Many investors have been loading up on big, high-dividend stocks lately, but newsletter guru Jim Oberweis says they are making a mistake.
“Although gut instinct may lead you to avoid smaller stocks when uncertainty is high, it’s a mistake,” Oberweis writes in his latest Forbes column. “Rocky times are the best time to buy firms with explosive growth at reasonable valuations.” He says the median forward P/E ratio of small-cap stocks (market caps less than $1 billion) that are growing faster than 30% is 11.6 — a 33% discount to the average P/E since he started tracking it in 2003. Meanwhile, “Large-cap stocks with a 2% dividend yield may look better than bonds, but their returns correlate to U.S. GDP growth,” he says. “That’s not inspiring.”
Oberweis says that when the European debt crisis simmers down, investors will be on the prowl for growth. He says that means now is the time to be looking for “companies creating new markets or taking market share from peers”, and offers some of his favorites. Among them: Tangoe, which sells software that companies use to manage their telecom expenses.