Seeking Value in Small-Caps and International Markets
As the market buzz continues to focus on the heavyweight tech giants known as the “Magnificent Seven,” savvy investors are turning their attention to potentially undervalued areas of the market. While companies like Alphabet, Amazon, and Apple have delivered impressive returns, their current valuations suggest a cautious approach. Instead, exploring lesser-known small-caps and international stocks could provide more appealing opportunities.
US Small-Caps: A Sector Ripe for Discovery The Russell 2000 index, a barometer for U.S. small-caps, has shown promising activity, rising 8.5% year-to-date. In contrast, larger indices like the S&P 500 and Nasdaq 100 have seen higher gains, which may leave small-caps relatively undervalued. By focusing on specific ETFs, such as the DFA Dimensional US Small Cap Value ETF and Avantis U.S. Small Cap Value ETF, investors can tap into a pool of small-cap stocks that are poised for growth. Notable holdings from these ETFs include Abercrombie & Fitch (ANF), Cadence Bank (CADE), and Commercial Metals (CMC) from DFA, along with KB Home (KBH), Jackson Financial, and Warrior Met Coal from Avantis.
Exploring Opportunities in Hong Kong Turning to the international scene, Hong Kong presents a “shopper’s paradise” for undervalued stocks, particularly in sectors that have fallen out of favor. Stocks like Chow Tai Fook, MTR Corp, and Tencent offer attractive valuations and are also available as American Depositary Receipts (ADRs), making them accessible to U.S. investors. Tencent, a major player in technology, continues to attract bullish sentiment from analysts, including a recent endorsement from Goldman Sachs.
Global Picks: Healthcare and Resources Beyond Asian markets, there are compelling opportunities in global stocks such as Fresenius Medical Care and Kazatomprom. Fresenius, a leading healthcare provider in Germany, and Kazatomprom, a major uranium producer from Kazakhstan, are stocks that have shown resilience and growth potential. While Kazatomprom has seen price adjustments, it remains a unique asset in the uranium sector.
The Case for Nestle: A Value Stock in Focus Lastly, Nestle represents a classic value stock scenario, particularly attractive due to the strength of the Swiss Franc. With shares currently trading below 100 Swiss francs—a price point seen as undervalued by the market—Nestle stands out as a stable investment with upside potential. The average price target suggests a 12.3% increase, reinforcing its status as a solid buy for value-focused investors.Conclusion: Broadening Horizons for Growth While the allure of the “Magnificent Seven” is undeniable, their high valuations and market saturation point towards exploring other areas. By diversifying into small-caps, international markets, and specific global stocks, investors can potentially achieve better risk-adjusted returns. The current market environment, characterized by pockets of undervaluation in less-traveled corners, presents a strategic opportunity to balance portfolios and tap into new growth trajectories.
