{"id":93725,"date":"2016-08-01T06:10:00","date_gmt":"2016-08-01T10:10:00","guid":{"rendered":"http:\/\/countingpips.com\/?p=93725"},"modified":"2016-08-01T06:10:00","modified_gmt":"2016-08-01T10:10:00","slug":"why-does-hillary-hate-small-caps","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/08\/why-does-hillary-hate-small-caps\/","title":{"rendered":"Why Does Hillary Hate Small Caps?"},"content":{"rendered":"
August 1, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Why<\/p>\n

It really is all about competition. It\u2019s survival of the fittest, and the \u201cvillage\u201d couldn\u2019t care less about you. That\u2019s why most investors shun what\u2019s often considered a \u201cWild West\u201d-type market outpost.<\/p>\n

She\u2019s a $225,000-per-hour creature of Wall Street. And we know Wall Street has no time for small caps.<\/p>\n

It\u2019s all part of our new, \u201cimproved\u201d bubble-wrap society, where helicopter parents (and helicopter money) insulate children (and investors) against any discomfort, edification be damned. There can be no risk.<\/p>\n

And so there can be no real reward, of the \u201csuccess is peace of mind which is a direct result of self-satisfaction in knowing you did your best to become the best you are capable of becoming\u201d type.<\/p>\n

Well, at Wall Street Daily<\/em>, we\u2019re taking an old-school approach, inspired by folks like John Wooden, to investing in new-school innovation, in the manner of Sir John Templeton.<\/p>

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Sir John was a big advocate of open-mindedness, of seeking new paths as the means to market-beating returns.<\/p>\n

The whole point of the 1939 exercise where he borrowed $10,400 to buy 104 stocks trading below $1 was about picking nations, industries, and companies hitting rock-bottom. It\u2019s what he called \u201cpoints of maximum pessimism\u201d \u2013 to dare where others will not.<\/p>\n

\u201cSuccess is peace of mind which is a direct result of self-satisfaction in knowing you did your best to become the best you are capable of becoming.\u201d<\/em>
\n\u2013Coach John Wooden<\/p>\n

It\u2019s a pretty profound illustration of Sir John\u2019s unfailing optimism and his belief in progress. At the same time, there was no clearer proof that he was also a relentless questioner and contrarian.<\/p>\n

This type of approach to investing \u2013 to life \u2013 demands a lot of those who choose it. As Sir John said, \u201cI want people to realize that you shouldn\u2019t think you know it all.\u201d<\/p>\n

We sure heard plenty from the know-it-all set last week.<\/p>\n

But let\u2019s get to a very basic threshold question: What are we talking about when we talk about small-cap stocks?<\/p>\n

Let\u2019s start with a breakdown of the Russell 2000, the leading small-cap benchmark. And we\u2019ll compare it to the S&P 500, the main gauge of large-cap U.S. equities.<\/p>\n

As of June 30, 2016, the top five sectors in the Russell 2000, by market capitalization, were Financial Services, Consumer Discretionary, Technology, Healthcare, and Producer Durables.<\/p>\n

The S&P 500 was most heavily weighted to Information Technology, Financials, Healthcare, Consumer Discretionary, and Consumer Staples.<\/p>\n

The Russell 2000 has posed three-, five-, and 10-year average returns of 7.1%, 8.4%, and 6.2%, respectively. The S&P 500\u2019s marks are 11.7%, 12.1%, and 7.4%.<\/p>\n

The average market cap for the Russell 2000 as of June 30 was $1.722 billion, the median market cap was $679 million, and the largest stock\u2019s market capitalization was $4.245 billion.<\/p>\n

Meanwhile, a company has to have a $5.3 billion market cap just to be eligible for the S&P 500, which captures about 80% of available market capitalization. The average market cap for the S&P 500 was $37.794 billion, the median was $18.126 billion, and the largest stock was $523.641 billion.<\/p>\n

\u201cI want people to realize that you shouldn\u2019t think you know it all.\u201d<\/em>
\n\u2013Sir John Templeton<\/p>\n

From a fundamentals perspective, the Russell 2000 is cheaper on a price-to-book basis at 1.95 versus the S&P 500\u2019s 2.77.<\/p>\n

The Russell 2000 reports price-to-earnings excluding negative earnings; the reported P\/E ratio is 23.64. The S&P 500 as of June 30 was priced at 23.83 times trailing 12-month earnings.<\/p>\n

