And with more interest rate cuts likely coming and higher tariffs still on the table, I expect inflation to accelerate.

Fortunately, there’s an asset class that has absolutely crushed inflation every decade for nearly a century. And I bet you’ll be surprised when you find out what it is.

It is not gold.

Gold has kept up with inflation over the very long term, but that’s about it. An ounce of gold essentially buys the same amount of goods and services today as it did a millennium or two ago.

The big inflation beater is small cap stocks.

You can see from the chart above that small caps strongly outpaced inflation in every decade. The smallest margin was 4.7% in the 1980s.

On average, small caps returned 13% annually, while inflation averaged 3.2% – meaning small caps increased an investor’s buying power by an astounding 10% per year.

That doesn’t just mean you could have had 10% more money each year. It means you could have bought 10% more goods and services each year – no matter how high prices rose during that year.

To make it clear just how profound this is, let me give you an example. Let’s say you’re a golfer and the average round of golf costs you $100. You have a budget of $1,000 per year for golf (not including equipment). That means you can play 10 times per year.

Now imagine that, due to inflation, a round of golf will cost you $105 next year. If your budget doesn’t increase, you’re down to playing nine times per year. And in a few years, if inflation remains constant, that will decline to eight times.

But now suppose that you added the average yearly return (13%) that small caps have delivered to your golf budget, increasing it from $1,000 to $1,130. Not only would you be able to afford the annual bump in greens fees, but you’d also be able to increase the number of times you can hit the links to 11 per year. You’d be able to play 12 times the following year… and so on.

Small caps get a bad rap. Many investors think they’re super risky. And certain ones are. There are plenty of garbage companies out there.

But as an asset class, small caps have a fantastic track record that goes back decades. And surprisingly, they help investors increase their buying power even during periods of high inflation.

Going forward, it will be important to have small caps in your portfolio. With large caps trading at historically high valuations (and with more rate cuts by the Fed on the horizon), they are likely to be the top performers in the near term.

Many people think of small caps as speculative investments. But they have proven over nearly 100 years to play a vital role in allowing investors to beat inflation and increase their buying power.

The post The Big Inflation Beater appeared first on Wealthy Retirement.

I told him I really liked Texas Instruments (Nasdaq: TXN). “The calculator company?!” he exclaimed. “Yes, the calculator company,” I replied, rolling my eyes.

I explained that while there are still calculators out there with Texas Instruments’ name on them, the company is one of the world’s leading semiconductor makers. And it pays a nice dividend.

He snored loudly, pretending to be asleep.

I then told him about Raytheon Technologies (NYSE: RTX). The government never gets tired of spending money on new toys for the military.

“C’mon, Marc… give me something exciting,” he demanded.

“Okay, how about Digital Realty Trust (NYSE: DLR)?”

I explained that this company is a real estate investment trust that rents out shelf space to household-name companies to place their servers. It generates a ton of cash and also pays a solid dividend.

“Booorrrring!!!” he cried.

Had he invested in those companies, he wouldn’t have thought they were boring at all. Texas Instruments became the second-biggest winner in the history of my monthly newsletter, The Oxford Income Letter, gaining over 450% in 10 years. I sold Digital Realty Trust in 2022 for a more than 220% gain in eight years. Raytheon, now called RTX, is still in the Oxford Income Letter portfolio and is up 792% since 2013.

But my friend wanted something tiny that could really move.

There’s a misperception in the market that low-priced stocks can move faster than high-priced stocks.

Tell that to anyone who bought Nvidia (Nasdaq: NVDA) at $400 or Goldman Sachs (NYSE: GS) for $300 two years ago. They’ll laugh in your face. Goldman Sachs has more than doubled to $760 since then, and Nvidia has more than quadrupled (it underwent a 10-for-1 stock split in 2024).

Still, there is something exciting about owning a lot of shares of a low-priced, very small company. And when tiny companies move, they can move fast.

Look at RedCloud Holdings (Nasdaq: RCT). It was trading between $1.40 and $1.70 in June of this year. But by July 1, it had tripled to $4.29.

