My Love-Hate Relationship With One Corner of the Market

I suffer from a severe case of dialetheism... You've probably never heard that word before. But I bet you know what I'm talking about... [Chaikin PowerFeed]( My Love-Hate Relationship With One Corner of the Market By Marc Gerstein, director of research, Chaikin Analytics I suffer from a severe case of dialetheism... You've probably never heard that word before. But I bet you know what I'm talking about... Dialetheism is the belief that a statement can be both true and false at the same time. My dialetheism relates to a specific part of the stock market... Small caps. We'll cover the details of my dialetheism today. As you'll see, small-cap stocks haven't kept pace with the broad market. But fortunately, we have the Power Gauge in our corner... Recommended Links: [Major Announcement From Porter Stansberry]( The government is broken... the economy is broken... and financial systems are failing. What's next for America? This Thursday, October 26, Stansberry Research founder Porter Stansberry will share his next big prediction. [To get the details, click here](. [An A.I. Reckoning Is Coming]( He called the 2020 crash, the 2022 bear market, and the 2023 bank run. Now, 40-year Wall Street veteran Marc Chaikin just issued a new alert about the A.I. market. If you have any exposure to stocks, this is a must-see presentation. [Click here for Marc's new A.I. warning](. In short, I love small-cap stocks. But I hate small-cap investing. My hatred for small-cap investing starts with these stocks' long-term underperformance... The broad-market S&P 500 Index is up around 315% over the past 20 years. Meanwhile, the small-cap-focused Russell 2000 Index is only up about 235% over the same period. The gap is even wider over shorter time frames... The S&P 500 is up roughly 150% over the past decade, while the Russell 2000 has only gained around 60%. And the two indexes are up about 60% and roughly 15%, respectively, over the past five years. Many experts suggest this trend will soon change. For the most part, these folks expect more stable interest rates and better business conditions to help the smallest companies. Of course, I've heard plenty of analysis like that over the past 20 years. Maybe the experts are right this time. Maybe they're not. In the end, it doesn't matter... After all, I'm a stock picker. So the entire universe of small-cap stocks doesn't matter as much to me as individual small-cap stocks. We can always find individual opportunities. But as small-cap stock pickers, we need to overcome two big challenges. If we can't, we'll likely never find long-term success in this corner of the market. In short, we need to... 1. Avoid the dogs 2. Find the potential gems Now, that might sound like common sense. Avoiding losers and finding winners is a recipe for success in any part of the market. But with small caps, that's harder than it seems. This group includes a lot of weak companies. And since they're small, the penalty for being wrong can hit harder. One of the biggest questions for small-cap companies is whether they have the means to achieve their growth potential. We can analyze financial statements to find the answer... In short, financial strength is critical. And the company needs to efficiently use its capital. Many small-cap companies lose money when they're trying to grow their businesses. That's not a big problem if they have enough capital to reach profitability (or can raise enough). But in general, the entire universe of small-cap stocks lags behind in this area... You can see what I mean in the following table. It compares the five-year average operating margin, interest coverage, and return on equity for S&P 500 and Russell 2000 companies... [Chaikin PowerFeed] The companies in the S&P 500 are much better across the board. They're more cost-efficient. They handle their debt better. And they use their capital more effectively. Also, keep in mind that the table shows the median numbers. That means half the companies in each group are worse. In other words, the Russell 2000 includes many bad small-cap companies. Next, let's look at the growth rates for all the companies in both indexes... [Chaikin PowerFeed] The S&P 500 doesn't dominate the metrics in this table as much as the first one. In this case, the median results of the small-cap stocks compare well with the large-cap index. That tells us we can find great opportunities in small caps if we know where to look. And to help us figure out where to look, we can turn to our one-of-a-kind Power Gauge system... The Power Gauge excels at separating small-cap winners from losers. Over the past decade, "very bullish" stocks in the S&P 500 have outperformed "very bearish" stocks by roughly 3.2 percentage points. But in the Russell 2000, the outperformance is almost 12 percentage points. Take a look... [Chaikin PowerFeed] In other words... the Power Gauge is a tremendous edge for small-cap stock pickers like us. The system steers investors like us away from dumpster-fire companies with poor financial metrics. And it helps us narrow the universe of small-cap stocks down to the likely winners. That's the key to overcoming my dialetheism... I hate small-cap investing. I love small-cap stocks. And with the Power Gauge, it all makes sense. Good investing, Marc Gerstein Market View Major Indexes and Notable Sectors # Hld: Bullish Neutral Bearish Dow 30 -0.87% 4 20 6 S&P 500 -1.23% 59 296 142 Nasdaq -1.49% 19 68 12 Small Caps -1.27% 255 1148 531 Bonds +0.57% — According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks have become Bearish. Major indexes are mixed. * * * * Sector Tracker Sector movement over the last 5 days Energy +0.75% Staples +0.70% Communication -0.82% Health Care -1.64% Utilities -2.12% Information Technology -2.80% Industrials -3.00% Materials -3.01% Financial -3.04% Discretionary -4.58% Real Estate -4.63% * * * * Industry Focus Homebuilders Services 1 31 2 Its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #12 of 21 subsectors and has moved down 5 slots over the past week. Indicative Stocks [rating] TPX Tempur Sealy Interna [rating] FND Floor & Decor Holdin * * * * Top Movers Gainers [rating] CHRW +2.42% [rating] MRK +2.23% [rating] PM +2.02% [rating] APTV +1.94% [rating] WBA +1.43% Losers [rating] SEDG -27.27% [rating] ENPH -14.68% [rating] RF -12.38% [rating] CMA -8.53% [rating] ZION -7.07% * * * * Earnings Report Reporting Today Rating Before Open After Close WRB ARE, BRO, CDNS, JNPR, TER HAS PKG No earnings reporting today. Earnings Surprises [rating] AXP American Express Company Q3 $3.30 Beat by $0.35 [rating] SLB Schlumberger Limited Q3 $0.78 Beat by $0.01 [rating] FBP First BanCorp. Q3 $0.46 Beat by $0.08 * * * * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, [click here](. You’re receiving this e-mail at {EMAIL}. 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