Francis Gannon’s best bet against inflation

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on Jan 24, 2022
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  • Gannon sees small caps as the best bet against inflation for long-term investors.
  • He likes BOK Financial, Element Solutions, and Barrett Business in this space.
  • Gannon expects relatively lower returns for the small-cap index in 2022.

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Fear of aggressive rate hikes has the Russell 2000 down more than 10% YTD, but Royce Investment Partners’ Francis Gannon is convinced the small-caps are the best bet against inflation for the longer-term investors.

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Highlights from Gannon’s interview on CNBC’s ‘Power Lunch’

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Within the Russell 2000, he expects BOK Financial to benefit from inflationary pressures. Explaining why he’s bullish on the stock, Gannon said on CNBC’s “Power Lunch”:

BOK Financial is one of the largest banks in Oklahoma and growth markets like Colorado and Texas. Last time we saw rates go up, we saw their earnings double. They’ll also benefit from higher energy costs given the fact that they’re one of the largest lenders into the energy complex.

Other names he thinks are worth owning amidst Fed tightening include Element Solutions and Barrett Business. Broadly speaking, he sees stocks that are underperforming RUT as a buy at current levels.

Gannon sees muted returns for the small-cap index this year

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Gannon’s bull case for the Russell 2000 pertains to a larger timeframe of three to five years. For 2022, however, he quoted historical price action to forecast relatively lower returns for the small-cap index. Gannon added:

For the past three years, we’ve had double-digit returns in the small caps space. We’ve never achieved the fourth year of double-digit returns. So, I think returns will be more muted for the small caps this year.

Still, he expects companies to report better-than-expected earnings for the recent quarter on strong demand. Last month, Bank of America Securities’ Jill Carey Hall said 2022 could be a good year for small caps.

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