Small-cap stocks have been a reliable way for investors to outperform the S&P 500 for a long time.
This huge discrepancy is shown below.
However, over the last three years this performance gap has evaporated. With investors fearful of another big stock market crash and huge waves of retirees piling into dividend stocks in search of yield, small-caps have temporarily fallen out of favor.
As you can see in the chart below, small caps have only fared slightly better than the S&P 500 over the last three years. Take a look below.
In the short run, this has been frustrating for small cap investors. They took the risk of higher volatility without the reward of outsized returns.
However, it has also created a rare value opportunity. Right now there are an abnormal number of small-cap stocks that are trading with historically low valuations while still offering huge growth potential.
I put together a screen of the Russell 2000, a leading index of 2000 small-cap stocks, to showcase these opportunities.
The S&P 500 currently has a forward P/E of 19 and is expected to grow earnings by around 10% in 2017.
From my screen, I have identified seven small-cap stocs with the best combination of value and growth.
They offer better growth potential than the S&P 500 while also trading with a lower P/E ratio.
Take a look.
|Name||Ticker||Forward PE||2017 EPS Growth Est.|
|Carizzo Oil & Gas||CRZO||16.2||12.9%|