The Great Rotation Continues: Small- And Micro-Cap Stocks Set For Continued Outperformance

Dec. 14, 2020 7:28 PM ETSAMG, GMBL, EBS, EVC3 Comments

Summary

  • As of Dec. 7, the Nasdaq had a P/E ratio of 32.7 while the Russell 2000 was at 17.1.
  • In the fourth quarter through Dec. 7, the Nasdaq has returned 10.5% while the Russell 2000 and Russell Micro-Cap indices have returned 25.8% and 27.6%.
  • we believe now is the time to focus your attention on small-cap value stocks as we are starting to see a new strong rotation back into small-cap stocks.
  • Below we will focus on our top small cap ideas for "The Great Rotation."
  • Looking for a helping hand in the market? Members of Best of the Uncovereds get exclusive ideas and guidance to navigate any climate. Get started today »

The Great Rotation Continues

Since the start of the pandemic, there has been a huge wave of positive momentum in mega-cap technology growth stocks. However, as that momentum continues to slow, we are seeing a shift back into small-cap value investments. As of Dec. 7, the Nasdaq had a P/E ratio of 32.7 while the Russell 2000 was at 17.1. This valuation difference also can be seen in a P/S and P/B comparison where the Russell 2000 has ratios of 0.91 and 1.77, respectively, the S&P 500’s figures are more than double that at 2.55 and 3.80, respectively. In the fourth quarter through Dec. 7, the Nasdaq has returned 10.5% while the Russell 2000 and Russell Micro-Cap indices have returned 25.8% and 27.6%, respectively. Given this wide disparity in returns and valuations between large-cap growth and small-cap value stocks, we believe now is the time to focus your attention on small-cap value stocks as we are starting to see a new strong rotation back into small-cap stocks.

Emergent BioSolutions, Inc. (EBS)

$144.00 Price Target, Buy, Current Price: $82.16 (12/7/20)

Emergent BioSolutions is a global specialty life sciences company that develops and commercializes vaccines, drugs, and devices that address biodefense threats. The company is a preferred provider of biodefense products and services to the U.S. government under multi-year contracts. The firm’s most valuable product, BioThrax, is the only FDA-approved anthrax vaccine. The company’s products are sold mainly in the U.S. as well as internationally.

Q3:20 Highlights

Overall sales improve 24% to $385.2 million due to a COVID 19-related surge in demand for vaccine development and manufacturing services. Product sales fell 21% mainly due to timing delays that push smallpox vaccine sales into the December quarter and 2021. NARCAN nasal spray sales rose 18%, sales of anthrax vaccines rose 83% and other products gained 34%. EBS has emerged as

Best of the Uncovereds offers new initiation reports on roughly two dozen companies per year, with a focus on under-followed small and mid caps with significant potential. We provide a quarterly earnings update reports on all companies covered, as well as flash reports on significant news announcements by companies. We go further for members, providing recorded interviews with management teams of covered companies when available and a monthly quantitative based "Market Indicators and Strategy Report."

This article was written by

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Coverage of under-followed companies from an experienced team.
Singular Research aims to be a trusted supplier of independent research on micro/small cap companies. We provide initiation reports and quarterly updates on roughly 40 uncovered companies. We cover growth and value style equity ideas leveraging the extensive experience and knowledge of our in house staff of over 6 CFA's. Award winning original research with a following of over 105 institutional clients with over $60 billion in assets under mgmt. Singular is closely associated with the existing author Cook Capital Management.

Disclosure: I am/we are long EBS, SAMG, EVC, GDNP.

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