[TOPIC] Insitutions Consensus for 2023 Investing: Small-Cap!
The institutional consensus seems to be that small-cap stocks are expected to outperform large-cap stocks in the coming 2023.
1. Institutions believe small-cap performs better under the high inflation and recession
Research teams at Morgan Stanley, Goldman Sachs and Bank of America all agree that small-cap stocks have a significant valuation advantage over large-cap stocks and are more likely to benefit from high inflation and industry chain restructuring.
Small-cap companies with relatively healthy debt structures may be a good investment target in 2023.
Bank of America said
small-cap stocks outperformed large-cap during the three recessions of the 1970s and 1980s, and the Federal Reserve fought hyperinflation during those three recessions.
Strategists at BNP Paribas reviewed 100 years of market-crash data and concluded investor sentiment would bottom in 2023.
That signals a rebound for the stock market as a whole, which might mean an even greater increase for small-cap stocks.
2. The valuation of small cap stocks at a decade-low level
Small-cap stocks are trading near a two-decade low relative to large-cap stocks. When the stock market rebounds next year, smaller companies may outperform.
Generally speaking, small-caps traded only slightly below the S&P 500. However, it currently traded way lower than the average level.
The valuation of S&P Small Cap 600 Index is now 12.7x, down from 15.5x a year ago, according to FactSet.
In comparison, the forward P/E for the $S&P 500(.SPX)$ has declined to 17.2x from 21.4x a year ago.
3. Analysts’ favorite small-cap targets
Given the recession-hype and the possible rate reduction, the stock market can be expected to rally in 2023. As we mentioned before, small caps generally perform better under this environment. Investors can follow analysts to prepare for the coming turnaround in the stock market.
1) ETFs
The best way to invest in the sector is to buy ETFs:
the SPDR S&P 600 Small Cap ETF $SLY(SLY)$ ,
the iShares Core S&P Small Cap ETF $IJR(IJR)$
the Vanguard S&P Small-Cap 600 ETF $VIOO(VIOO)$
2) The best 20 Companies picked by analysts
Here are the 20 with the most upside potential picked by analysts, based on consensus price targets:
$ModivCare Inc.(MODV)$ $Ligand Pharmaceuticals(LGND)$ $Customers(CUBI)$ $Outfront Media(OUT)$ $Smart Global Holdings Inc.(SGH)$ $Pacira Pharmaceuticals(PCRX)$ $Adtran(ADTN)$ $Talos Energy, Inc.(TALO)$ $OptimizeRx Corporation(OPRX)$ $Alarm.com(ALRM)$ $Civitas Resources(CIVI)$ $MaxLinear(MXL)$ $Dave & Buster's Entertainment(PLAY)$ $Boot Barn(BOOT)$ $Vista Outdoor(VSTO)$ $Digital Turbine(APPS)$ $Innovative Industrial Properties Inc(IIPR)$ $Green Plains(GPRE)$ $Golden Entertainment(GDEN)$ $Collegium Pharmaceutical(COLL)$
data compiled from markerscreener
Do you think small-cap is a good choice to invest in 2023?
Which company is in your watchlist?
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