Stocks have edged higher through the first month of 2024, still being led by the mega-cap “Magnificent Seven” that delivered some of last year’s biggest gains.
But while the S&P 500 has hit new highs, small-cap stocks (as measured by the Russell 2000 Index) are actually 20% off their own all-time peaks.
That’s a substantial performance gap!
As Aaron James pointed out in yesterday’s Banyan Edge, it’s the largest such gap ever recorded between the two indexes.
And following each of the last three record drawdowns (in January 1985, February 1991 and April 1999) small-cap stocks went on to outperform large-cap stocks by a substantial margin.
Indeed, a few small caps have already taken off — including 22 different stocks that were trading for $5 or less that surged for gains of 200% or more over the last six months (three of which reached 1,000%+ gains).
Even while the index sank, these small caps soared.
And that points to one of the most important factors in small-cap investing…
Buy the Stock. Not the Index.
Before I go any further, I want to make a distinction.
As the name implies, the Russell 2000 contains 2,000 of the market’s smallest stocks.
But if you want to take advantage of the real earning power of small-cap stocks, then you don’t want to own the index.
Trade it short-term, sure! I’ve done that in the past, and will always consider a trade on an index or exchange-traded fund if one of my systems flags an opportunity.
My colleague and Money & Markets Chief Market Technician Mike Carr has also found great success trading both the bullish and bearish side of small caps for his own subscribers in Precision Profits.
But here’s the thing…
It pays to pick and choose when you’re buying individual small caps for long-term growth. And if you know what to look for, you can make a small fortune even when the “market” isn’t doing so well.
For example, back in the spring of 2022, the Russell 2000 was in free-fall and small caps in general weren’t looking too great.
But that’s when I recommended Voyager Therapeutics Inc. (Nasdaq: VYGR) to my 10X Stocks readers.
Voyager was a relatively small biotech company that had just made a BIG hire.
The company appointed a new CEO — Dr. Alfred W. Sandrock Jr. — who had an unparalleled reputation for building billion-dollar biotech businesses, and bringing blockbuster drugs to market.
Sure enough, shares soared soon after.
Those who followed my recommendation got in for $5 … and locked in a 100% gain by May the following year.
All while the Russell 2000 Index eked out a gain of just 6% (barely enough to beat inflation).
The Superior Earning Power of $5 Stocks
Of course, 2022 was also a great year for Big Oil stocks like Exxon, Hess and Marathon Petroleum.
But even within the energy sector, a handful of small-cap stocks outperformed.
I recommended the Argentine energy company YPF SA (NYSE: YPF) for a little over $5 per share in September 2022. And since then, it’s trounced each of those large-cap oil companies by a massive margin.
Just see for yourself:
Small Cap YPF Crushes Big Oil Peers
This is why I’m urging everyone to load up on small caps while they’re still selling for bargain prices. Because some of these stocks won’t be available for $5 much longer…
(To get my list of the top five small caps to buy today, check out my special video presentation HERE before my team closes the door on this special offer tomorrow.)
To good profits,
Adam O’Dell
Chief Investment Strategist
