SmallCap Informer editor Doug Gerlach provides his mid-year outlook for small-cap stocks.
While small-caps burst out of the gates ahead of large-caps and led the way for the first three months of 2023, by March the positions had switched. Since then large-caps have maintained a leading edge with an 16.0% gain through June 30th compared to 5.3% YTD for the S&P SmallCap 600 index.
The news in June that the S&P 500 had finally emerged from bear territory was good news for many investors, and the bulls were happy to return to small-caps as well as large-caps. Interest in small-caps was so strong that investors pushed the S&P SmallCap 600 from negative YTD territory at the start of June back into the green.
Our SmallCap Informer picks have showed strength in the first six months of the year over and above the results of the S&P SmallCap 600. SCI stocks posted a collective 32.4% compound annual return (CAR) in the period compared to just 12.4% for the S&P 600. That is the performance that helps a financial editor to sleep well at night.
The outperformance of SCI’s stock picks for 2023 has helped to push our lifetime CAR to 7.9%, more than three times the CAR of the S&P SmallCap 600 index, 2.7%.
Our focus remains solidly on long-term returns, but I am encouraged by the direction of nearer-term economic trends such as receding inflation, positive housing market trends even in the face of high interest rates, and low unemployment. The risk of recession still appears low, and though I am not ready to count out the possibility entirely that the U.S. will experience an economic contraction, my conviction remains that a long and deep recession is unlikely.
In turn, the prognosis for small company stocks does look attractive for the rest of the year. As always, select stocks carefully and pay attention to both quality and value metrics in equal measure. Our carefully-calculated buy prices are being tested for many followed companies as investors have eagerly satisfied their appetites for well-managed smaller companies. Whereas a few short months ago I was marveling at just how many solid businesses were selling at attractive prices in the SCI coverage list, the pendulum has swung the other way and the number of buys has decreased. Be buyers of stocks, but use common sense before you press the “buy” button at your brokerage.
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In this issue of the SmallCap Informer we unmask a semiconductor materials maker that is a leader in its field. With impressive margins and consistent top-line growth, this company can benefit from plenty of opportunities ahead from chipmakers who are busy putting chips into every kind of appliance and device imaginable.
Stay the course!
Subscribers can read Doug's complete commentary and in-depth profile of our recommended small company stock in the August 2023 issue of the SmallCap Informer stock newsletter. Not a subscriber? Subscribe to the SmallCap Informer and get monthly small company stock recommendations and updated buy/sell prices for each of the 49 high-quality small company stocks currently covered in the newsletter.