Within the investing universe, there is one asset class that has lagged far behind the major benchmark indices in recent years, but is now exhibiting signs of a major comeback. Small-cap stocks have often been considered to be the riskier asset class due to their higher beta coefficients, yet are now ripe for potential gains.
Markets tend to cycle through periods of overbought and oversold conditions, and recently major indices such as the S&P 500 have been testing overbought conditions yet again. On the other hand, small cap stocks remain largely undervalued, making them a potentially lucrative profit opportunity.
Given their smaller sizes and capacity for smaller startups to raise money, small cap companies have historically had more growth potential than their larger counterparts. They tend to be less established than larger companies, and thus have more room to increase earnings and revenues. Moreover, they tend to be more sensitive to economic and industry-specific changes, which means they can also be quicker to jump on rising trends and capitalize on new opportunities.
Additionally, small cap stocks have practically zero correlations with most major indices. This means that they are less likely to be affected by the volatility seen in the markets, and therefore provide more safety against turbulence.
Finally, many small cap stocks are available for lower prices with no meaningful discounts, which means there is potential for a higher rate of return than other investments. This, coupled with their sensitivity to changes in the market, means that they offer the possibility of strong gains with limited risk.
In summary, small cap stocks can be a great opportunity for investors who are looking for potential upside gains to offset overbought conditions in the major indexes. With a variety of sectors and a range of volatility levels, small cap stocks provide low-cost access to diversification and an extra layer of protection against bear markets. For these reasons, small cap stocks should be seriously considered when evaluating long-term investing strategies.
Within the investing universe, there is one asset class that has lagged far behind the major benchmark indices in recent years, but is now exhibiting signs of a major comeback. Small-cap stocks have often been considered to be the riskier asset class due to their higher beta coefficients, yet are now ripe for potential gains.
Markets tend to cycle through periods of overbought and oversold conditions, and recently major indices such as the S&P 500 have been testing overbought conditions yet again. On the other hand, small cap stocks remain largely undervalued, making them a potentially lucrative profit opportunity.
Given their smaller sizes and capacity for smaller startups to raise money, small cap companies have historically had more growth potential than their larger counterparts. They tend to be less established than larger companies, and thus have more room to increase earnings and revenues. Moreover, they tend to be more sensitive to economic and industry-specific changes, which means they can also be quicker to jump on rising trends and capitalize on new opportunities.
Additionally, small cap stocks have practically zero correlations with most major indices. This means that they are less likely to be affected by the volatility seen in the markets, and therefore provide more safety against turbulence.
Finally, many small cap stocks are available for lower prices with no meaningful discounts, which means there is potential for a higher rate of return than other investments. This, coupled with their sensitivity to changes in the market, means that they offer the possibility of strong gains with limited risk.
In summary, small cap stocks can be a great opportunity for investors who are looking for potential upside gains to offset overbought conditions in the major indexes. With a variety of sectors and a range of volatility levels, small cap stocks provide low-cost access to diversification and an extra layer of protection against bear markets. For these reasons, small cap stocks should be seriously considered when evaluating long-term investing strategies.