The Russell 2000 includes recognizable names such as Abercrombie & Fitch Co.<\/strong> (ANF<\/strong><\/a>), Advanced Micro Devices Inc.<\/strong> (AMD<\/strong><\/a>), Angie\u2019s List Inc.<\/strong> (ANGI<\/strong><\/a>), Men\u2019s Wearhouse Inc.<\/strong> (MW<\/strong><\/a>), and Noodles & Co.<\/strong> (NDLS<\/strong><\/a>).<\/p>\n

Those are all names with solid businesses that may one day accomplish what Church & Dwight Co. Inc.<\/strong> (CHD<\/strong><\/a>), the home of Arm & Hammer baking soda, did: Grow out of the small-cap designation.<\/p>\n

Over time, stock prices follow earnings. That\u2019s what happened with Church & Dwight.<\/p>\n

One way to limit the risk of investing in small caps is to focus on companies that have cash on their balance sheets and can, therefore, self-fund their growth. Volatility is limited because they don\u2019t need access to capital markets during crises.<\/p>\n

So we do like free cash flow and strong balance sheets.<\/p>\n

But we also look for something about the business that\u2019s unique\u2026 innovative.<\/p>\n

Emergent BioSolutions Inc.<\/strong> (EBS<\/strong><\/a>), for example, combines positive cash flow generation, a solid balance sheet, and a first-mover role in the increasingly critical biodefense subsector.<\/p>\n

The company\u2019s largest product, BioThrax, is the only FDA-licensed vaccine for the prevention of anthrax.<\/p>\n

And subscribers to VentureCap Strategist<\/em> have enjoyed a 158% gain on USA Technologies Inc.<\/strong> (USAT<\/strong><\/a>).<\/p>\n

USA Tech is still enjoying \u201csweet spot\u201d status amid the long-term trend toward cashless, electronic payments at a host of self-service or small-ticket \u201cunattended retail\u201d locations, such as vending machines, laundry facilities, car washes, and parking garages.<\/p>\n

Upticks, Downticks<\/h3>\n

\"Uptick\"The Russell 2000 added 7 points, or 0.5%, last week to finish at 1219.94, 6.2% below its all-time high.<\/p>\n

\"Downtick\"According to the Bureau of Labor Statistics, 12.3 million Americans had payroll jobs in manufacturing in June. That\u2019s down about 30,000 from June 2015, off nearly 1.9 million from June 2006, and down 4.9 million from 1996. In the past 20 years America has shed 28% of its manufacturing jobs.<\/p>\n

\"Uptick\"Over the past 100 years, the Industrial Production Index, prepared by the Federal Reserve Bank of St. Louis to measure the value of the output of the manufacturing, mining, and utilities industries, has risen steadily, even over the last several decades. That\u2019s because manufacturing in the U.S. become a disproportionately high-end activity, concentrated in heavy machinery, tools, and cars.<\/p>\n

\"Downtick\"The Bank of Japan \u201cdisappointed\u201d observers by not announcing a \u201chelicopter money\u201d flight plan. But extraordinarily easy monetary policy got even more extraordinarily easy, as the BoJ did increase the size of its ETF purchases and expand the scope of its dollar-lending facility. Wall Street\u2019s dope fiends wanted more, though.<\/p>\n

\"Uptick\"After 18 months in negative territory the Citigroup Economic Surprise Index breached zero on July 8. Economic growth hasn\u2019t accelerated, but the data have been better than expected. And \u201cupside surprise\u201d is good for stocks. The June ISM PMI came in at 53.2 versus a consensus expectation of 51.4, and the June Employment Situation report showed 287,000 net new jobs versus a forecast of 175,000.<\/p>\n

\"Downtick\"MAD magazine cartoonist Jack Davis, who drew many portraits of Alfred E. Neuman, died at 91. (Full disclosure: One of my best friends from law school nicknamed me \u201cA.E.\u201d during our time together at Villanova, for reasons that become obvious if you look at my picture, above.)<\/p>\n

Smart Investing,<\/p>\n

David Dittman
\nEditorial Director, Wall Street Daily<\/i><\/p>\n

The post Why Does Hillary Hate Small Caps?<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com It really is all about competition. It\u2019s survival of the fittest, and the \u201cvillage\u201d couldn\u2019t care less about you. That\u2019s why most investors shun what\u2019s often considered a \u201cWild West\u201d-type market outpost. She\u2019s a $225,000-per-hour creature of Wall Street. And we know Wall Street has no time for small caps. It\u2019s all part […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-93725","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/93725","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=93725"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/93725\/revisions"}],"predecessor-version":[{"id":93736,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/93725\/revisions\/93736"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=93725"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=93725"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=93725"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}