Small-cap stocks have been leading the market higher with the Russell 2000 Index leading the broader market out of the February bottom. Typically, small-cap outperformance represents a “risk-on” trading environment, as it means that investors are looking for more speculative investments.
Fast forward to today and the small-cap leadership is beginning to wane, indicating that we may be entering a “risk-off” climate, which should translate to broader weakness. While the small caps may be retreating, there are always groups of equities worthy of holding through the storm.
Historically, our empirical data shows that small-cap companies with larger analyst coverage tend to trade with less volatility in relation to the herd. For that reason, the first step of looking for safe small-cap harbors is to narrow our search to companies with more than 15 analysts covering them. This knocks 2000 companies down to 112.
So we ran these 112 companies through our scoring models to find companies that are set to provide a safer storm for the small-cap stormy weather.