Chris’ note: Buy low and sell high. It’s the essence of successful investing. But most folks get sucked in by crowd psychology and do the opposite.
Today’s expert, Frank Curzio, has a track record of going against the grain.
He learned the tools of the trade working alongside his father, Frank Sr., a portfolio manager and an award-winning investment newsletter publisher.
Frank went on to develop a world-class track record in his own right, uncovering the best small- and mid-cap stock ideas for one of the richest hedge fund managers on Wall Street.
And right now, he’s pounding the table on an opportunity few are talking about – beaten-down small-cap stocks. You’d have to go back to the early 2000s to find small caps selling for such bargain prices.
And the best of them have much higher growth potential than more expensive, larger stocks…
Interest rates are at 13-year highs…
Corporate earnings just dropped for the third straight quarter…
And credit card debt has topped $1 trillion for the first time…
No wonder so many investors are freaked out.
Rising rates, slower growth, and surging debt are less-than-ideal conditions for investors… especially investors in more speculative small-cap stocks.
As someone who has covered this sector for 30 years… I would normally be telling my subscribers to run for the exits.
But that’s not the case.
As I’ll show you today, they haven’t been this cheap in more than two decades.
And right now, I’ve got my eye on two companies in two booming sectors.
Small Caps Are on Sale
Small caps haven’t been this cheap relative to large-cap stocks in 22 years.
It’s all in the chart below…
When the blue line is rising, it means small-cap stocks are becoming expensive versus large-cap stocks. When it’s falling, small caps are becoming cheaper relative to large caps.
Aside from the early 2000s, we haven’t seen this big of a disconnect between small caps and large caps in nearly 50 years.
I’m not recommending small-cap funds. With interest rates high… and a lot of smaller companies needing to borrow to fund growth… this isn’t the time to make a broad bet on small caps.
The smarter approach is to dig into individual stocks that have gotten beaten down in price but have strong balance sheets… great management teams… and massive growth ahead.
Look hard enough, and you’ll find small-cap companies poised to grow their sales and earnings much faster than the overall market. And there are other bullish signs to look for – including share buybacks and insider buying.
And the two sectors where you’ll find companies that fit this profile are oil and infrastructure.
Leaner Than Ever
From 2015 through 2022, oil prices averaged under $60 a barrel.
It was a tough time for the industry, especially small-cap companies that had too much debt on their balance sheets. They were forced to cut costs by laying off workers, slashing salaries, and restructuring debt.
Today, the situation has flipped…
Oil companies are leaner than ever. At the same time, oil prices have surged to more than $80 a barrel. That’s one-third more expensive than a year ago.
Lower costs coupled with rising oil prices have resulted in an explosion in free cash flow for these companies. Many smaller oil companies are using the extra cash to buy back shares and pay dividends for the first time.
Plus, the wars in Ukraine and the Middle East will keep oil prices high long-term.
If we get oil at $100 a barrel – which many forecasters see as likely – we’ll see triple-digit gains in the best smaller oil stocks.
$550 Billion Is Flowing Into This Sector
You’ll also find bargains in the infrastructure sector.
Even better, many of these smaller players will see strong growth in the years ahead. And a huge chunk of this growth will come from the recent passage of the Infrastructure Investment and Jobs Act.
The bill includes $550 billion in government spending. It will be used to pay companies to build and repair roads and bridges, upgrade our railroads and electricity grids, replace water pipes, and build new electric vehicle charging stations. Below, you can see how the funds are set to be allocated.
How the government will spend the Infrastructure Act money
Source: Closeup.org
A few billion dollars in new orders isn’t a big deal to industry giants such as Caterpillar and Freeport McMoRan.
But a few new $10-20 million projects move the needle for smaller infrastructure companies.
If the government chooses them to build new highways, railroads, and electrical grids, their stock prices will spike from the depressed levels they trade at today.
But my favorite small-cap play has nothing to do with oil or infrastructure.
As I’ll be revealing in my first-ever presentation for Legacy Research readers, it’s a company that makes a non-lethal weapon that I believe will become standard-issue for police departments.
I’ve tried out this tech for myself. And it’s highly effective.
It’s the brainchild of the folks at a small-cap tech stock that’s dominated the security sector for the past 30 years. And it’s about to get a massive surge in profits thanks to this life-saving new technology.
It’s a 10x to 20x opportunity. So, you’ll want to take advantage before everyone starts piling in.
I’ll give you all the details – including a full demonstration of this tech – in my presentation next Tuesday, October 31.
It’s free to attend for Legacy readers. So, make sure to sign up for that here.
Good investing,
Frank Curzio
CEO, Curzio Research