Small caps may outperform in 2021
In an interesting interview on CNBC, Boris Schlossberg believes small caps are rallying of late because of president-elect Joe Biden. He is perceived as “main street”, and this gives people the impression he will make things easier for small caps. Here is the full CNBC interview:
According to yahoo finance:
Since the stock market bottomed on March 23, the small cap Russell 2000 (^RUT) — which houses the 1,000th through 3,000th largest stocks in the market — has more than doubled, rising some 114%, while the Nasdaq (^IXIC) is up about 90% and the S&P 500 (^GSPC) has risen “just” 65% over that time.
The divergence in performance among these indexes has been even more pronounced since the late-October trough during the market’s pre-election swoon. Since Nov. 1, 2020, the Russell 2000 is up 39%, outperforming both the Nasdaq and S&P 500 by more than 20 percentage points each.
And investors think this momentum will continue.
In its latest global fund manager survey published Tuesday, Bank of America Global Research found the number of investors who think small caps will outperform big cap stocks in the next 12 months remains at a record high.
On the Canadian front, thus far the TSXV has appeared to outperform the Russel 2000. Both have outperformed the S&P 500, Dow Jones Industrial average, and the TSX index. The graph below shows the change as a percentage by the TSXV (blue), Russel 2000 (purple), S&P 500 (orange), Dow Jones (green), and the TSX (yellow).
The rise in small cap stock indexes is a high level reflection of what many individual small cap stocks are experiencing. With small caps seeing increases as many multiples of 100%, this is a return that far surpasses nearly all large cap stocks. Our report of BKI was at 10 c, with BKI currently at 33 c and going as high as 45 c.
With that said, keep in mind that to get great returns you need to accept the risk that comes with, and you must do your own due diligence when making these investments. However the fact remains, at an index level these numbers are very encouraging.
We remain bullish on Etruscus Resources (CSE:ETR) – our most recent pick. Located in Canada’s prolific Golden Triangle, we covered this stock when it was at 30 c, and we believe it is worth at least $1.02. With comparable stage mining stocks going up on average 227% in 2020, and with their asset being located in the Golden Triangle, home to many monster deposits, this is an excellent undervalued stock. The company recently announced incredible grab samples of 7,013 g/t silver, 12.7 g/t gold, 3.9% zinc, 2.4% lead, and 0.2% copper. These particular samples are well into bonanza-grade, and the company is accessing previously unattainable land due to glacial retreat. Lots of upside here, with many historical precedents of multibag returns. The current price of $0.36 may seem cheap in a short period of time.
We also remain bullish on Tocvan Ventures (CSE:TOC), who are drilling their Pilar property. Their mine is geologically similar to the Santana mine, which fast-tracked to production without a resource estimate. The company has completed phase 1 of their drilling program and are awaiting results, and their stock has edged up to 48 c. We think this is worth over $1.53 given the jurisdiction, geological makeup, and the value demonstrated by advanced stage comparable mines.