Tags: Hulbert | small cap | stocks | investments

Hulbert: Top Investment Newsletters Recommend Small-Cap Stocks

By    |   Monday, 28 April 2014 09:37 AM

Top-performing, stock-focused investment newsletters are bullish on small-cap stocks, says Mark Hulbert, editor of Hulbert Financial Digest.

They're also bearish on larger momentum-growth companies, he writes in The Wall Street Journal.

Hulbert Financial Digest monitors 200 stock-focused newsletters, and Mark Hulbert looked at the recommendations of the newsletters with the 10 best returns so far this year. Those newsletters generated an average return of 11.9 percent, compared with 2.3 percent for the S&P 500.

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The top newsletters' editors are bullish on small-cap stocks partly because analysts follow them less closely than they do large caps, making it easier to discover a "hidden gem," as Hulbert puts it.

The fact that the bull market for stocks is five-years old represents a selling point for small-caps, says Thomas Rice, editor of Bowser Report, which made the top 10 list. "In the earlier stages of a bull market, people favor the larger blue chips," he tells Hulbert.

"Only as the bull market continues do investors begin to look further and further down the market-cap rankings. That's when the new money entering the market trickles down to the lowest-priced stocks."

It's important to focus on high-quality small-cap stocks, as there is a lot of "junk" in the sector, Marc Gerstein, editor of the Forbes Low Priced Stock Report, tells Hulbert. Because many of these high-quality firms haven't produced large profits yet, Gerstein values companies using price-sales and price-book ratios instead of the price-earnings ratio.

To be sure, not everyone is bullish on small-cap stocks. "Small cap looks very expensive," Matt Kadnar, a portfolio manager at GMO, tells InstitutionalInvestor.com. "If there's a bubble anywhere in the stock market, it's in small-cap."

The Russell 2000 index of small-cap stocks has a price-earnings ratio of 101.65 based on trailing 12-month earnings and 18.8 based on forward 12-month operating-earnings estimates, according to Birinyi Associates.

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Top-performing, stock-focused investment newsletters are bullish on small-cap stocks, says Mark Hulbert, editor of Hulbert Financial Digest.
Hulbert, small cap, stocks, investments
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2014-37-28
Monday, 28 April 2014 09:37 AM
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