Eq: Small Caps

(New York)

The market has been on a tear recently, but you wouldn’t know it from looking at small caps. Despite the broader rise in indexes, the Russell 2000 has not hit a fresh high in a month. Investors are wondering why, and the reason is pretty clear: inflation fears. Small caps are not seen to have as much pricing power as their larger peers, so as input costs rise, they get hit with lower margins.


FINSUM: There is nice clear and succinct reason why small caps have been underperforming over the last month. The good news is that inflation fears are subsiding, which means small caps should rebound accordingly.

(New York)

Let’s be clear, value stocks have been doing great over the last six months as growth stocks have started to fizzle. Accordingly, a lot of the small cap value stocks you could have found at the end of last summer have already risen strongly. However, there are a number of them that still look great buys according to fund managers. Here are a few names to explore: Citizens Financial Group, a strong regional bank; United Community Banks, a quick-growing regional bank; Sunstone Hotel Investors, a REIT that owns hotel buildings and leases them to big hotel chains; Herc Holdings, a construction and earth-moving equipment rental company; Marriott Vacations Worldwide Corp, a timeshare operator; and Ultra Clean Holdings, which makes chemicals and equipment for the semiconductor industry.


FINSUM: A bounce back in leisure travel is quite an interesting play for us, so Sunstone and Marriott Vacations look interesting, but all of these are worth a deeper dive.

(New York)

Most investors had their eyes on growth, particularly in the rebound of the pandemic, but things are starting to look good for value stocks. Investors at Columbia Threadneedle Investments said that stimulus from the Fed and Government put investors' value metrics on pause, but as the economy continues to normalize and rates rise, value stocks will be the beneficiaries. Companies like Citizens Financial Group Inc., United Community Banks Inc., and Sunstone Hotel Investor Inc. are all small-cap value companies that Tugman of Columbia Thread Needle finds attractive. P/E ratios are better for small and mid-cap value stocks, and are trading at heavy discounts compared to the broad S&P.


FINSUM: As life returns to normal stocks might do the same, which would be a return of value investing and attractive price-to-earnings ratios.

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