4 Small Caps to Put on Your Buy List  | | Robert Ross
Speculative Assets Specialist | Small caps are on fire right now. But that isn't a major surprise to my Breakout Fortunes subscribers. In the past month, we've had multiple positions more than double on the back of renewed interest in small caps. And I don't expect the good times to stop rolling any time soon. So today, I'm going to tell you about a few small caps that have made my readers a ton of money (along with one more on my radar). Why Small Caps Are Surging There are a few reasons small caps have a tailwind right now. First and most obvious is the "red wave." The Republicans ran on a pro-business platform that will be of major benefit to U.S. small caps. This will include massive cuts to regulation, which disproportionately affect small caps. This is a key reason we've seen the Russell 2000 (IWM) on a run since Election Day... 
View larger image But we're also in the midst of a global liquidity boom. Central banks - including the Federal Reserve - are all lowering interest rates simultaneously. This means we are moving from a high interest rate regime to a low interest rate regime. And that's good news for small caps because they tend to be more sensitive to changes in interest rates. Unlike larger, more established companies, small caps often rely heavily on borrowing to finance operations and growth. Lower interest rates reduce borrowing costs, allowing these companies to reinvest in expansion, hire more workers, and ultimately grow earnings faster. Lastly, valuations in small caps are still very attractive. According to data from Bloomberg, the forward P/E ratio for the Russell 2000 is near its lowest level compared to the S&P 500 in over 20 years. Historically, this kind of relative undervaluation has often preceded periods of outperformance for small-cap stocks. Given these tailwinds, it's no wonder the Russell 2000 has surged more than 10% since Election Day, outpacing its larger-cap peers like the S&P 500 and Nasdaq 100. Small caps are in a sweet spot, and I believe this is just the beginning of a sustained rally. Now let's get into four small caps that are positioned to thrive in this environment. These Small Caps Aren't Slowing Down Everyone knows AI stocks have been on fire since the introduction of ChatGPT in November 2022. But there is still significant upside. AI adoption is expected to add $15.7 trillion to the global economy by 2030, and since markets are "forward looking" much of which will be priced in over the next 12 months. In the Breakout Fortunes portfolio, one stock that's been a major winner is Innodata (INOD). Since I recommended it on July 9, the stock has more than doubled. 
View larger image And I don't expect it to stop any time soon. Innodata helps businesses collect, organize, and make sense of their data. This gives Innodata direct exposure to the booming AI trend. AI relies heavily on data to train its algorithms and make accurate predictions or perform various tasks. Innodata helps in the AI process by providing the necessary data preparation and management services. One area where AI has yet to be deployed en masse is in the healthcare space. Last week, I had the pleasure of sitting down with the CEO of a small cap company called Healwell (HWAIF). 
View larger image The company operates at the intersection of healthcare and AI, helping identify diseases earlier than current technology. As CEO Alex Dobranowski said, "We help healthcare providers find patients." Another small cap that's been great for our Breakout Fortunes members is Limbach Holdings (LMB). The company specializes in the design, installation, and maintenance of heating, ventilation and air conditioning systems. As interest rates continue to fall and mortgage rates follow suit, I expect the entire real estate sector to have a tailwind. And even though we're up 250% since I recommended the stock last year, this one looks to have significantly more upside as rates fall. 
View larger image Lastly, we have Israeli cybersecurity company Cellebrite (CLBT). Remember in the wake of Trump's failed assassination attempt when the FBI could not get into the shooter's phone? Well, they called Cellebrite. The company specializes in helping law enforcement, government agencies, and businesses deal with digital information from mobile devices like smartphones and tablets. 
View larger image And since digital threats are only going to increase as we become more dependent on technology, the future for Cellebrite is bright. Wrapping It Up Small caps are finally getting the recognition they deserve, and the tailwinds propelling this segment of the market show no signs of slowing. From the pro-business policies of a Republican-led government to a global liquidity boom and historically attractive valuations, the setup for small caps is one of the strongest we've seen in years. Whether it's AI innovators like Innodata and Healwell, infrastructure players like Limbach Holdings, or cybersecurity leaders like Cellebrite, these companies are positioned to capitalize on transformative trends in their industries. With small caps leading the charge, this rally is just getting started. Let's ride it. Stay safe out there, Robert Want more content like this? | | | | | | 
No comments:
Post a Comment