Lastly, we dug into research, fundamental factors, analysts' estimates and other data on the top-scoring names. We then limited ourselves to names with at least 10 Strong Buy recommendations. The closer the score gets to 1.0, the stronger the Buy call. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. Here's how the process works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. To that end, we screened the Russell 2000 for analysts' top-rated small-cap stocks. With small caps teed up for a better 2022, we turned to Wall Street analysts to find the best small-cap stocks to buy for the new year. Importantly, in addition to being "the least-expensive asset class," adds Hall, small caps offer a greater degree of diversification than stocks with larger market values.
"Valuations today imply high-single-digit annualized returns for small caps over the next 10 years." "While large and mid caps trade at a 35% to 40% premium to history, small caps now trade in-line with history," writes Jill Carey Hall, equity and quant strategist at BofA Securities. On the bright side, a year of underperformance has small-cap stocks priced to outperform in 2022 and beyond, the pros say. The usual suspects of COVID-19 uncertainty, supply-chain snafus, inflationary pressures and expectations of interest-rate hikes were particularly hard on small caps. Small-cap stocks – or stocks with market values of roughly less than $2 billion – are supposed to outperform in an economic recovery, so it's understandable if investors in this class are a bit more than disappointed.
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