PepGen (Nasdaq: PEPG) recently doubled – from below $2 to over $4 – in just a month.

And Dominari Holdings (Nasdaq: DOMH) skyrocketed nearly 13X, rising from $1 to $13, from mid-January to mid-February.

That’s the kind of action most people who get involved in microcap stocks are looking for.

And there’s nothing wrong with that as long as you know the risks and position size accordingly.

Many investors don’t know this, but you can also find microcaps that pay dividends.

For example, Kimbell Royalty Partners (NYSE: KRP) has a market cap of just $1.4 billion and yields almost 12%.

And $30 million market cap Crown Crafts (Nasdaq: CRWS) sports an 11% yield.

That brings me to another point: Microcaps don’t have to be startups that have recently gone public or are involved in Bitcoin or some other speculative technology.

Crown Crafts makes baby furniture and has been around for almost 70 years.

I tell investors that when creating a portfolio, they should diversify into various sectors, geographies, and market caps. There are times when large cap companies outperform and other times when small cap or microcap companies are better.

No doubt, my buddy was looking for one of those microcaps that are about to take off. Everybody is. And it’s okay to invest in these types of companies.

In fact, I recommend that investors include microcaps in their portfolios so they have exposure to these small companies that can double or triple in a short period of time in some cases and fly under the radar in others.

Just be sure you know why you’re buying a stock, and have an exit plan (like a stop) set up ahead of time. This ensures that you will sell if things change or grab profits when it’s time.

The post The Right Way to Own Small Cap Stocks appeared first on Wealthy Retirement.

Investing in small cap companies is not for the faint of heart.

Smaller stocks can deliver very large gains… But many investors have been burned by small caps that were supposed to be the next big thing and instead were the next big bust.

Still, small caps are an essential part of any diversified portfolio.

Not only do they belong in your long-term portfolio, but the market is actually set up to see them soar very soon.

Chief Income Strategist Marc Lichtenfeld gives us all the details in this State of the Market.

The post Invest in Small Caps in 2023 appeared first on Wealthy Retirement.

Investing in small cap companies is not for the faint of heart.

Smaller stocks can deliver very large gains… But many investors have also been burned by small caps that were supposed to be the next big thing and instead were the next big bust.

Still, small caps are an essential part of any diversified portfolio.

Not only do they belong in your long-term portfolio, but the market is actually set up to see them soar very soon.

Chief Income Strategist Marc Lichtenfeld gives us all the details in this week’s State of the Market.

The post Big Surprises Come in Small… Stocks? appeared first on Wealthy Retirement.

At that time, the five-year annualized return from the Russell 2000 was a negative 0.2%. That was an incredibly rare situation.

In the 40-year history of the Russell 2000 Index of small cap stocks, it had ended a month with a negative five-year annualized return only 21 times.

More importantly, the historical data told us what was about to happen next…

From those 21 month ends, the future reward from owning small cap stocks was incredible.

On average, the one-year return was 40.8%…

The three-year return was 22.1%…

And the five-year return was 18.3%.

In the months and years that followed that negative return in April 2020, small caps performed even better than expected.

More than a year and a half after I published that article on April 14, the small cap sector – represented by the iShares Core S&P Small-Cap ETF (NYSE: IJR) – had doubled!

The iShares Core S&P Small-Cap ETF is not just one company but rather a widely diversified index that consists of 600 different stocks from all of America’s industries.

Opportunity knocked, and anyone who answered was extremely well rewarded.

Since then, though, small caps have gone into another lull. From November 2021 to now, the sector is actually down more than 12%.

With this decline, the small cap sector has become extremely inexpensive relative to its historical valuations.

On a forward price-to-earnings basis, small caps ended last year cheaper than they have been since the early 1990s.

Cheaper even than they were during the market crash in the spring of 2020…

Cheaper than they were at the bottom of the financial crisis in early 2009…

Cheaper than when the tech bubble imploded in 2000…

Unquestionably, this valuation presents a nice entry point for small caps.

The sector has had a bit of a bounce so far in 2023 since this data point was established. But small caps are still very attractively valued and should perform well over the next five-year period.

