Analysts at Jefferies are warning investors to avoid small-cap tech stocks due to their high valuations and falling earnings and revenue estimates. In a note, analysts said that their current valuations of 3.4 times sales are not cheap compared to their long-term average of 2.1 times sales. They believe there are “too many nonearners” and then tend to perform poorly when the Fed is hiking interest rates. However, the analysts aren’t telling investors to avoid small-cap stocks altogether, as they like names in the healthcare and consumer-discretionary sectors, which have been outperforming. Analysts stated that valuations in healthcare stocks haven’t jumped as much as their stock performance. Plus, mergers and acquisitions have picked up in the healthcare sector, which the analysts believe could help drive performance. They also believe that discretionary stocks are the cheapest sector in the small-cap range and they tend to outperform when coming out of bear markets.

Finsum:Jeffries analysts are warning investors to steer clear of small-cap tech stocks due to high valuations and falling earnings and revenue estimates.