|
Research Narrows Search for Winners in Already Outperforming Small-Cap Sector
Continuation from Home Page
Dutton & Associates covers companies that are underfollowed by Wall Street - most often smaller companies that unlike mid cap stocks, do not offer enough investment banking return to get coverage the old-fashioned way. These small cap stocks are now becoming the performers.
As of Thursday's close, for example, while the largest 100 companies in Nasdaq were down an awesome 51% and the S&P 500 was off 23%, the S&P Small-Cap 600 had fallen a far more measured 14%.
Quoting historical work performed by Minneapolis-based Leuthhold Group dating back to 1926 and comments by Leuthold senior analyst Andy Engel, Brammer writes, "It's ironic, perhaps, that investors last week rushed to the apparent safety of the biggest stocks, in light of Engel's finding: that smaller companies currently are an incredibly better value and possess greater `defensive' characteristics."
Over nearly three decades, the Leuthold Group has tracked the multiple on small stocks (as measured by the P/E of that 1,500th largest stock) and compared it with the multiple on large ones (as measure by the P/E of the cap-weighted S&P 500). They found that in the early-to-mid '70s, when small caps were out of favor, the multiple accorded small companies was only 60%-70% of that awarded large ones. The disparity disappeared for a spell in the early '80s, when small stocks sold at 100%-110% of large ones.
"What Engel cites as surprising is that the multiple on small stocks is now a mere 50% of the multiple on large ones, a bigger discount than in the early" Brammer observes. "Which is why he expects smaller stocks to outperform, conceivably for several years."
Utilizing investment research helps to narrow the investment selection of these small cap stocks for your portfolio. When institutional and individual investors utilize continuing independent research such as Dutton & Associates' in their investment process, the probability of being in the right stocks is significantly increased.
"The companies or other parties who enroll a company in our program recognize that independent third party research provides guidance to investors in a fashion similar to credit ratings on a company's issued debt obligations," says John Dutton, president and director of research at Dutton & Associates. "Our staff of professional analysts, AIMR members and primarily CFAs, provide experienced guidance in evaluating competitive position, earnings visibility through a detailed earnings model. Finally, an equity valuation matrix or model that combines the many intra and inter industry valuation factors to address probably valuation helps investors look for undervalued equities."
|