The Best Small-Cap Stocks Are Crushing the Market – Here’s Your Next Winner
It’s hard to be the “little guy” in business.
The “big guy” has all the advantages from pricing power, lower cost structure, and an ability to acquire the best and the brightest workers.
Really, it’s just not fair.
That is, unless the Federal Reserve is on your side. When the central bank is in your corner, it’s far better to be the “small guy.”
The same applies to the market, where right now, the small are significantly outperforming the large.
As you can see from the chart below, there is a direct correlation to the January Federal Reserve dovish statements on rates and the performance of small-cap stocks.
In fact, I made one of the best small-cap stock recommendations of my career in very similar market conditions back in 2016. That’s when the Federal Reserve was firmly ensconced on the side of small companies with its aggressive quantitative easing campaign.
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With easy money flowing into the economy, the nimble small company truly has enormous potential and upside.
Consumers are flush with cash during these times of easy money. That’s all small-cap companies need to thrive.
At the end of 2016, one such company with great prospects was diet business Weight Watchers International Inc. (NYSE: WTW).
Shares of this small-cap stock were trading for just over $10 at the time.
Hints of future success were already present.
The company had a huge profile with its star endorser, Oprah Winfrey.
The analyst community noticed, expecting the company to grow profits at a rate well above the market multiple on earnings that investors had assigned to the company.
Buying growth at a cheap price is the key to owning the best small-cap stocks.
With Weight Watchers, the disparity between the current valuation and expected was too rich to pass up.
I made the company my stock of the year for 2017, offering up the view that shares would double in value in one to three years.
I was wrong.
Weight Watchers didn’t just double, it rose by more than 700% when I advised investors sell shares. The stock had crossed $100 a mere 18 months after I recommended buying shares.
That is the potential of owning the best small-cap stocks.
Today, with the Federal Reserve in our corner again, it is a great time to buy small-cap stocks.
This Is One of the Best Small-Cap Stocks to Buy Today
Today’s stock is QuinStreet Inc. (NASDAQ: QNST).
When the Federal Reserve backed off its hawkish policy on rate hikes, the “all clear” was given to buy small-cap stocks.
What companies have the best prospects for grabbing a piece of the economic pie going forward?
The Internet is still the best place to invest, even in 2019.
It’s a beehive of activity that is only growing. Not only growing, but companies playing in the Internet space are seeing some of the fastest growth in the economy.
QuinStreet is at ground zero in the Internet game.
The company specializes in Internet marketing and customer acquisition.
All of the headlines may be with Google and Facebook, but there is an entire ecosystem below those behemoths, like QuinStreet, that will thrive.
In early February, shares of QuinStreet tumbled after an earnings report disappointed investors.
What crime did the company commit for the more than 20% reduction in valuation?
Sales for the quarter beat expectations, and earnings matched estimates. A slight reduction in the forecast for 2019 was to blame.
As a result, analysts reduced earnings estimates for QuinStreet by just $0.03 per share for the year.
Is that $0.03 really worth a 20% haircut in share price?
I don’t think so.
Considering that earnings are expected to grow by 38% even with the reduced expectations, owning QuinStreet today is a no-brainer.
Shares trade for only 21 times 2019 estimated earnings. That makes QuinStreet a great option for those looking for small-cap stocks that can double in value or more from current levels.
If the stock simply recovers its previous high, investors would see a 50% gain.
With the wind behind the back of the economy thanks to the Federal Reserve, anything is possible for QuinStreet, including a doubling in share price or even much, much more.
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