OT: Caution warranted on small stocks....
This is from a Barron's article on Saturday...
The case for small and mid-cap stocks is harder to make after outsize gains
this year and more than a decade of outperformance relative to their larger
brethren. The median mid-cap stock in the S&P MidCap 400 has a market value
of about $3.4 billion while the median issue in the S&P SmallCap 600 is just
under $1 billion.
"Small caps are awfully expensive on an absolute basis and relative to
large-cap stocks," says Bank of America Merrill Lynch strategist Steven
DeSanctis. He calculates that the Russell 2000 index is valued at about 18.5
times forward earnings. The small-cap benchmark historically has had a
higher P/E than the S&P 500, but the spread has averaged less than one
multiple point. The gap, based on 2014 earnings estimates, is now more than
two points.
DeSanctis's work shows that when small stocks have been this expensive
dating back to 1979 the return in the subsequent 12 months has averaged a
negative 1% and they have trailed large-cap stocks by about five percentage
points. Black agrees, noting that small- and mid-cap indexes look overpriced
and that large-cap stocks are fairly valued. "It's getting especially
difficult to find good value among small and mid-cap stocks," he says.
One indication of how scarce bargains are in the small- and mid-cap arenas
is that there are just 10 stocks in the S&P mid-cap index with P/Es of 10 or
lower based on estimated 2013 earnings and just 14 such stocks in the S&P
small-cap index. There are 21 sub-10 P/E stocks in the S&P 500 with the
largest representation from financials, including MetLife (MET), Prudential
Financial (PRU), and Capital One Financial (COF), and technology, such as
Hewlett-Packard (HPQ), Western Digital (WDC), and Micron Technology (MU)
You gotta try your luck at least once a day, because you could be going around lucky all day and not even know it. Jimmy Dean
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