If I had been a little sharper and jumped on this opportunity before the market bounced in January, I would have rated the iShares Core S&P Small-Cap ETF as “Extremely Undervalued.”

Where it stands today, though, The Value Meter ranks the iShares Core S&P Small-Cap ETF as “Slightly Undervalued.” I would be an eager buyer on any pullback in the market.

The post History Is Repeating Itself in the Small Cap Sector appeared first on Wealthy Retirement.

If you put $10,000 into this stock when went it went public in 2003, your investment would be worth more than $133,000 today.

Meanwhile, if you made a $10,000 investment in the S&P 500 at the same time, your investment would now be worth just $37,700.

That’s outstanding performance.

And despite TD Synnex’s meteoric two-decade stock run, this company has a market capitalization of less than $9 billion and it’s often included in small cap funds. Personally, I would call TD Synnex a “SMID” cap (small cap to midcap) stock.

However, as I said earlier this week, small cap stocks have been demolished so far in 2022. The small cap benchmark index, the Russell 2000 Index, had its worst-ever first half of a calendar year.

TD Synnex’s shares have not been spared from the small cap meltdown.

Year to date, the company’s stock is down more than 20%.

But TD Synnex was originally founded as Synnex way back in 1980, so it has staying power.

And currently, TD Synnex distributes more than 200,000 different technology products that are made by 1,500 different vendors.

It’s a big business that generated more than $31.6 billion in revenue in 2021.

As stark as the recent small cap sell-off has been, the chaos has created an attractive entry point for a company that has rewarded investors over the long term.

For the current fiscal year, TD Synnex’s management expects earnings per share to range from $11.15 to $11.65.

With TD Synnex’s shares currently going for $95.05 as I write, that means the company is trading at a little more than eight times earnings.

That’s a compelling valuation for a company that has steadily grown its earnings per share for two decades.

Furthermore, TD Synnex is the world’s largest distributor of IT products and is the product of a recent merger between Synnex and Tech Data. One of the top hedge funds of the 21st century, Greenlight Capital, sees TD Synnex’s merger as a catalyst for growth, as the combined companies are now able to exploit both cost and revenue synergies.

TD Synnex is also a repeat acquirer of other, smaller operators. Time and again, its management has successfully consolidated businesses, further driving earnings per share growth.

Greenlight recently predicted that TD Synnex should be able to generate earnings per share of more than $20 within a few years.

If that happens, the current $95.05 share price will look like a table-pounding bargain. The company will be generating almost a quarter of that $95.05 share price in earnings every year.

With a track record of incredible wealth creation, steady earnings per share growth and the potential for huge upside in the form of a merger, TD Synnex is extremely undervalued.

Valuation Rating: Extremely Undervalued

If you have a stock whose valuation you’d like me to grade, leave the ticker in the comments section.

You can also check to see whether I’ve written about your favorite stock recently. Just click on the magnifying glass on the upper right part of the Wealthy Retirement homepage, type in the ticker symbol and hit enter.

Good investing,

Jody

The post A Discounted IT Leader Enjoying Huge Upside appeared first on Wealthy Retirement.

Alex is an accomplished stock market veteran who focuses on capturing the highest-potential companies – including Amazon (Nasdaq: AMZN) and Netflix (Nasdaq: NFLX) – before the rest of the market catches on.

His strategy for catching these winners lies in microcap investing – selectively buying shares of high-potential, high-growth stocks.

Alex plans to catch the next big tech stock before it starts its launch.

Read on to learn more about his powerful strategy.

– Mable Buchanan, Assistant Managing Editor

Thanks in part to the coronavirus, more than 500 companies have filed for bankruptcy this year.

The biggest by far is Hertz (NYSE: HTZ), which sought Chapter 11 protection in May with $25.8 billion in assets and $24.4 billion in liabilities.

Some companies restructure and survive bankruptcy. Many do not.

The ones that don’t generally go into liquidation. In a liquidation, shareholders don’t receive a dime until bondholders, creditors and other lien holders are paid in full.

