Sometimes, the smaller, the better.
A common misconception about smaller cap companies is that their volatility makes them more risky, and therefore, they are not worth the gamble.
But the reality is that many of them generate returns that are as good as, if not better than, large cap stocks. In fact, in 2016 alone, the Russell 2000 closed the year with a gain of 23%, while the Dow picked up 17%.
The NASDAQ gained 11%. The S&P 500 netted 13%.
The Vanguard S&P Small Cap 600 Growth ETF (VIOG) did even better, rocketing 27%.
Even small-cap ETF, the iShares Russell 2000 (IWM), set an all-time high of 138.25 in recent days, smashing a previous record of 129.10. It’s up 27% on the year, as well.
Or look at some of the recent successes from The Cheap Investor.
- Cemtrex (CETX) skyrocketed an amazing 274% since April
- Hudson Technology (HDSN) jumped 198% since February
- USA Technologies (USAT) exploded 268% from our recommendation
- Bovie Medical (BVX) soared 204%
Heading into 2017, there are still plenty of opportunities that remain.
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In fact, pundits are advising to invest in small caps as a smart, tactical strategy. The idea is that smaller companies may benefit more from Donald Trump’s new economic policies.
Analysts at Bank of America point out that small caps generate a higher portion of revenues from U.S.-based businesses than large caps, and are therefore less exposed to challenges that could pop up from increased protectionism or trade restrictions.
According to The Wall Street Journal, that and a stronger dollar “could hurt multinationals and leave smaller, domestic companies relatively better off.”
Trump’s proposed massive infrastructure rebuilding program, less onerous regulations for businesses, and lower tax rates could propel small caps higher, too.
Lower tax rates could be a significant boon for smaller companies.
Reportedly, small cap earnings could jump by 10% to 20%, if their tax rates fell to a new range of 20% to 25%. Better yet, according to some analysts, small cap earnings are expected to grow 9.3% year over year.
That's about twice the 5.3% growth expected for companies on the S&P 500, arguing for small caps to trade at higher premiums than large caps.
In short, this could be another banner year for small cap stocks.
As we’ve pointed out many times in 2016, small-cap stocks offer some of the greatest rewards. The CHEAP Investor’s track record is proof that low-priced stocks are essential to your portfolio success.