If you’re looking at buying equities now to take advantage of the recent market drop, you might consider small-cap stocks.
“Small caps continue to trade at a historically-wide discount to large caps,” Bank of America strategist Jill Carey Hall wrote in a commentary.
The Russell 2000 encompasses small-cap stocks.
“They've definitely grown cheaper,” Hall said. “On multiple metrics we track … the relative multiple of the Russell 2000 Growth Index versus the Russell 2000 Value Index now trades close to its long-term average.”
The metrics she mentioned include relative forward price-earnings ratios, the price-earnings-to-earnings growth ratio and the enterprise value-to-free cash flow ratio. Meanwhile, the price-sales ratio for small-cap growth versus value is about 20% below average, Hall said.
Bank of America offered a list of small-cap quality growth stocks that emerged from its screening process.
“This screen is not a recommended list either individually or as a group of stocks,” BofA noted. “Investors should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decisions.”
The bank screened for:
· Quality;
· Cyclical growth factors that fare well late in an economic cycle: earnings estimate revisions, estimate diffusion and earnings-per-share surprises;
· Profit margins;
· Buy-rated by BofA analysts.
Stocks on the list include audio products company Sonos (SONO), homebuilder KB Home (KBH), golf equipment company Callaway Golf (ELY), oil and gas producer Chesapeake Energy (CHK), Hospital owner Tenet Healthcare (THC), truck parts maker Meritor (MTOR), wood products company Boise Cascade (BCC), healthcare logistics company Owens & Minor (OMI), and sporting goods retailer Academy Sports and Outdoors (ASO) .
