Why Small-Cap Value Stocks Are Being Ignored Right Now

During their recent episode, Taylor, Carlisle, and Ross Glotzbach discussed Why Small-Cap Value Stocks Are Being Ignored Right Now. Here’s an excerpt from the episode:

[Ross] This has been one of the bigger questions we’ve been being asked by clients and prospects and other people recently is what is going on with active small cap investing? Because it seems like everybody who’s kind of a concentrated active small cap investor is just getting killed on a relative basis. And we are no exception over the last two months or the last 12 months.

And we were feeling great in the wake of Liberation Day, where we were ahead of the market. We had conservatively financed, boring companies on offence and small cap world. Hey, this is great.

This is our market. And it has just totally gone the other way. It feels like when you look at each one of these kind of 2000 stocks in the Russell 2000, and we wrote about this in our last little research perspectives note, it’s harder to draw a lot of broad conclusions there because a lot of the things driving the index the most don’t even really have multiples.

And therefore, you can’t say, well, this went from this multiple to that multiple. It just went up a lot. And that to us speaks to some speculation, some momentum.

A lot of concept stocks are kind of flying high. And if you’re a boring company that generates real free cash flow, this has been kind of the worst possible environment for you on a stock price basis in small cap world recently. Some of the top stocks in the Russell 2000 value have been Echostar, AST, Space Mobile.

I mean, there’s some silliness out there. But in a lot of ways, it’s really setting, we feel, up a boring portfolio like ours to shine from here. What a brutal April and May.

But when things go vertical, they more often than not start going vertical the other direction. And a lot of these valuations on a price to value basis are just well off of what they should be.