Volatility ruled the roost in 2015.
It was so severe the Dow Jones Industrials ended the year down 1%, as the S&P 500 closed the year flat. The only index to show any gain at all was the NASDAQ with a 9% run.
And that made a disappointing year for many investors.
Many of the hotshot money managers generated returns far short of index returns. In fact, more than 66% of large-cap stock managers underperformed the S&P 500’s flat year.
Another 58.8% of mid-cap stock managers posted returns less than the S&P Mid-Cap 400.
Just over 72% of small-cap managers underperformed the Small Cap 600 index, too.
While the S&P 500 and S&P 400 Mid Cap Index essentially had a flat year in 2015, small caps took quite a hit as measured by the Russell 2000 Small Cap index, which fell 5% on the year…
Small-Caps on Course to Run Higher
The correction in the small-cap space was severe.
On the Russell 2000, more than 75% of the index has fallen 20% or more from 52-week highs. After such a devastating fall, we’re beginning to see a great deal of renewed interest.
Further upside is in the cards, given that smaller-caps have less exposure to the woes of the global markets and the fact that valuations have been reduced significantly.
For example: The Russell 2000 now trades around 32 times trailing earnings from a peak of 59.4 in 2014.
The fact is, there’s a great deal of undervalued, ignored opportunity in the small-cap market.
The key to doing well, though, is paying attention. We’re not focusing on just any old small-cap stocks in The Cheap Investor. We’re concentrating on quality stocks that are undervalued, selling near their low price.
In fact, that’s why we liked Groupon so much in 2015.
After recommending the stock at $2.79 in December 2015. It would run as high as $5.28 for a potential return of 89% in four months.
We recommended MeetMe (MEET) in September 2015 at just $1.59 a share. It hit a high of $4.54 on January 8, for a potential return of 186%.
Even NanoViricides (NNVC), which we’ve liked since August 2015, just ran from our recommended price of $1.51 to $3.54 for a potential return of 134%.
Small-cap stocks may have had a terrible 2015, but so far are having a great 2016.
They are coming back strongly after falling too much, too fast.
As I’ve long pointed out, we’re not interested in investing in duds that deserve low valuations… only focusing on fundamentally strong stocks that should outperform the markets.
That’s been our CHEAP philosophy for more than 30 years.