS analyst Joseph Parkhill wrote in a note last week, referring to small- and mid-cap stocks. With these factors in mind, UBS analysts have compiled a list of high-conviction small- and mid-cap stocks that the bank believes have a unique investment thesis behind them. The following stocks all have a buy rating from UBS: Roger Federer-backed shoemaker On Holding could become an industry leader in terms of growth and earnings, according to analyst Jay Sole. He expects earnings per share reach a compound annual growth rate of 30% between now and 2028. “The market views On primarily as a running shoe brand and, in our opinion, does not fully appreciate the brand’s potential to address a much broader market. ” Sole said. U.S.-listed shares of Zurich-based On are up more than 22% in 2023, bringing the past 12-month rally to 45%. According to consensus price targets of analysts surveyed by LSEG, formerly Refinitiv, the stock has about 9% upside upside. ONON 1Y mountain On Holding over the past year Phoenix-based regional bank Western Alliance Bancorporation is another small cap UBS is bullish on. Shares are down nearly 10% year to date, but are up 5.6% this week. According to analyst Brody Preston, the bank has shown it can survive the regional banking crisis in 2023 and remain profitable, giving him confidence it can do so again in 2024. Consensus price targets on the stock imply 28% upside ahead , according to LSEG data. Investors should expect volatility in the name “if cuts are taken out of the forward curve,” Preston said, referring to delayed interest rate reductions. “However, similar to our view for 2023, we would remain buyers in the event of a rate-driven sell-off.” On Tuesday alone, WAL was ahead 7.4% in a falling market. Foodservice provider Aramark has a promising “near-term margin opportunity,” analyst Joshua Chan said. He cited improving price-cost dynamics and supply chain conditions. There is also potential for the company’s growth and margin guidance to expand later in the year, he added. UBS has a $35 price target on Aramark shares, implying the stock could rise about 13% from Monday’s close. Wall Street analysts are also broadly favorable, with 13 out of 17 analysts rating it a buy or strong buy, according to LSEG. The shares are up about 12% in 2024 and more than 15% over the past 12 months. — CNBC’s Michael Bloom contributed to this report.