Where Are the Best Stock Market Opportunities in Mid Caps, Small Caps, Travel, and Energy?

TL;DR

The speaker expects the strongest stock market opportunities to be in mid-cap and small-cap stocks, while seeing more risk in large caps. The S&P 400 mid caps traded around 18 times forward earnings, and the S&P 600 small caps at 17.84, making both groups look more attractive than their historical upper ranges. Travel and energy may also benefit from recovering demand and rising oil prices. Read on for the specific comparisons and risks.

Transcript

well howdy there folks and welcome into today's video hope you guys are doing great out there as always i have some information to share with you here today in regards to the stock market okay and some folks would say some of this is going to be good information i'm going to share with you today and some people would say this is uh bad news okay or... Read More

Key Insights

• 👲 Mid cap and small cap stocks have attractive valuations compared to large caps, making them potential investment opportunities.
• 🗺️ The travel industry is recovering with increasing consumer demand, benefiting stocks in this sector.
• 😮 Rising oil prices contribute to the potential growth of the energy sector, which has been heavily affected by the pandemic.
• 👨‍💼 Concerns exist for large cap stocks like Facebook, Google, Apple, Amazon, and Netflix, as the normalization of business activities and difficult year-over-year comparisons pose challenges.
• ❓ Earnings growth and positive guidance from companies contribute to a healthy stock market.
• 🫢 Gas prices are expected to rise due to factors like OPEC cutting production, which may impact consumer expenses.
• 🗺️ The success of the travel industry and energy sector can positively impact the overall stock market.

Questions & Answers

Q: Where does the speaker see the best stock market opportunities?

The speaker sees the clearest opportunities in mid-cap and small-cap stocks. Their forward P/E levels appear more attractive than those of large caps and are not at the unusually high ranges seen during some previous periods.

Q: Why do mid-cap stocks look attractive?

The S&P 400 mid caps were trading at about 18 times forward earnings. The speaker considers that an upper-range valuation, but not an obnoxiously high one like levels reached around the tech bubble.

Q: Why do small-cap stocks look especially attractive?

The S&P 600 small caps had a forward P/E of 17.84. The speaker notes that valuations were higher in 2018, 2017, 2016, 2015, 2014, 2010, and 2009, suggesting room to research potential opportunities.

Q: What market-cap ranges does the speaker use for mid-, small-, and large-cap stocks?

The speaker describes mid caps as companies worth roughly $10 billion to $70–80 billion. Small caps are generally below $10 billion and sometimes below $5 billion, while large caps are above $100 billion.

Q: What is forward P/E, and why does the speaker value it?

Forward P/E compares a stock’s current price with its expected earnings over the next four quarters. The speaker calls it his favorite stock-market metric and prefers it to price-to-sales and trailing 12-month P/E.

Q: Why might current small-cap valuations be even more attractive?

The cited valuation figures came from the previous Friday. With the Russell down 1.62% when the speaker recorded the discussion, he reasoned that small-cap and mid-cap valuations were likely slightly lower.

Q: Which sectors does the speaker expect to grow?

The travel industry may grow as restrictions ease and consumer demand increases. Energy may also rebound as oil prices rise, benefiting companies in a sector heavily affected by the pandemic.

Q: Why is the speaker cautious about large-cap technology stocks?

The concerns include normalization of business activity and difficult year-over-year comparisons. The large-cap names identified are Facebook, Google, Apple, Amazon, and Netflix.

Summary & Key Takeaways

• Mid cap and small cap stocks offer potential investment opportunities with attractive valuations compared to large caps.

• The travel industry is set to experience significant growth as travel restrictions ease and consumer demand increases.

• The energy sector is expected to bounce back with rising oil prices, benefiting energy companies.

• Concerns arise for large cap stocks such as Facebook, Google, Apple, Amazon, and Netflix due to the normalization of business activities and challenging year-over-year comparisons.