Over the past couple of weeks the stock market has appeared to be on increasingly shaky ground. The economic data coming in has been quite disappointing, suggesting that U.S. GDP growth in the current quarter will likely come in at less than 2 percent. Factor out productivity gains and that puts us at essentially zero growth here in the U.S.
The United States isn't necessarily headed into recession just yet, and the world isn't exactly falling apart. But given deteriorating consumer sentiment and economic data, there are now fewer catalysts to propel the market higher. And it appears the market is no longer impervious to negative news.
Fortunately, much of our Small Cap Investor Pro portfolio has exposure to overseas growth. This was not a mistake, as you well know. Almost all stock reports that went out to paying subscribers gave some detail regarding exposure to international trends. And we've covered many of these trends here in this publication as well, including oil, silver, and uranium demand.
But stock valuations are still somewhat high in many sectors, and this has investors on edge. Share prices could conceivably pullback further before finding firm ground. Therefore, I recently reduced our exposure a bit and locked in a healthy gain last week. I'll discuss this more in a few minutes.
***I want to very quickly reiterate my investing strategy in the Small Cap Investor Pro portfolio, because recent market weakness, and a seasonally slow period for stocks, may have some investors a little on edge. While we don't frequently discuss this strategy in this free e-letter, it's relevant because it helps guide choices for stocks to cover in this publication, and therefore should be of interest to you.
I look for undervalued small and micro-cap stocks that have significant exposure to the major growth trends in today's global economy. I'm looking for major, multi-year trends that our portfolio companies will benefit from and believe that each stock we add to the paid portfolio has a legitimate opportunity to double or triple - or more - in value over the coming years. This potential for outsized gains is why I believe small companies are an absolute must for every portfolio.
***We'll also book gains when we have them, since profits aren't realized until investors sell shares. Last week’s gain of 67.4 percent will allow subscribers to make a new investment with 'low risk' money. The stock I recommended selling, eMagin Corporation (AMEX:EMAN - News) had surpassed my price target within only 7 months.
As subscribers jump on powerful trends over months and years, we attempt to outperform the market. So far this year this portfolio is crushing it - the average outperformance (year to date and equally weighted) on currently open positions trumped that of the Russell 2000 Microcap Index and S&P 600 Small Cap Index by 27.6 percent and 25.4 percent, respectively, as of the end of last week. Our average gain on closed positions in 2011 is 19.1 percent.
Remember, over the long-term, small cap stocks outperform all other classes of equities. Keep that in mind as the market digests the currently weak economic data, and individual stocks trade in far wider ranges than they did since the 'back to school' rally began last September.
If you are prepared, and stick to a consistent strategy, your chances of small cap investing success will be much higher than those who buy and sell stocks without any clear sense of purpose.