Re: Buying The Small-caps

JC Parets
May 9, 2023

The weakness in Small-caps has been well documented by now.

Look at the performance since the beginning of 2022.

While the Dow, S&P500 and other major indexes are pushing up near 52-week highs, the Russell2000 is down near 52-week lows.

We already talked about the absolute support levels as well as relative to the S&P500. You can check that out here.

So today I want to focus on execution and how to profit from it.

Whether this is THE bottom for the Russell2000 or not, there are already stocks in that universe acting like these large-cap indexes shown above.

Many small-cap stocks are already making new 52-week highs, or close to it, just like the S&P500, DJ Industrial Avg, Nasdaq100 and others.

Here's a list of the strongest ones:

Now, keep in mind that we changed the rules around here.

Because we do what we want.

Traditional index providers use something like $300M - $2B market cap as their definition of a small-cap. But even the indexes are filled with market caps outside of those parameters.

So it's a mess.

We like things clean around here. The simpler the better.

For us, small-caps are between $1B - $4B market cap. And in real time too. So that's how we approach this group of stocks.

You can see some of the strongest ones in the table above. Notice how most of the stocks listed are not from defensive sectors.

I think there can be winners in Small-caps ($1B-4B) regardless of whether or not the Russell2000 Index is able to hold these support levels.

There is a lower correlation among small-caps compared to what you see in large-caps. Also, because of their smaller size, there are fewer shares to go around, and therefore the strongest really stand out. There's no where for relative strength to hide.

I like using this group as a place to go fishing for opportunities, especially right now.

Check out the Premium Minor Leaguers Report for all the details and new trades for the week.

JC

 

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