Nancy Prial makes the bull case for the small-cap stocks

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on Nov 1, 2022
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  • Nancy Prial recommends owning domestically-oriented small-cap stocks.
  • Small-caps are currently trading at valuations similar to over 20 years ago.
  • Prial is convinced small-cap stocks are a good pick for a "hard landing".

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Small-caps have outperformed the large-cap stocks in recent weeks and that is likely to continue in the months ahead, says Nancy Prial of Essex Investment Management.

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Small-cap stocks can stand a recession

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Prial is convinced the U.S. economy is headed for a “hard landing” and expects the domestically-oriented small-cap stocks to particularly do well against that backdrop. Explaining why on CNBC’s “Fast Money”, she said:

There are a number of drivers in the U.S. economy that, even with a hard landing, it will look better and be stronger than most of the other economies, particularly those in Western Europe due to Russia-Ukraine.

Focusing on the domestic names, she added, minimizes the currency headwinds as well. Prial is bullish especially on the energy, industrial, and infrastructure names within the small-cap space.

She talks of a stronger seasonal rally in these stocks through the end of the year compared to their larger cap peers.

Small-cap stocks are historically cheap

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The Russell 2000 Index has already gained more than 10% in just over a month.

Still, Prial noted, small-cap stocks are remarkably inexpensive considering they’re trading at valuations similar to over twenty years ago. Another reason that she’s constructive on small-caps is because they’re under-owned.

They’re levered to industrial economy which will lead to growth for not just next year but next decade. So, valuation discount, better growth prospects, and lack of ownership puts them in great position to appreciate as their earnings come through.

At 10 – 13 times this year’s earnings, Prial says the small-cap stocks have already priced in the better part of macro headwinds.

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