Editor’s Note: A small handful of major tech stocks have been the big winners so far in 2023, but that could be changing soon.

In today’s guest article, our friend Matt Benjamin, the Senior Markets Expert at The Oxford Club, discusses why small cap and microcap stocks are primed for a rebound.

And just recently, the Club’s Chief Investment Strategist, Alexander Green, released a microcap recommendation that he believes will soar in the coming months.

It’s a company that’s leading the artificial intelligence race… yet it trades for under $3.

It’s an opportunity so big that he’s personally put $100,000 into this single stock.

Tune in here for the details.

– Ryan Fitzwater, Publisher

We’re often told to think big.

And in fact, that’s exactly what investors have done this year.

I wrote about this odd market phenomenon a few months ago: A handful of megacap stocks are carrying the entire market in 2023.

The S&P 500 Index is up almost 10% year to date, but the 10 largest stocks in the index account for the vast majority of that gain (about 70% of it). These stocks are the usual suspects: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), etc.

They’re also expensive.

Each of the top 10 stocks – with the exception of Berkshire Hathaway (BRK-A), which has a wonky price-to-earnings (P/E) ratio due to its unique structure – has a P/E ratio that’s higher than the S&P 500’s.

Some of these stocks – including Amazon and Nvidia (NVDA) – have P/E ratios that are many multiples of the S&P 500’s.

These stocks are becoming so expensive that a rotation into another group may be inevitable… and imminent.

Go Small

So what’s not expensive right now?

Small cap stocks. In fact, they’re on sale at the moment.

The forward P/E ratio for the large cap S&P 500 Index is now 18, according to Yardeni Research.

By contrast, the P/E ratio for the S&P 600, which tracks small cap stocks, is only 12.5.

So you’ll pay a lot less for small cap stocks – companies with market caps of less than $2 billion or so – than you will for large cap and megacap stocks.

And now may be the right time to start shopping for these smaller stocks.

Research has found that small caps tend to outperform their larger cousins when the economy is recovering from slow growth, unemployment is low and corporate earnings are relatively strong.

And early bull markets are particularly good times for small caps.

For example, in the first 12 months of the long bull market that followed the 2008-2009 financial crisis, the S&P 500 rose 69% – but was outpaced by the Russell 2000 index of small caps, which soared 95%.

Were it not for the banking crisis that shook the economy in early March, that might have been the case in this market too.

The Russell 2000 was outperforming the S&P 500 from the beginning of the year to March 10, when news of Silicon Valley Bank’s collapse rocked all stocks. But the crisis hit small cap indexes harder.

That’s because, while megacap banks like JPMorgan Chase (JPM) were considered completely safe, regional bank stocks got hammered by the crisis. And those regional bank stocks make up more than 16% – a significant chunk – of both the S&P 600 and the Russell 2000 indexes.

In addition, small tech stocks – many of them reliant on the services of regional banks – also got hit hard by the banking crisis.

So small cap indexes were pushed lower by that crisis and have continued to underperform large cap indexes.

If you believe the banking crisis has largely played out and you think the economy can avoid recession this year and the bull market can continue, small cap stocks deserve your consideration.

YOUR ACTION PLAN

Small caps carry greater risk than large caps, but the payoff can be well worth it. In fact, Alexander Green believes this class of stocks is set to soar – so much so that he has personally invested thousands of dollars.

Find the details here.

Invest wisely,

Matt

MONDAY MARKET MINUTE

• More Upgrades for Charles Schwab (SCHW). Piper Sandler raised its price target on Charles Schwab from $77 to $86. At its current level, the big bank has more upside potential than any other bank of its size. Tracking.
• Chevron (CVX) Up in Premarket. The gas company saw a modest 1% increase after preannouncing earnings along with a management shuffle.
• Tesla (TSLA) Gets Downgraded. The electric vehicle giant saw a 2% premarket decline after UBS downgraded the stock from “Buy” to “Neutral” and raised its price target from $220 to $270.
• Shopify (SHOP) Sees Boost. The online e-commerce platform was up 2% premarket after MoffettNathanson upgraded the stock to “Outperform.”