The Minor Leaguers (12-19-2022)

From the Desk of Steve Strazza @Sstrazza

Welcome to The Minor Leaguers.

We've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.

For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.

That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.

We expanded our universe to include some mid-caps.

To make the cut for our 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.

While bears have taken back control of the tactical trend, when we zoom out, it can only be viewed as a positive that small-caps are still above their prior-cycle highs.

Here's a look at the Russell 2000 $IWM:

The 2018 and 2020 highs represent a major polarity zone, so it is no surprise that buyers continue to show up and defend them.

However, we're still expecting sideways price action as the bottoming process requires time to play out. In this environment, we will be best served to pick our spots selectively and not force longs.

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.

Let's take a look at this week's table:

*Click to enlarge view

Since we sort our list by proximity to 52-week highs, the names toward the top are potential future leaders. They're not just exhibiting impressive relative strength. They're also making new highs on an absolute basis. And that's not something we can say about the vast majority of stocks these days.

With that as our backdrop, let's take the field and highlight this week's top players!

Batter up…