The FUD factor: Why pick small caps in a world of fear, uncertainty and doubt

Ongoing eurozone woes, the upcoming presidential election and looming so-called fiscal cliff in the US, and decelerating growth in China, along with other important emerging economies, have all increased the level of 'FUD' -- fear, uncertainty, and doubt -- in the stock market. From a stoc...

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Bibliographic Details
Published inInvestment Week p. 50
Main Author Romeo, Lauren
Format Trade Publication Article
LanguageEnglish
Published London Incisive Media Limited 15.10.2012
Subjects
Balance sheets
Capital expenditures
Cash flow
Economic development
Energy industry
Fear & phobias
Institutional investments
Natural gas prices
Recessions
Securities markets
Small business
Small cap investments
Stock exchanges
Stock prices
Uncertainty
United States > US
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Summary:Ongoing eurozone woes, the upcoming presidential election and looming so-called fiscal cliff in the US, and decelerating growth in China, along with other important emerging economies, have all increased the level of 'FUD' -- fear, uncertainty, and doubt -- in the stock market. From a stock picker's perspective, however, this high 'FUD factor' can make for an attractive investment environment. In the US small-cap market, investors believe that high-quality companies -- which they would define as those with high returns on invested capital, strong balance sheets, and high free cashflow generation -- look particularly compelling today. Not only are they trading at attractive absolute valuations but they also sell at less than half the valuation multiples of lower quality small-caps.