Blog > US Stocks and Markets > Investing in Small-Caps: Two ways to profit from the correction in small-cap stocks
 | Email This Article Email This Article  | 

Investing in Small-Caps: Two ways to profit from the correction in small-cap stocks

Posted December 3, 2007

"Exposure to small-cap stocks used to be a necessity if you wanted to build a strong portfolio and generate exponential gains. Small caps, in particular, have a history of outperforming mid and large-cap stocks." — Laura Cadden

TFN

Baltimore — (TFN):  This is the transcript of the TFN Smart Trading Action Alert program "Safe Profits in Small-Cap Stocks", filmed on 11/21/07

Host: Laura Cadden

Guest: Ian Cooper, editor www.SCTradingPit.com.

Laura Cadden: Welcome to TFN's Smart Trading Action Alert. I'm Laura Cadden.

Companies with large market capitalizations have been under strong selling pressure in recent months. Talk of a negative economic outlook for the United States and horrendous losses reported by banks have resulted in billions of losses to investors. But how have small and medium-cap stocks performed? Exposure to small-cap stocks used to be a necessity if you wanted to build a strong portfolio and generate exponential gains. Small caps in particular, have a history of outperforming mid and large-cap stocks. 

From 1925 through 2005, for example, small-cap stocks returned an annual 12.6 percent as compared to annual returns of just 10.4 percent for large-cap stocks.

I've invited SC Trading Pit editor Ian Cooper to talk about small-cap trading opportunities. Welcome, Ian.

Ian Cooper:Thanks for having me.

Laura Cadden: How have stocks of small market capitalizations faired during the recent sell-off?

Ian Cooper: Well, one look at the Russell 2000 Small-Cap Index, for example, shows that small-cap stocks have been beaten silly. But that's okay thought. Historically, if you look at a five-year or a ten-year chart, as compared to the Dow or the S&P500 and the NASDAQ, small-cap stocks have historically outperformed.

Laura Cadden: You think that's going to be the case here as well?

Ian Cooper: Absolutely. They're going to continue to outperform the major indices.

Laura Cadden: Is there a specific sector you think is especially strong?

Ian Cooper: You can never go wrong with gold. Geopolitical pressures, falling dollar, a very damaged consumer, they're all pushing people to the safe havens of gold. As the Dow fell about a percent over the last six months, you had some gold stocks, such as Great Basin Gold, up close to 50 percent over their six-month time. So you can never go wrong with gold.

Laura Cadden: Do you think that analyst attitudes are going to be shifting in the near future from where they have been?

Ian Cooper: Well, unfortunately not. Big banks don't have a history of doing a lot of business with small-cap stocks, which means that their analysts aren't doing business with small-cap stocks, which means that their clients aren't doing it and they're not going getting the exposure that they should be getting.

For example, back in May 2007, we picked up on LSV Industries LXI and found that there was no analyst coverage. Here was a stock in a geothermal area, an industry making $1 billion a year, and here you have this small $350 million company not getting any analyst coverage and not running. So we bought at $15.00 and watched it go to $30.00. Today, one analyst covers that stock, and there's still plenty of upside. But a lot of clients and a lot of banks are missing out on that run.

Laura Cadden: Are there other small-cap stock recommendations you might have for us?

Ian Cooper: Actually, we're looking in the emerging markets area. We're looking at Elixir Gaming, EGT. They have a lot of exposure to Macau and Las Vegas. They're signed to deal with 700 electronic machines for a casino.

And we're also looking at a company in Israel called IncrediMail, which is in the $900 million social networking market. The same as Myspace and the same as LinkedIn. They could have great exposure, and we're already hearing rumors of possible buyouts for them.

Laura Cadden: Oh, that's fantastic. And can I get you to write up a report about this for my viewers?

Ian Cooper: Absolutely.

Laura Cadden: Thank you so much.

Ian Cooper: No problem. Thanks.

Laura Cadden: To read Ian's report that he'll so graciously write for me, outlining his recommendation, go to the homepage of TodaysFinancialNews.com and look under the "Investment Strategies" section for this and other valuable investment and trading information.To learn more about SC Trading Pit, go to www.SCTradingPit.com. Please join us next week for another opportunity for profits on TFN's Smart Trading Action Alert. For Ian Cooper and TodaysFinancialNews.com, I'm Laura Cadden.

***Don't miss Ian Cooper's free special report: 

Profits in Small-Cap Stock: Where You Have the Advantage Over Warren Buffet

Related Articles


Posted by Laura Cadden · Filed Under US Stocks and Markets 

Comments

close Reblog this comment
Powered by Disqus · Learn more
blog comments powered by Disqus