Huge S&P 500 stocks dominated all year. But suddenly this month, investors are looking at scooping up much smaller companies for a song.
Twelve stocks in the SPDR S&P 600 Small Cap ETF, like industrial Circor International, struggling financial PacWest Bancorp and consumer discretionary Designer Brands, are up 25% or more just in the month of June so far, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
The S&P 600 Small Cap ETF itself it up 7.2% in the month. That blows away the big-company-focused SPDR S&P 500 ETF Trust, which is up "only" 2.7% in that time.
"Small cap stocks have turned the table on their large cap peers with five percentage points of outperformance," said Bespoke Investment Group in a report.
And investors are making no secret of the kinds of small stocks they like best. And if history is a guide, many of them could rise further.
Small Cap Bonanza In June
The month of June is still young, but small-caps are already turning on the jets. And those investors taking part are making big gains on small stocks.
The collective market value of stocks in the S&P 600 Small Cap ETF is up $75.7 billion in June so far. That's larger than the $52 billion gain investors pocketed on Apple this year.
Meanwhile, more small companies are contributing to the big gains. More than 91% of small-cap stocks are up in June, slightly more than the 87% in the S&P 500 that are higher in that time.
This is exactly the run investors have waited for. Small-cap stocks, despite disappointing returns the past 12 months, usually perform slightly better than the S&P 500 in the long term. IFA U.S. Small Company index is up 11.1% annually since 1928, says IFA.com. That tops the S&P 500's 9.9% annualized gain in that time.
Investors Love These Small Stocks The Most
You may not have heard of Circor. It's a Burlington, Mass.-based maker of flow and motion control products for aerospace and industrial industries. The company isn't even worth $1 billion yet.
But the stock is moving so fast, investors are having trouble keeping up. Shares have gained nearly 65% just in the month of June. That's put more than $380 million into the pockets of investors, the largest of which include ETF giants like BlackRock and Vanguard. BlackRock is the No. 1 holder of the stock and Vanguard is No. 3.
Investors are bullish on the company's growth. Analysts think Circor's profit will rise more than 13% this year to $2.07 a share.
But other cases of rallying small-caps look simply like bargain hunting. Consider the 41% rally of shares of PacWest Bancorp in June. Shares are still down roughly 60% as investors feared the Beverly Hills, Calif.-based bank would get dragged into the regional bank meltdown.
Analysts think the company's profit will fall more than 60% in 2023, but rise nearly 14% in 2024.
What's Next For Small Cap Stocks
Investors are understandably enthused to see more, smaller stocks than just the S&P 500 giants rallying. That's a healthy sign.
And it's common for small caps to keep their momentum going in the short term, Bespoke says. Small caps "tend to continue outperforming their large cap peers" in the month following such a powerful run versus the S&P 500.
But generally speaking, large-cap stocks like the ones in the S&P 500 tend to outperform in the following six and 12 months, Bespoke found. "Large caps typically turned the tables back on small caps," Bespoke says.
Favorite Small Stocks
Top-performing S&P 600 SmallCap stocks in June so far
| Company | Ticker | June ch. | Sector |
|---|---|---|---|
| Circor | 64.7% | Industrials | |
| PacWest Bancorp | 41.4 | Financials | |
| Big Lots | 40.6 | Consumer Discretionary | |
| Designer Brands | 38.0 | Consumer Discretionary | |
| Caleres | 34.4 | Consumer Discretionary | |
| Coherus BioSciences | 31.8 | Health Care | |
| Rayonier Advanced Materials | 29.4 | Materials | |
| Quanex Building Products | 28.8 | Industrials | |
| G-III Apparel Group | 26.2 | Consumer Discretionary | |
| Nabors Industries | 25.8 | Energy | |
| PRA Group | 25.5 | Financials | |
| Chico's FAS | 25.1 | Consumer Discretionary | |
| Customers Bancorp | 24.7 | Financials |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
