Since the start of the year, the benchmark index for small-cap stocks, the Russell 2000, has outperformed the S&P 500 by a wide margin. To put it into specifics, we’re talking about an 18.7% gain versus a 10.45% gain.
The shift is significant for a couple of reasons. Small caps have historically outperformed large caps, but the opposite has held true for about a decade. In addition, small caps are currently trading at a steep, historically wide valuation discount relative to their larger counterparts.
If the trend continues, this could be more than a short-lived rotation. It could mark the beginning of a broader rebalancing in which investors move beyond the handful of mega-cap stocks that have dominated the market and rediscover the value, growth potential, and upside available further down the market-cap spectrum.
That’s not to say that investors are left with any easy trades. Small caps are a vast and uneven playing field. Investors can bump into anything from speculative, cash-burning moonshots to underappreciated, profitable niche leaders. Analyst coverage is generally thinner, reliable information can be harder to come by, and separating genuine opportunities from tickers you should pass on requires careful research.
Thankfully, there’s a way to expedite that research process: all you have to do is turn to …
Small Caps Stock Strategy
Our proprietary quant system analyzes 4,600 stocks on a daily basis, and rates them through the lens of 115 metrics and factors split across 7 categories called Component Grades. Those insights come together to form a single, straightforward metric — a stock’s Zen Rating.
Only the stocks that rank in the top 5% for overall fundamentals are given a Zen Rating of A, equivalent to a Strong Buy recommendation. That can narrow the search down significantly, but it still leaves about 230 stocks for you to consider on any given day.
However, there’s a way to make your analysis even more efficient. Simply make use of one of our exclusive Zen Strategies.
There are 11 Strategies in total. Each is a portfolio consisting of 7 carefully selected stocks. Today, you’ll get a sneak peek at one of our top-performing Strategies. It has an all-time annual return of 38.17%, and it has delivered a 12.07% return in the last 30 days. This week, the spotlight is on our Small Caps stock strategy.
Alto Ingredients (ALTO)
Our first pick, Alto Ingredients, produces specialty alcohols and other ingredients for the beverage, pharmaceutical, cosmetics, and industrial markets, alongside fuel-grade ethanol. ALTO ranks in the top 1% of the stocks we track, and it’s currently the top-rated stock in the Specialty Chemical Industry, which has an Industry Rating of B.
The fundamental profile here is incredibly well balanced. ALTO ranks in the top 20% of stocks we track for both Value and Financials, which is a rare combination. On top of that, we’ve also got a placement in the top 18% for Safety and the top 14% for Growth. The star of the show, however, is the Sentiment rating — here, Alto Ingredients ranks in the top 14%.
As far as fundamental softness goes, there are no red flags. The Momentum and AI ratings are the weak points, but even there, the stock ranks in the top 34% and top 49%, respectively. In addition, there’s a positive catalyst at play, as the stock was added to the Russell 2000 and Russell 3000 indexes at the end of last month.
Betterware (BWMX)
The second entry on this week’s list is Betterware, a Mexican direct-to-consumer retailer selling household organization, kitchen, cleaning, and personal-care products. BWMX ranks in the top 1% of the stocks we track, and it’s currently the top-rated stock in the Retail industry, which has an Industry Rating of B.
Just like our previous pick, BWMX scores highly in the Value and Financials Component Grade ratings — in this case, the stock is in the top 10% for both. Our Artificial Intelligence rating uses a neural network trained on more than 20 years of data to pick up outperformers early — and in that category, Betterware is in the top 9%. However, the stock’s strongest area is Growth, where it’s in the top 5%.
The areas where it is less exceptional are Safety, Sentiment, and Momentum, but the honest read is that BWMX is slightly above-average in those categories, not lacking. BWMX acquired Tupperware’s Latin America businesses on June 2, and the company’s next earnings call is due July 23.
Pangaea Logistics (PANL)
The business we’re looking at today is Pangaea Logistics, a marine transportation company that ships commodities such as grains, minerals, and steel products worldwide. PANL ranks in the top 1% of everything we track, and it’s the top-rated stock in the Shipping industry, which has an Industry Rating of A.
PANL’s earnings are forecast to grow at a rate of 128.93%, compared to an industry average of 72.51%, putting the stock in the top 8% of the tickers we track in terms of Growth. In terms of the Artificial Intelligence rating, Pangaea Logistics is in the top 6%, so our neural network is picking up on strong signs hinting at outperformance.
The valuation is another strong point. As PANL is trading at a price-to-earnings growth (PEG) ratio of just 0.12x, it’s little wonder that it ranks in the top 5% of everything we track for Value. And lastly, when it comes to Sentiment, our smart money rating, PANL is in the top 3%, which tells us that there’s significant smart money accumulation.
As far as the rest of the fundamental panel goes, PANL doesn’t have any glaring weaknesses. The rest of the ratings are clustered around the top 30% mark, so while there is room for improvement on fronts like Safety and Financials, there are no red flags. Since the company’s last earnings report on May 11, the stock has dipped by 9.6% on account of profit taking, so investors are also presented with a handy discount.
Interested In More Great Stock Picks?
The 3 stocks highlighted above are just a fraction of what you get from our proven Small Caps strategy.
That’s because each day our system recalibrates — and Zen Strategies members get access to the top 7 small cap stocks based on 115 different parameters that point to outperformance.
See all Top 7 Small Caps Stocks here >
However, maybe none of the stocks you’ve seen here have caught your eye. Perhaps you would like to see all 11 of our market beating strategies including Growth, Momentum, Value, and our coveted AI Factor model.
Each featuring the top 7 stocks.
Each featuring tremendous performance
We spell it all out in this timely presentation below that lives up to its name:
10 Minutes a Month to Beat the Market >
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