U.S. Small Caps Undeniably Cheap?

As earnings season uncovers the creaks at U.S. large cap stocks, investors are now spending more time researching U.S. small cap investment managers. Given a back drop of rising rates and recessionary pressures, it seems like a contrarian view. But the investment managers they are looking at are doing things differently.

U.S. Small Caps And Recessions

Here are 4 examples of the types of U.S. Small Cap companies investment managers like today:

1. Small Cap companies that have managed to keep their balance sheets strong. In doing so, they have protected themselves from rising rates.

2. Small Caps that are not affected by a strong dollar that could hurt non-domestic demand for their goods and services.

3. Small Cap companies that are not affected by supply chain dislocations, or reliant upon maintaining large inventories.

4. And if you can find them, small cap companies which have pricing power with their customers. Which is what the fundamental based research asset managers are doing.

The attraction to U.S. Small Caps today is supported by valuation. Comparing Small to Large Caps, various multiples suggest the market is trading at lows not seen in almost 50 years.