Small-Cap Stocks Struggle in Bear Market
Table of Contents
Introduction
While trillion-dollar companies like Apple and Amazon have had a successful year, small-cap stocks are facing challenges in a prolonged bear market. The Russell 2000 index, which tracks small companies, has experienced a 2.8% decline this year, in contrast to the 13.8% gain seen in the S&P 500. Small caps are currently 30% lower than their peak in 2021.
The Tough Journey for Small-Cap Growth Managers
Small-cap growth managers, such as Laird Bieger, co-portfolio manager of the Baron Discovery Fund, face difficulties in this market. Bieger laments that being a small-cap growth manager may lead others to perceive them as masochists. Despite this perception, Bieger and his peers believe that small companies are undervalued compared to historical levels. They anticipate that if the economy regains momentum, small caps will outperform in the coming years.
Factors Affecting Small Caps
High interest rates and slowing consumer spending have contributed to the challenges faced by small caps this year. These factors have made it an uphill battle for small-cap stocks to thrive. However, Bieger and his peers point to various metrics that indicate small companies are currently trading at bargain prices relative to their historical levels.
Forbes’ List of America’s Most Successful Small-Cap Companies
To assist investors in finding promising small-cap stocks, Forbes compiled its annual list of America’s Most Successful Small-Cap Companies using data from FactSet. The screening process involved analyzing nearly 1,000 companies with a market value between $300 million and $2 billion. The criteria included positive sales growth over the past 12 months and a share price of at least $5. Excluded from the list were financial institutions, REITs, utilities, royalty trusts, limited partnerships, and companies that have been public for less than one year.
Top Small-Cap Companies
The top company on Forbes’ list is glassmaker Tecnoglass. Other notable companies include coconut water retailer Vita Coco at No. 17 and Build-A-Bear Workshop at No. 74. The rankings were based on factors such as earnings growth, sales growth, return on equity, and total stock return for the latest 12 months available and over the last five years. More weight was given to the latest year’s data in the ranking. All data used is as of November 3, 2023.
Conclusion
Small-cap stocks have struggled in the bear market, with the Russell 2000 index experiencing a decline compared to the S&P 500. However, small-cap growth managers believe that small companies are undervalued and have the potential to outperform in the future if the economy picks up steam. Forbes has compiled a list of America’s Most Successful Small-Cap Companies, featuring companies such as Tecnoglass, Vita Coco, and Build-A-Bear Workshop. These rankings were based on factors like earnings growth, sales growth, return on equity, and total stock return. Despite the current challenges, small-cap stocks offer opportunities for investors who are willing to navigate the bear market.