Posts Tagged ‘large-cap stocks’
Why It’d Be Foolish to Give Up on Small-Caps
By George Leong, B.Comm. for Profit Confidential
Small companies tend to perform well coming off a recession like the one we had in 2008.
The beginning of the year was excellent for small-cap stocks as the Russell 2000 led the way with a 12% advance in the first quarter, including a 6.2% move in January.
We have been seeing some flight to safety in the risk preference of investors.
April has seen some profit-taking emerging in small-caps, as the Russell 2000 is down 2.3% as of Tuesday’s close and is currently trailing the blue chips and the S&P 500. (Read “Investors Down-Shift Risk, Search for Safety Ongoing Theme for 2013.”)
And with the economy continuing to strengthen in housing, manufacturing, and retail sales, small-caps will continue to have good upside potential.
The chart of the Russell 2000 below shows the upward break from the bullish ascending triangle. There’s some stalling and some potential for a relapse to back below 900, based on my technical analysis.
Chart courtesy of www.StockCharts.com
As we move forward, a lot of what happens to small-caps will be dependent on the ongoing strength of the economic recovery.
The key to investing in small-cap stocks is diversification and risk management.
Simply the risk is much higher when buying small-cap stocks. For instance, the emergence of bad news could drive small-cap stocks down 40%, while for a large-cap such a The Procter & Gamble Company (NYSE/PG), we would likely only see a decline of a few percentage points.
You should be sure to never load up on a sector and diversify across market caps and risk instead. In this way, you can achieve … Read More
Investors Down-Shift Risk, Search for Safety Ongoing Theme for 2013
By George Leong, B.Comm. for Profit Confidential
If the first-quarter earnings season turns out to be as bad as the experts expect, then it may be time to look for safety. That means lightening up the load on high-risk stocks and shifting your focus to companies that you know will be around 50 years from now.
The search for safety appears to be the ongoing theme this year, especially within the blue chip stocks that make up the Dow Jones Industrial Average. The index is up 11.2%, ahead of the broader S&P 500, along with the NASDAQ and Russell 2000.
Small-cap stocks, which have been sizzling on the chart, have been underperforming in the recent weeks, as investors shift to the safety of blue chips and large-cap stocks.
The chart below shows the recent superior performance of the Dow Jones versus the NASDAQ, shown by the blue line, and the Russell 2000, the green line.
Chart courtesy of www.StockCharts.com
After the first week of April, blue chips have fared the best, down just 0.09% as of April 5, which is much better than the decline of 2.94% and 1.96%, respectively, in the Russell 2000 and NASDAQ. As the market risk rises—and I feel it is—I expect to see more money flow from higher-risk investments to lower-risk ventures, such as the blue chips.
The move to Dow blue chips is even more popular, given the dividends available on many of these stocks, which is attractive compared to historically low yields available with bonds.
When you are earning less than one percent on short-term bonds, the choice to look at dividend stocks and the equities market is easy.
The … Read More
How to Supercharge Your Portfolio
By George Leong, B.Comm. for Profit Confidential
Small-cap stocks will be a key driver of the broader market should the U.S. and global economies continue to improve. In 2012, small-cap stocks trailed only the technology sector as far as performance. The Russell 2000 advanced the most in December. If 2013 is a strong year for the economy, small-cap stocks will deliver.
Small-caps have been impressive so far in 2013, as the Russell 2000 is up six percent, with the index trading at the 900 level for the first time.
In my view, continued economic renewal will drive small companies higher, because these companies tend to be able to react more quickly to a changing economy.
My stock analysis suggests that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac.
The strong start to 2013 is also a bullish sign, as was the case in 2012 when stocks flew out of the gate. We are seeing a similar situation this year, so expect some gains.
The chart of the Russell 2000 shows the break near 860 on rising relative strength and the moving average convergence/divergence (MACD) indicator. Watch to see if the breakout holds.
Chart courtesy of www.StockCharts.com
I favor small-cap stocks for long-term growth, as the valuations are more attractive and may be worth a look for aggressive long-term investors. (I also like the emerging markets, which you can read more about in “Boost Your Portfolio Returns with the Emerging Markets.”)
And while I view the holding … Read More
Look to Higher Beta Small-Caps to Increase Portfolio Returns
By George Leong, B.Comm. for Profit Confidential
Small-cap stocks performed better than both the S&P 500 and the DOW in what was a cautious November, as the economy showed encouraging growth in several key areas. Early on in December, small-caps are leading with a 0.12% advance versus a 0.64% decline for the S&P 500. The Russell 2000 is above the only key index that’s above its 50-day and 200-day moving averages (MAs), based on my technical analysis.
In 2011, small-cap stocks underperformed. You would have done better investing in a T-Bill versus small-cap stocks, which were negative in 2011 after advancing 25.3% in 2010. Yet the encouraging signs of economic recovery from the 2008 Great Recession in manufacturing, the housing market (read “Why the Housing Market Is Promising but Overextended”), and the jobs market are helping to attract some buying to small-cap stocks, which generally perform better as the economy recovers from a recession.
I continue to favor small-cap stocks for long-term growth as the valuations are more attractive and may be worth a look for aggressive long-term investors.
And while I view the holding of large-cap stocks as an integral part of your portfolio, for added overall portfolio returns, I like small-cap stocks. These stocks add to the risk component of your portfolio, but you are compensated by a higher overall expected return from your investments. You can increase the expected return of a portfolio by simply adding more risk. This is the advantage of adding small-cap stocks.
A standard and simple measure of stock risk versus the market is called a beta—a quantitative measure of systematic or market risk that cannot be diversified … Read More
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