In other words, they usually get nada.

So sophisticated short-term traders generally avoid bankrupt companies.

Yet traders have flocked to Hertz. From a low of $0.40 on May 26, they bid it all the way up to $6.25 on June 8.

That’s a great return for someone who got in a month before and sold a couple weeks later.

Of course, going to a casino and putting all your money on a number at the roulette wheel can pay a great return too. But I don’t recommend it.

As I write, Hertz has succumbed to gravity and reality.

What were those traders thinking? The evidence suggests they were not.

Many low-priced stocks are being manipulated by hordes of inexperienced day traders, most of them millennials and Gen Xers. Stuck at home during the pandemic with no professional sports to bet on, they have turned to the stock market.

Instead of riches, most will receive an education that makes the Ivy League look cheap.

Jaime Rogozinski, founder of WallStreetBets, heads such a group with approximately 1.3 million members. And he has no illusions about their investment prowess.

“They don’t know what they’re doing. And they don’t care that they don’t know what they’re doing,” he says. “To them, there’s no sense in looking at a company’s balance sheet or figuring out how to do a discounted cash-flow analysis. They just regard the volatility as an opportunity for fun.”

Hoo-boy.

The sad part is these traders’ instincts are basically correct. Low-priced stocks do offer the biggest potential returns.

(Although you won’t earn them flipping shares every few hours… or minutes.)

Run your finger down the list of the best-performing stocks each year and you’ll find that the vast majority of them – if not all of them – are microcaps.

Microcaps are small companies with a total market capitalization – calculated by multiplying the stock price by the number of shares outstanding – of well under $1 billion.

I’m not talking about worthless (and easily manipulated) zombie firms or companies struggling through bankruptcy.

I’m talking about real companies – with real products and services and rising sales and earnings – that are early in a high-growth phase.

These have the potential to generate some of the market’s biggest returns. It’s not hard to see why.

They are tiny, so mutual funds and hedge funds can’t buy them. Wall Street doesn’t follow them. And the mainstream media doesn’t report on them.

This information vacuum creates vast opportunities for those willing to do a bit of due diligence.

For instance, here are the two-year returns through January 2020 for the five top-performing stocks in the S&P 500:

• Fortinet (Nasdaq: FTNT): 82%
• MSCI (NYSE: MSCI): 83%
• Paycom Software (NYSE: PAYC): 101%
• Chipotle Mexican Grill (NYSE: CMG): 101%
• Advanced Micro Devices (Nasdaq: AMD): 354%.

Not bad. But compare those returns – the best of the best – with the top-performing microcaps over the same period:

• Paysign Inc. (Nasdaq: PAYS): 1,185%
• Relmada Therapeutics (Nasdaq: RLMD): 1,464%
• Emisphere Technologies (OTC: EMIS): 2,544%
• Fastbase Inc. (OTC: FBSE): 3,483%
• Nocera Inc. (OTC: NCRA): 7,799%.

Investors everywhere want to earn higher returns. But many are going about it the wrong way.

No, they are not gambling like the testosterone-fueled day traders. They make the opposite mistake. They look exclusively at huge companies that should give decent returns in the weeks and months ahead, but almost certainly will not generate extraordinary returns.

Take Apple (Nasdaq: AAPL), for example.

It’s a fine company. I’ve owned shares of it for over 25 years now. The annual dividend is many times my original investment.

But today it has a market cap of $1.5 trillion. It will not become a $3 trillion company anytime soon.

I bought Apple when it was a small company. Now it is the world’s largest.

Personally, I’m much more interested in finding the next Apple than arguing about whether that company is a “Buy” or “Hold” today.

There are plenty of publicly traded companies out there with the potential to rise severalfold in the months and years ahead.

But they tend to be microcaps, not megacaps.

If you’re not earning the outsized returns you’d like, don’t focus entirely on large firms. And don’t waste a minute on little ones without stellar fundamentals.

Instead, devote a portion of your portfolio to fast-growing small companies with successful products and services – and superb prospects.

If you’re going to cast a line, that’s the pond where you want to fish.

