I've only ever looked at the big dawgs but I'm thinking of looking smaller (and a bit more volatile). Any recommendations for fundamentals to consider when it comes to the small or mid cap guys? Or does it not matter regardless of size and things like D/E, EPS, etc. will always be critical? Thanks and sorry for all my questions lately - usually I'm just a lurker but I've been wanting to shake up my strategies for awhile and I think this year will be the year I take that leap
Hi Turtle. I will take a shot at your question. Small Cap - Look for buzz and a wave of interest among hipster dudes. Suffice to say, this is not my forte. Mid Cap - This is my forte. There are so many things that I look for but here is a sound bite: I look for established, stable companies that are well managed and striving to become big cap. These companies are not in the S&P. It's best to get them before they adopt GAAP accounting to get the best ride. I look for early signs they are working on achieving GAAP accounting. If you catch them at this point in their trajectory, you will find they are on the way up. It will start to become relatively easy for them to either get financing and other companies will be interested in stock swap pitches. Because of this, they will begin to expand rapidly. By the time they achieve GAAP accounting, you are pretty much out of runway. It's not usually long after GAAP they are loaded into the S&P and that stabilizes the market cap. If you can find them two to four years before GAAP, you will find the stock price is highly volatile and you can get them at an amazing price, if you are patient. This trajectory ends with the company being bought out by a large cap company. It's not ideal. You end up with a 10~20% premium and a lot of work ahead of you to find another mid cap struggling to be a large cap. Large Cap - Look for franchise value. These are the companies with products everyone wants. The thought of going with something cheaper is a bit off-putting, to most people. From here, look for a P/E below 12. You won't find it, but look for it. lol! My approach takes a lot of research so you will want to wait for someone with something less labor intensive.
