As the market surges, certain small-cap stocks are doing even better, posting monster gains. Matt McCall sees even more gains coming
On March 20, stocks were in freefall.
Just two days prior, famed investor Bill Ackman had publicly declared “hell is coming.”
Here’s how the market looked at that moment — no bottom in sight.
In the face of this extreme pessimism, Matt McCall was seeing the market differently. From his update on March 20:
Stocks may be down, but they will come back — and I suspect stronger than ever over time. Not every stock is a buy, but if you know where to look you can already find some incredible bargains that will set you up for life-changing profits over the long term.
As the historic volatility continued over ensuing days, Matt continued making a bullish case (while creating a buy-list of elite small-cap stocks behind the scenes).
From Matt’s update on March 28:
The truth is, we’ve all seen this cycle play out before. The previous financial crisis of 2008-2009 spooked investors so much that shares of some of the largest and most well-respected companies got crushed. Does the market go straight up after something like that? No. But people who heard the knock of opportunity set themselves up for serious upside …
One key to hearing the knock of opportunity is knowing that the pendulum swings even further for smaller companies. Here’s what I mean …
When markets move into a correction or bear market, small-cap stocks tend to fall more than their larger counterparts. One reason behind this is that people believe small caps are riskier, so they sell them first.
Matt explained how the P/E ratio for the S&P SmallCap 600 Index was at 13.6. It had only been that low three other times in the last 15 years — 2008, 2011, and 2018. All three times were great long-term buying opportunities.
***On April 1, Matt pulled the trigger, recommending three small-cap stocks in the Crisis and Opportunity Portfolio of his Early Stage Investor newsletter
Here’s how those three small caps look as I write Wednesday morning (even though the Dow is down almost 3%) …
These recommendations were part of a broader plan, in which Matt would add at least five more elite small caps to the Crisis and Opportunity portfolio over the coming weeks.
His fourth pick arrived on April 8. It’s up 7.9% as I write.
Now, while we’re thrilled that Matt’s subscribers are already up so much, this Digest isn’t intended to be boastful. The mention of gains is more so intended to illustrate that wealth to being made today in elite small caps.
But what if you’ve missed out on this rally so far?
According to Matt, you’re not too late. There are plenty more gains to come with top-shelf small caps — even if markets head lower.
***Is the bottom in or not?
In recent Digests, we’ve tackled this question. And though no one knows the answer for sure, the reality is we don’t need to know.
That’s because the wise investor asks a different question — “is today’s market price one which is likely to make me great long-term returns, regardless of what happens in the near-term?”
And that answer is: yes.
Back to Matt:
I don’t know if the market has bottomed or not. I believe there is a 50% chance that the bottom is in.
We’ve seen a big bounce, but markets often retest lows before breaking out firmly. I do know that we are in a sweet spot where stock prices are so attractive that they’re worth buying whether we’ve seen the bottom or not.
It’s much better to start buying now, and then continue to spread your cash into stocks over the coming weeks.
***But aren’t we about to be — or already in — a recession?
Most likely, yes.
Today’s retail sales report, showing a record 8.7% plunge, suggests we’re either in, or nearing, a recession.
And it’s not just the U.S …
According to the International Monetary Fund (IMF), the global economy has almost certainly entered a recession affecting most of the world.
The outlook is that the world economy will contract by 3% in 2020. For context, the contraction in 2009 was 0.1%.
Below is the IMF’s historical and projected GDP changes. You can see the projected 3% contraction on the right side of the chart, and how it’s like nothing we’ve seen in the last four decades …
That’s clearly a grim prediction, so how can anyone be bullish in the face of this news?
Because this isn’t the end of the story.
In the GDP chart above, I edited out what the IMF projects for global growth in 2021. Let’s now add that back and look at the chart once again …
As you can see, the projected 5.8% growth rate in 2021 is among the fastest-growing global GDP rates in 30 years.
***It’s a bad bet to wager against innovation, growth, and triumph over adversity
With investing, there’s no shot-clock … final two minutes … or 18th hole.
There are simply seasons. And history has shown that the stock market rewards the optimistic investor who believes we’ll see more winning than losing seasons.
Back to Matt:
During the 20th century, stocks appreciated in value 7% each year on average — a total return of 80,995% …
But wait …
Wasn’t the 20th century filled with wars and recessions and other awful things?
Yes.
There were two huge world wars, which killed tens of millions of people and devastated large portions of the world.
You also had the Great Depression … the Korean War … the Cuban Missile Crisis … the Watergate scandal … the inflation of the 1970s … the Arab oil embargo … the Vietnam War … the 1987 stock crash … and the savings and loan crisis of the 1990s.
You also had more than a dozen recessions and five horrible bear markets.
Despite all these horrible things, U.S. stocks appreciated in value by nearly 81,000% during the 20th century …
At this time in the markets and in our world, remember that despite all the negative developments of the past 100 years, shareholders of innovative companies made fortunes.
***Matt is focusing on similar innovative, small-cap companies today
He’s targeting the small stocks that could grow up to become tomorrow’s Google or Amazon.
Take Catasys (CATS) — one of the innovative, small caps that Matt gave away on April 1. It does predictive analytics for big data, artificial intelligence, and telehealth.
From Matt:
You ever see those studies that say, “We make more data now than we have in the history of the world”? Data’s great folks, but how do you take that data and put it to something useful? A company like this in the healthcare industry — Catasys — uses predictive analytics to go through that data.
Catasys could be a monster company within five-to-ten years. Perhaps that’s why it’s up 53% since Matt’s recommendation … two weeks ago.
It’s currently trading above Matt’s recommended buy-up-to price of $17 — but if the markets re-test lows and CATS pulls back, watch for the chance to add some to your portfolio.
***As we noted above, if you haven’t been a part of such gains so far, you’re not too late
Matt is revealing his latest Crisis and Opportunity recommendation today — another small cap focused on innovation. From Matt:
It’s an artificial intelligence (AI) software company operating in a very exciting niche of the healthcare industry — and it has heavy early backing of one of the smartest and richest people on earth.
To learn how to join Early Stage Investor and access all the small-cap picks, click here.
Here’s Matt with the final word:
These are the technologies of the future. These are the stocks you want to buy at beaten-down prices.
These companies could very well be the next Netflix (NFLX), Alphabet (GOOGL), or Amazon (AMZN). And they’re selling right now at “fire sale” prices.
It’s time to start taking the right steps to get back into the market today. These are the times when fortunes are made.
Have a good evening,
Jeff Remsburg
