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Substantial Gains Ahead for Micro Cap Stocks, Strategist Says

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Deglobalization to accelerate what is already an ideal environment for small companies to shine

FOLSOM, Calif. - eTradeWire -- Some of the biggest gains in the stock market over the next decade will come from companies that virtually no one is covering, according to The Predictive Investor (https://www.thepredictiveinvestor.com/), an investment newsletter covering small company stocks. The ratio of the Nasdaq 100 to Russell 2000 index performance has recently surpassed its all time high set in 2000, indicating small companies have never been this cheap relative to tech stocks.

Historically small company stocks have outperformed their larger peers by an average of 3% annually over the last 80 years. But they've lagged large cap stocks over the last decade, as historically low interest rates fueled a rally led by tech stocks.

"Nothing lasts forever in the stock market," says Jason Augustine, editor of The Predictive Investor (https://www.thepredictiveinvestor.com/). "While the media is consumed with big tech and AI, the environment has totally changed. Interest rates are not going back to zero and we've hit peak globalization. These trends favor small, domestically focused companies."

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Augustine knows something about this space. His newsletter has delivered a 6X better 5-year return than the S&P 500, a period of time that has been particularly volatile for the stock market.

Here are his top 5 reasons investors should consider micro cap stocks:

1. Micro cap stocks are extremely undervalued

Micro caps are trading for less than half the P/E ratio of their large cap counterparts, a historic undervaluation that will lead to outperformance over the next 10 years.

2. Micro caps deliver better risk-adjusted returns when added to a diversified portfolio
Micro caps have low correlation with other asset classes, allowing for a more stable return profile with lower volatility.

3. Small companies outperform during inflationary times
New research shows that small companies deliver excess returns over large caps even during periods of high inflation.

4. Deglobalization and infrastructure spending will disproportionately benefit small companies
Small cap sales growth is highly correlated with U.S. capex growth, and government incentives to expand domestic manufacturing will provide a huge tailwind for small company stocks for at least the next decade.

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5. Micro caps are one of the few areas of the stock market where individual investors have an edge over Wall Street
The micro cap universe is increasingly ignored by Wall Street, slowing down the process of price discovery, making it easier for individual investors to buy undervalued companies before the market notices.

Additional Resources:

Jason Augustine

Source: The Predictive Investor
Filed Under: Business

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