We’ve already had some great trades come out of this small-cap-focused column since we launched it late last year and started rotating it with our flagship bottom-up scan, Under the Hood.
We recently decided to expand our universe to include some mid-caps…
For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but it’s time we branch out a bit and allow some new stocks to find their way onto our list.
The way we’re doing this is simple…
To make the cut for our new Minor Leaguers list, a company must have a market cap between $1 and $4B. And it doesn’t have to be a Russell component–it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe.
The same price and liquidity filters are applied. Then, as always, we sort by proximity to new highs in order to focus on the best players. But instead of all-time highs, we’re sorting by 52-week highs these days as we don’t want to discriminate against energy or other cyclical stocks.
The goal is still to catch the strongest names while they’re small and have serious upside potential. If any of these stocks ever climb the ranks to the big leagues, the returns could be huge. We’re looking at up to 10x moves just to break into large-cap land!
Let’s dive into this week’s report and see what’s happening in some of the hottest stocks in the Minor Leagues.
In November, small- and mid-cap stocks briefly resolved higher from their year-to-date consolidation patterns. These new highs quickly failed, as both the Russell 2000 and S&P Mid-Cap 400 retreated right back into their old ranges.
Fast-forward to today, and small-caps are back at the lower bounds of their rectangle formation. Bulls need these former lows to act as support here. If they don't, we're likely to find ourselves in an environment where many indexes resolve to the downside and stocks come under further pressure.
Here's a look at the Russell 2000 $IWM:
As long as this range is intact, the bias is sideways at the index level. We should expect more chop in this environment and will be best served to pick our spots selectively and not force longs.
With that said, we want to pay extra close attention to those names exhibiting relative strength through the recent volatility. It’s normal for the strongest stocks during periods of weakness to emerge as leaders when the selling pressure subsides. We want to identify those names now and be prepared for it.
Here's this week's list:
Since we sort our list by proximity to 52-week highs, the names toward the top are potential future leaders. Many of these stocks aren't just trading near new highs on absolute terms; they're also pressing to new highs relative to the overall market.
With that as our backdrop, let’s take the field and highlight this week’s top players!
Batter up…
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