The Minor Leaguers (10-23-2023)

From the Desk of Steve Strazza @Sstrazza

Welcome to our latest Minor Leaguers report.

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 now, 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.

The goal is 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.

Last week, small caps violated their 2018 and pre-pandemic highs for the third time over the past two years. Here’s a look at the Russell 2000 $IWM:

While the 2018 and 2020 highs represent a major polarity zone, there is not a resolution of the current range until we see a breakdown below the 2022 lows ~164. If and when that happens, we'll have to take a much more bearish tone toward small-cap stocks and risk assets more broadly.

On the other hand, we wouldn't be surprised to see buyers step in and defend this shelf of support once again. We need two hands to tally the amount of times this has already happened since last year. However, even if bulls make another save, we should expect more messy and rangebound price action, and will be best served to pick our spots selectively and not force longs.

In the meantime, we want to pay extra close attention to the 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.

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

Batter up…