Schaeffer’s Vice President for Research Todd Salamone
Below is a repost of an article from Benzina.com that featured Schaeffer’s VP of Research, Todd Salamone.
Small-cap stocks have risen sharply in recent months, with the Small-Cap Russell 2000 Index (RUT) outperforming relatively flat year-over-year large-cap indices like the S&P 500 and Nasdaq 100.
The Russell 2000, which tracks 2,000 small-cap companies, is up 18.5% since March 18, 2021. By comparison, the Nasdaq 100, which is made up of the 100 largest non-financial companies in technology – heavy index, is up 1.2% year-to-date. Although still at the beginning of 2021, this represents a significant change from previous years, when value-driven small caps struggled to garner the same level of investor attention as higher-profile performance stocks.
In further investigating the rise in small-cap stocks, the senior vice president of Schaeffers Investment Research Todd Salamone spoke to Benzinga about his thoughts on the rise of small caps, what small cap companies investors should watch out for and how investors can position themselves for economic recovery.
Salamone also attended the last one Benzinga Global Small Cap Conferencewhich took place March 24-25 to share the following analysis as well as additional insights with attendees. The two-day conference included presentations from executives from small-cap stocks, particularly from the biotech industry.
Will the small cap rally continue?
Small-cap stocks had a notable boom during the pandemic. As a result of this growth, many traders have had to wonder whether or not this trend will continue in the coming months.
According to Salamone, the technical picture of Russell 2000 and ETFs like that is iShares Russell 2000 ETF (IWM) suggests that the rising trend is likely to continue.
In late 2020, the iShares Russell 2000 ETF (IWM) saw a breakout above the $ 175 area, double the $ 86-87 resistance level that existed from 2007 to 2012, according to Salamone.
“In fact, the area marked a huge IWM peak at $ 175 at the end of 2018, and that level wasn’t reached until late last year. In other words, there was a lot of profit-taking as buyers who bought Breakout Risk in 2013 reevaluated risk from 2018 through the end of 2020, ”Salamone said.
He also noted that long-term outbreaks like this one are usually long-lasting, “especially when there are still a lot of pessimists, which was the case in late 2020, as evidenced by the great brief interest in IWM components.”
Company to watch
Schaeffers Investment Research favors companies that have strong price movements, while sentiment measures indicate persistent doubts. Salamone noted that this skepticism represents future buying power as the market turns out to be false the naysayers who may be forced to capitulate eventually.
Given that preference, here are some names on Schaeffer’s small-cap radar:
Shake Shack Inc (NYSE: SHAK) is an American burger chain with around 275 locations worldwide and a market capitalization of 5 billion US dollars. Given the number of locations and current market capitalization, this leaves room for tremendous growth potential for the company as the world continues to slowly emerge from the shadow of the pandemic. In 2021, the stock hit a new all-time high. Current YTD performance rose 40% on March 18, 2021. The company also has the potential to attract positive attention on the sell side in the future, as only four of the 23 analysts below follow SHAK rate it as a buy.
United States Steel Corporation (NYSE: X) and Alcoa Corp (NYSE: AA) US steel is an American integrated steel producer and Alcoa is an American industrial company and the eighth largest aluminum producer in the world. Both companies have market caps around $ 6 billion and low analyst ratings, which gives them great upgrade potential.
Aspira Women’s Health Inc. (NASDAQ: AWH) develops gynecological tests to identify ovarian cancer and other gynecological diseases. The company has a market capitalization of less than $ 1 billion. They expanded network access in October. AWH had a multi-year breakout above its 2011 intraday high in late January, but stocks were still far from their all-time high in 2003.
Sonos Inc (NASDAQ: SONO) is a developer and manufacturer of wireless audio systems for multiple rooms. The company has a market capitalization of $ 5 billion. In November, the company announced a buyback plan and shares were higher in earnings arrears in mid-February. Stocks are currently up 72% and 479%, respectively, year over year and year over year.
Salamone spoke holistically about small caps and highlighted the iShares Russell 2000 ETF (IWM) as a diverse commitment in the small caps segment. The ETF is made up of stocks across 11 different sectors, with the five largest exposures being a mix of growth and value segments such as healthcare (the largest), consumer discretionary, industrials, financial services and technology (the smallest).
Salamone noted that investors should consider these major sectors when composing their portfolios.
“The interest rate environment of the past few months has favored financial services and industrials, and consumer discretionary is a great way to position yourself for an economic recovery.”