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) – Get Sonos, Inc. Report, homebuilder KB Home (KBH) – Get KB Home Report, golf equipment company Callaway Golf (ELY) – Get Callaway Golf Company Report, oil and gas producer Chesapeake Energy (CHK) – Get Chesapeake Energy Corporation Report, Hospital owner Tenet Healthcare (THC) – Get Tenet Healthcare Corporation Report, truck parts maker Meritor (MTOR) – Get Meritor, Inc. Report, wood products company Boise Cascade (BCC) – Get Boise Cascade Co. Report, healthcare logistics company Owens & Minor (OMI) – Get Owens & Minor, Inc. Report, and sporting goods retailer Academy Sports and Outdoors (ASO) .
