Small-cap Stocks
While the exact definition of small-cap stocks can vary from brokerage house to brokerage house, small-cap stocks usually have stock market capitalization of less than $1.0 billion, but more than $400 million. Small-cap stocks sometimes see their stock market capitalization eventually exceed $1.0 billion, at which point they become large-cap stocks.
Dow at Record Highs, but U.S. Economy Continues to Worsen
By George Leong for Investment Contrarians | Mar 12, 2013
The Dow Jones Industrial Average is firing on all cylinders, trading at a record high. The S&P 500 is also close to its all-time record. Technology and small-cap stocks are blazing along. The amount of new stock market wealth created in the first week of March and in 2013 has been great. Add in the better-than-expected jobs numbers and a decline in the unemployment rate to 7.7%, and you would think that the U.S. economy is back, loaded and ready to go. But we may be closer to a financial crisis than most think.
Here’s the problem: the creation of stock market wealth is heavily weighted with the institutional money and the top one to five percent of the wealthiest Americans. (I use the wider range of the top earners, since you have to be doing fairly well to be in this group.)
There’s an old saying—“Money makes money.” But let me put it another way: making money on $1.0 million is a lot easier than making money on $1,000. Earn two percent on $1.0 million, and you’d have an extra $20,000. Make two percent on $1,000, and you only have $20.00, just enough for a dinner for two at McDonald’s Corporation (NYSE/MCD). All I’m saying is don’t be fooled by the new headlines talking about how well America is doing, as a financial crisis is still possible.
The housing market is booming, but we all know that the rally in prices is partially due to rich investors and institutions buying cheap properties from those who had to sell or be foreclosed on due to a lack of funds to … Read More
Small-Caps Sizzling, but the Rapid Advance Won’t Hold
By George Leong for Investment Contrarians | Feb 20, 2013
At the beginning of January, I said “small-cap stocks will be a key driver of the broader market should the U.S. and global economy continue to improve” in 2013.
Small-cap stocks have been impressive early on in 2013, as the Russell 2000 is up 8.7% this year, increasing 2.3% in February alone, with the index trading at record highs above the 900 level. Small-cap stocks are easily outperforming the broader market in 2013.
In my view, continued economic renewal will drive small-cap stocks higher, as these companies tend to be able to react quicker to a changing economy.
The strong start to 2013 is also a bullish sign, as was the case in 2012, when stocks flew out of the gate. We are seeing a similar situation this year, so expect some gains.
But what I’m concerned about is the rate of the advance; in my view, unless you believe the Russell 2000 will gain 65% this year based on an annualized rate, the index’s rate of advance is clearly not sustainable. And you know this is highly unlikely, so you should expect to see ebbs and flows going forward. The last big year for the Russell 2000 was a 25.3% gain in 2010.
The chart of the Russell 2000 below shows the break at the horizontal resistance line that had been in place since 2011. While the relative strength and moving average convergence/divergence (MACD) indicators are both flashing “buy” signals, the angle of the recent breakout, marked by the blue oval, clearly indicates an unsustainable advance, so be careful.
Chart courtesy of www.StockCharts.com
I favor small-cap stocks for long-term … Read More
Why You Need Small-Cap Stocks to Boost Your Profits
By George Leong for Investment Contrarians | Jan 4, 2013
Small-cap stocks will be a key driver of the broader market should the U.S. and global economies continue to improve. In 2012, small-cap stocks trailed only the technology sector as far as performance. The Russell 2000 has been advancing since the end of the first quarter, with its greatest advancement in December. If 2013 is a strong year for the economy, small-cap stocks will deliver.
My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
I favor small-cap stocks for long-term growth, as the valuations are more attractive and may be worth a look for aggressive long-term investors.
And while I view the holding of large-cap stocks as an integral part of a portfolio, for added overall portfolio returns, I like small-cap stocks. These stocks add to the risk component of your portfolio, but you are compensated by a higher overall expected return from your investments. You can increase the expected return of a portfolio by simply adding more risk. This is the advantage of adding small-cap stocks.
A standard and simple measure of stock risk versus the market is called beta—a quantitative measure of systematic or market risk that cannot be diversified away and is generally in relation to the S&P 500 or another market/benchmark stock.
A beta less than one implies that a stock … Read More
Stock Market and Economy: What We Can Expect in 2013
By George Leong for Investment Contrarians | Jan 3, 2013
Happy New Year to all of our Investment Contrarians readers!
In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis shows that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter.
Again, as I … Read More
Why You Need to Have Money in Small-cap Stocks
By George Leong for Investment Contrarians | Oct 29, 2012
Technology and small-cap stocks
have the best potential but are also more vulnerable when the overall market moves lower. The tech-laden NASDAQ is tops with a 14.8% advance this year, but it is now leading the losers, with declines of four percent in October and 3.3% since the end of the first quarter. The small-cap Russell 2000 is down 2.5% in October and 1.7% since the end of the first quarter.
In 2011, small-caps underperformed. You would have done better investing in a Treasury Bill versus small-cap stocks, which were negative in 2011 after advancing 25.3% in 2010. Yet the encouraging signs of the economy’s recovery from the 2008 Great Recession in manufacturing, the housing market, and the jobs market are helping to attract buying to small-cap stocks, which generally perform better as the economy recovers from a recession.
I continue to favor small-cap stocks, as the valuations are more attractive and may be worth a look for aggressive long-term investors.
And while I view the holding of large-cap stocks as an integral part of your portfolio, for added overall portfolio returns, I like small-cap stocks. These stocks add to the risk component of your portfolio, but you are compensated by a higher overall expected return from your investments. You can increase the expected return of a portfolio by simply adding more risk. This is the advantage of adding small-cap stocks.
A standard and simple measure of stock risk versus the market is a beta—a quantitative measure of systematic or market risk that cannot be diversified away and generally moves in relation to the S&P 500 or another market/benchmark.
A … Read More
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