Good investing,

Alex

The post Stop Neglecting These Profitable Stocks appeared first on Wealthy Retirement.

What both are telling me now is that there has rarely been a better time to buy small cap stocks.

This opportunity was created by an epically bad first quarter of 2020 for the small cap sector.

Small cap performance is measured by the Russell 2000 Index, the most popular index of small capitalization stocks. The first quarter decline of 30.6% in the Russell 2000 was the largest quarterly loss in the more than 40-year history of the index.

Here’s how it looked…

The quarter was dismal, but the one-month decline between February 20, 2020, and March 18, 2020, was even worse. In just that one month, the Russell 2000 Index fell by a staggering 41.5%.

Remember, that isn’t one stock dropping this much. It is an entire index consisting of 2,000 of the finest smaller publicly traded businesses in the United States that has collapsed.

We need some perspective on this decline to really appreciate how rare it is.

We can get that by looking at the last two big stock market collapses, both of which ranked among the worst in history.

When the internet bubble collapsed between March 2000 and October 2002, the Russell 2000 declined by 44.1%. During the bear market that started in July 2007 and ended in March 2009, the Russell 2000 had a maximum drawdown of 58.9%.

The numbers show that our total current decline in the Russell 2000 measures up with the last two major downturns. What stands out about this decline is the incredible speed at which it happened.

The 41.5% decline that we just experienced is similar in size to the total decline experienced in each of the last two major market meltdowns, both of which took years to play out.

This drop in the Russell 2000 took one month!

The First Quarter of 2020 Is in the History Books – Let’s Look Forward

The Russell 2000’s first quarter was one for the history books – and not in a good way.

But while we have those history books open, it is well worth looking at what the Russell 2000 might have in store for us.

This history makes for some valuable reading because it alerts us to the fact that this looks like one of the best buying opportunities we are ever going to see.

When small caps bottomed in October 2002, the Russell 2000 rebounded with a vengeance, rocketing 60% higher over the next 12 months. That must have been fun!

The year following the bottom in March 2009 was even better, with the Russell 2000 going up 95% between March 9, 2009, and March 9, 2010. The entire index nearly doubled.

Those are pretty encouraging numbers to say the least, and it doesn’t end there…

As of March 31, 2020, the five-year annualized return from the Russell 2000 was negative 0.2%. That means that from March 31, 2015, until now, small cap stocks have not generated any return from investors.

That is an incredibly rare occurrence.

Since it was formed more than 40 years ago, the Russell 2000 has completed 436 month-ends. Only 21 of those 436 month-ends have closed with the Russell 2000 sitting with a negative five-year annualized return like it has today. That is just 4.8% of the time.

More important is how the Russell 2000 does after it finds itself with a negative five-year annualized return…

I’ll give you a hint – it is very, very good.

With a five-year annualized negative return like we have today, historically, the Russell 2000 has produced one-year average returns of 40.8%, three-year average annual returns of 22.1% and five-year average annual returns of 18.3%.

This data is very compelling.

History is telling us that buying small caps today will be a very rewarding experience over the next one to five years.

Keep It Simple – Just Buy the Russell 2000

If the Russell 2000 is poised to have a massive run over the next five years, it doesn’t take a rocket scientist to figure out what to do…

Buy the Russell 2000!

With more exchange-traded funds (ETFs) in existence today than you can shake a stick at, finding one through which to own the Russell 2000 is very easy.

The largest by far is the iShares Russell 2000 ETF (NYSE: IWM). This ETF’s assets were $34 billion as of April 9, 2020, and the fund’s expense ratio is a reasonable 0.19%.

The second-largest ETF is the Vanguard Russell 2000 ETF (Nasdaq: VTWO). Assets of this ETF were $2 billion as of April 9, 2020, and the expense ratio is even lower at 0.10%.

The Vanguard ETF is much smaller and has priced its expense ratio lower to try to attract more investors.

I think both ETFs are interesting opportunities today.

Good investing,

Jody

The post Why Now Is the Time to Buy Small Caps appeared first on Wealthy Retirement.