Huge S&P 500 stocks have dominated all year. But suddenly this month, investors are looking to pick up much smaller companies for a song.
Twelve stocks from the SPDR S&P 600 Small Cap ETF (SLY), like the industry Circo international (CIR), in financial difficulty PacWest Bancorp (PACW) and Consumer Discretionary Designer brands (DBI), are up 25% or more in June alone so far, according to an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
The S&P 600 Small Cap ETF itself rose 7.2% during the month. That blows up the large-company-focused SPDR S&P 500 ETF Trust (SPY), which rose “only” 2.7% over the period.
“Small-cap stocks turned the tables on their large-cap counterparts with five percentage points outperformance,” Bespoke Investment Group said in a report.
And investors don’t hide the type of small stocks they prefer. And if history is any guide, many of them could still rise.
Small Cap Bonanza in June
June is still young, but small caps are already turning on the jets. And investors who participate in it reap big gains on small stocks.
The collective market value of shares in the S&P 600 Small Cap ETF has risen $75.7 billion in June so far. That’s more than the $52 billion gain investors pocketed Apple (AAPL) this year.
Meanwhile, more small businesses are contributing to the big gains. More than 91% of small cap stocks are up in June, slightly more than the 87% of the S&P 500 which is higher at this time.
This is exactly the race that investors have been waiting for. Small cap stocks, despite disappointing returns over the past 12 months, generally perform slightly better than the S&P 500 over the long term. The IFA US Small Company Index has been rising 11.1% per year since 1928, according to IFA.com. This exceeds the 9.9% annualized gain of the S&P 500 during this period.
Investors love these small stocks the most
You may not have heard of Circor. It is a Burlington, Massachusetts-based manufacturer of flow and motion control products for the aerospace and industrial industries. The company isn’t even worth $1 billion yet.
But the stock is moving so fast that investors are struggling to keep up. Stocks have gained nearly 65% in June alone. This put more than $380 million in the pockets of investors, the biggest of which include ETF giants like black rock (BLK) and Vanguard. BlackRock is the #1 holder of the stock and Vanguard is #3.
Investors are optimistic about the company’s growth. Analysts believe Circor’s earnings will rise more than 13% this year to $2.07 per share.
But other instances of small cap rallying just look like bargain hunting. Consider the 41% rally in shares of PacWest Bancorp in June. Shares are still down about 60% as investors fear the Beverly Hills, Calif.-based bank could be dragged into the meltdown of regional banks.
Analysts believe the company’s profit will drop more than 60% in 2023, but rise nearly 14% in 2024.
What’s next for small cap stocks
Investors are understandably excited to see more stocks smaller than just the S&P 500 giants rallying. It is a healthy sign.
And it’s common for small caps to maintain momentum in the short term, Bespoke says. Small caps “tend to continue to outperform their large-cap counterparts” in the month following such a strong run against the S&P 500.
But generally speaking, large-cap stocks like those in the S&P 500 tend to outperform over the next six and 12 months, Bespoke found. “Large caps have generally turned the tide on small caps,” Bespoke said.
Favorite small actions
Best Performing S&P 600 SmallCap Stocks in June So Far
|Large lots||(BIG)||40.6||Consumer Discretionary|
|Designer brands||(DBI)||38.0||Consumer Discretionary|
|Coherus BioSciences||(CHRS)||31.8||Health care|
|Rayonier Advanced Materials||(RYAM)||29.4||Materials|
|Quanex Building Products||(NX)||28.8||Industrial|
|Clothing group G-III||(GIII)||26.2||Consumer Discretionary|
|Chico’s FAS||(CHS)||25.1||Consumer Discretionary|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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