It’s been another stellar year for investors in blue-chips. The market cap-weighted S&P 500 index of stocks whose members command values ranging from $5 billion to $2 trillion, is up 26% in 2021. Trillion-dollar club members Microsoft, Google and Tesla have all gained more than 50% since January. So if it’s that easy to make money by buying the biggest names, why bother searching for needles in the haystack among small company stocks? Historically, small caps have outperformed large companies over the long term, though they are more volatile from year to year.
Research by Yale professor Roger Ibbotson and financial consultancy Duff & Phelps shows that $1,000 invested in a small cap index at the end of 1925 would now be worth almost $42 million, while the same investment in large companies would be worth close to $11 million. “Small cap companies are the heart of this country where innovation can thrive,” says Chris Retzler, portfolio manager of Needham Asset Management’s $250 million Small Cap Growth fund. “It's not a surprise that you should expect to have a higher return for the increased risk that you take in the earlier life cycle of those companies.” The Russell 2000 index of small-cap stocks has increased by 24% this year and 140% since it bottomed out in March 2020. To find the best performers, Forbes used data from FactSet to compile its annual list of America’s Best Small Companies.
We screened more than 1,000 companies with a market value between $300 million and $2 billion to find 509 companies that also had positive sales growth over the past 12 months and a share price of at least $5. Financial institutions, REITs, utilities and limited partnerships were excluded, as were companies that have been public for less than one year. The top 100 ranking is based on earnings growth, sales growth, return on equity and total stock return for the latest 12 months available and over the last five years. We gave more weight to the latest year’s data in the ranking. All data is as of November 4, 2021. For the full story, click here.
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This story originally appeared in Forbes Magazine. All Rights Reserved)
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