Tackle Today: Small Caps are Cheap
October 14, 2022
«Bigger Selloff = Bigger Discount.»
Traders,
If you thought the 25% discount offered in large caps at the end of Q3 was compelling, you should consider the even larger 33% haircut available in small caps. The Russell 2000 Index ETF is the go-to proxy for the little guys. It peaked late last year at $244.46 and fell below $164, or approximately one-third off the high.
While the media would like you to believe that stocks are likely going much lower, history suggests otherwise. It’s not often you get a discount of this magnitude, and long-term investors should use it to their advantage by shopping the sales rack.
The chart below shows the P/E ratio of large-caps, mid-caps, and small-caps. They are at 15.1, 11.1, and 10.6, respectively. What I find incredibly compelling is that small caps are trading at the lowest P/E ratios since 2008. They’re pricing in Armageddon.
Spoiler alert. It won’t come, and sooner or later, stocks will recover.
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Small caps, get your small caps! They’re in the bargain bin!
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