Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Small-Cap Stocks to Buy as the Little Guys Crush the Big Boys

Companies / Investing 2013 Oct 10, 2013 - 12:11 PM GMT

By: Money_Morning

Companies

Don Miller writes: When it comes to stocks, it's easy to equate size with quality. But over the past year, smaller has been better, which means you need to be looking for small-cap stocks to buy.

In fact, the market's practically screaming that you should be putting some chips to work in the small-cap arena.


You see, the Russell 2000, an index of 2,000 small-capitalization stocks, is positively stomping the big boys. In the three months ending in July, the small cap index returned 10.7%, while the broader Russell 3000 returned a paltry 6.6%.

And in the S&P 500 Index, the small fry have beaten the big boys by almost 18% (34.7% to 16.9%) over the last 12 months.

Steven DeSanctis, small-cap strategist at Bank of America Merrill Lynch, says there is still plenty more to come. DeSanctis told The Wall Street Journal he believes the Russell 2000 index will hit 1,100 this year, up 5.7% from recent levels around 1,070.

But this latest surge isn't really new.

Since 1927, a small-cap portfolio has beaten the returns of large-caps by an average of nearly 3%.

Small-cap stocks outperform their bigger brethren for a few simple reasons. After all, they've survived the difficult startup phase, which leaves them with plenty of room to grow.

Editor's Note: Our radical new market strategy zeros in on the seven elusive "sparks" that have historically propelled micro- and small-cap stocks to once-in-a-life-time gains like 675.8% in 9 months on CSIQ... 1,420% in 6 months on RSOL... even an incredible 3,900% in 10 months on RVLT. The 11 stocks we're watching now could be the next set of groundbreaking gains. Go here now to get in before they erupt for up to 30 times your money.

But there are strong indications that now is an especially good time to get in on the party. Here's why...

All Stocks Are Thriving Now

There's no doubt about it, stocks have been on a roll. The broad market has more than doubled since 2009. The S&P 500 has soared a whopping 144%.

"Should this bull market continue into its sixth year (March 9, 2014-March 9, 2015), then history says, but does not guarantee, that small caps could see a late-stage surge and outpace large caps once again," wrote Sam Stovall, chief equity strategist at S&P Capital IQ in a recent note to clients. That means it's a good idea to look beyond the big industrial giants for good returns.

And small-cap stocks to buy are not hard to find - three out of four publicly listed stocks are below $500 million in market cap.

What's more, since 2008-2009, many of the investment banking firms that cover the small-cap sector have reduced headcount. That means less research is available on these under-loved companies, keeping them under the radar of many institutional investors.

Most weary analysts aren't about to spend precious hours researching a company that no one follows. So in-the-know investors buying small caps face a lot less competition when trying to pick up shares at a good price.

But when a small outfit begins to show sizzling earnings growth and fundamental improvements, the big guys tend to take notice.

That's when you want to be in a small-cap stock - when that buying pressure hits a relatively small company, the stock can skyrocket.

Yet there's still another reason why now is a good time to be hunting for small cap stocks to buy...

U.S. Exposure Favors Small-Cap Stocks to Buy

In a world where the Middle East could blow at any time and Europe and Asia are still digging out of the economic doldrums, small caps provide a unique safe haven for investors. That's because small caps generally focus on the U.S. economy, making them largely immune to global gyrations.

Simply put, small-cap stocks have less exposure to foreign markets.

Companies in the S&P 500 get about 34% of their revenue from abroad, according to Goldman Sachs analysts, while firms in the Russell 2000 earn only about 20% of their sales overseas, Goldman said. That trend often works to the advantage of smaller, U.S.-focused companies.

Heed the Fundamentals

However, fundamentals are even more critical than usual when looking at small-cap stocks to buy.

Shares of companies that fall short of expectations often get pummeled by selling pressure from disappointed large-scale investors.

While there are always risks, you can maximize your odds by diversifying across a broad spectrum and using a top-notch exchange-traded fund (ETF).

The iShares Core S&P Small-Cap ETF (NYSE: IJR) is a passively managed ETF designed to track the performance of the S&P SmallCap 600 Index. The fund is a popular choice in the small-cap space with about $11 billion in assets. Even though it holds a total of 603 stocks, IJR has only 5.75% of its total assets in its top 10 holdings, with none exceeding 0.68% of assets.

IJR has a nice mix of small-cap stocks. Almost all its investments are concentrated in the United States and have below-average Price/Earnings Ratios (P/Es), a philosophy that promises lower volatility. Its biggest sector investments are in technology and industrials, a solid bet on the U.S. economy.

IJR is also cheap to own, with an expense ratio of only 0.17%. The fund returned a juicy 25% for the 12 months ending August 31, 2013. In fact, IJR has trounced stocks in the S&P 500 over the past 3 years (69% to 53%), 5 years (53% to 33%), and 10 years (143% to 75%).

IJR is clearly one of the better ways to solve the puzzle of which small-cap stocks to buy.

Note: Finding small-cap stocks to buy with massive growth potential isn't always easy. But one sector is particularly target-rich when it comes to small-caps with staggering growth potential...

Source :http://moneymorning.com/2013/09/19/small-cap-stocks-to-buy-as-the-little-guys-crush-the-big-boys/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in