By breaking down physical barriers, consumer internet businesses are reshaping how people shop, connect, learn, and play. These themes have enabled rapid growth for the industry, which has posted a 4.1% gain over the past six months. This was a good place to be as the S&P 500 shed 1.6% of its value.
Retailers are adapting their business models as technology changes how people shop. Still, demand can be volatile as the industry is exposed to the ups and downs of consumer spending. This has stirred some uncertainty lately as retail stocks have tumbled by 15.3% over the past six months. This performance was noticeably worse than the S&P 500’s 1.5% decline.
Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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Growth boosts valuation multiples, but it doesn’t always last forever. Companies that cannot maintain it are often penalized with large declines in market value, a lesson ingrained in investors who lost money in tech stocks during 2022.
Growth is oxygen. But when it evaporates, the consequences can be extreme - ask anyone who bought Cisco in the Dot-Com Bubble (Nvidia?) or newer investors who lived through the 2020 to 2022 COVID cycle.
Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.
Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. But cutbacks in corporate spending and the threat of new AI products have kept sentiment in check, and over the past six months, the industry has tumbled by 1.9%. This drawdown was almost identical to the S&P 500’s decline.
Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
