Lion tail or mouse head. While the bulk of investors are turning to the stock market giants to seek the long-awaited stability in the midst of a bear market (at least that is what the , the real bargains of the US stock market are found in the small capitalized, which are listed with a ratio very attractive price-benefit ratio.
According to a Bank of America (BofA) report, the quotient between the 12-month estimate of the PER (number of times the profit is contained in the share price) of the selective Russell 2000 – which brings together small capitalization – and the Russell 1000 – which includes large capitalized companies – had not been so low since the dotcom bubble at the beginning of the 21st century.
The Russell 2000 accumulates a drop of 17.15% so far this year, registering just over one point more decline than the Russell 1000 and the S&P 500 and five points worse than the Dow Jones. Investors have taken refuge to a greater extent in the big names, which are supposed to be more consistent, which has improved the PER of the small ones.
In this sense, the current average PER of the selective that brings together 2,000 small capitalization firms stands at 56.63, falling notably from the 289 times at which it was listed a year ago. However, forecasts by Birinyi Associates analysts point out that within twelve months the figure will fall to 21.92 times, almost three times less than today. In contrast, the current P/E of the S&P 500 is 21.8 times, and they forecast it to drop to 17.63.
In this regard, analysts at BofA predict an annualized return of the small-cap index of 12% over the next decade, while the Russell 1000 will be capped at 8%.
Carey Hall, the BofA strategist behind the report, puts the focus especially on value stocks within the Russell 2000, noting that there are “a lot of opportunities” in sectors such as energy.
Facebook Comments
Disqus