PRISM MarketView Insight: Is It Time to Invest in Small-Cap Stocks?

NEW YORK, NY / ACCESSWIRE / November 7, 2023 / As the Russell 2000 recently recorded its best week in over two years, investors are turning their attention to the potential end of the Federal Reserve's interest rate hike cycle. This shift in sentiment has sparked a remarkable surge in previously downtrodden market segments, with the index climbing more than 7.5%. Lori Calvasina, RBC Capital Markets' Head of US Equity Strategy, believes there is still room for growth as small-cap stocks begin to benefit from several traditional tailwinds.

Historically, small-caps have lagged during the latter stages of economic cycles, suggesting that the current uncertain economic climate might be an ideal time for investors to engage in bargain hunting within this space. The latest jobs report, which highlighted the highest unemployment rate in almost two years, alongside data indicating a five-month low in US services sector activity, may be signaling an upcoming slowdown in economic growth. Small- caps often anticipate economic shifts, pricing in potential downturns ahead of their larger counterparts.

Further boosting the appeal of small-cap investments is the growing market consensus that the Federal Reserve may pause its rate hikes, which have traditionally acted as a headwind for small-caps. Moreover, the valuation of the Russell 2000 is becoming increasingly attractive; it has not been this inexpensive relative to the S&P 500 since the tech bubble at the turn of the millennium.

Calvasina points out that these compelling valuations have captured the attention of multi-asset investors. This focus is backed by the Federal Reserve's steadfast approach to high interest rates, which may be particularly pivotal for small-cap stocks at this juncture. With some of the most appealing valuations seen in recent memory and after a lengthy period of underperformance, the stage is set for small-cap stocks to become a focal point for investment portfolios.

In light of the October jobs report hinting at a potential halt in the Fed's rate hikes, the Morningstar US Small Cap Index leaped by 2.5%, surpassing the broader market's 1.1% increase. PRISM MarketView has identified five small-cap stocks for investors to consider:

GreenPower Motor Company

GreenPower Motor Company, Inc. stands out as a progressive automotive manufacturer committed to crafting environmentally-friendly vehicles. Specializing in electric and hybrid technologies, GreenPower is dedicated to sustainability and minimizing the carbon footprint of transport. Its diverse product line includes electric cars, buses, and commercial vehicles. Recently, the company set a sales record in the electric school bus segment, reporting the sale of 16 purpose-built buses for fiscal Q2 2024. In its latest development, GreenPower unveiled the Mega BEAST All-Electric Type D School Bus, claiming the title for the longest range and largest battery pack on the market. The company will host a conference call on November 14 at 9:30 AM ET, to discuss its Q2 2024 financial results.

IRIDEX Corporation

IRIDEX Corporation stands at the forefront of medical technology, specializing in the development and manufacturing of advanced ophthalmic laser systems and solutions. The company's products are designed to diagnose and treat a variety of eye conditions, including retinal diseases, glaucoma, and other vision-threatening disorders, using precise and minimally invasive laser technologies. IRIDEX shares rallied over the past several weeks following the news that it is conducting a strategic review to potentially enhance shareholder value. The company is scheduled to report its Q3 2023 financial results on November 14 after market close.

Reviva Pharmaceutical Holdings

Reviva Pharmaceutical Holdings, Inc. is a late-stage biopharmaceutical company that focuses on unmet medical needs in the areas of the central nervous system, respiratory, cardiovascular, metabolic, and inflammatory diseases. Most recently, the company reported positive topline results of its Phase 3 RECOVER trial of Brilaroxazine in schizophrenia. Zacks Research issued a report with additional analysis regarding the announcement.

Cybin

Cybin, Inc. is a biotech company focused on the development of pharmaceuticals and therapies in the field of psychedelic medicine. The company primarily focuses on treatment for mental health disorders, including depression, anxiety, and other neuropsychiatric conditions. The company recently updated the investment community on its development pipeline milestones, including positive Phase 2 CYB003 interim results, and anticipates releasing complete Phase 2 top-line data for CYB003 in Major Depressive Disorder (MDD) by Q4 2023.

Harpoon Therapeutics

Harpoon Therapeutics, Inc. is a biopharmaceutical company committed to creating innovative cancer immunotherapies. It specializes in the discovery and development of novel T cell engager therapies, aimed at directing a patient's immune system to attack and eliminate cancer cells. Last month, Harpoon announced a private placement of up to $150 million, spearheaded by a prominent biotech investor and one of the largest alternative asset managers, alongside various new and existing investors. The company is slated to present the results from its completed dose escalation of its Phase 1 study of HPN217 in patients with relapsed/refractory multiple myeloma at the 65th American Society of Hematology (ASH) Annual Meeting and Exposition on December 11.

Each of these companies represents a segment of the small-cap market that may benefit from the current market dynamics. With the potential pause in rate hikes and the market's current valuations, these stocks could offer significant growth opportunities for investors willing to navigate the inherent risks of small-cap investments.

About PRISM MarketView:

Established in 2020, PRISM MarketView is dedicated to the monitoring and analysis of small cap stocks in burgeoning sectors. We deliver up-to-the-minute financial market news, provide comprehensive investor tools and foster a dynamic investor community. Central to our offerings are proprietary indexes that observe emerging sectors, including biotech, clean energy, next-generation tech, medical devices and beyond. Visit us at prismmarketview.com and follow us on Twitter.

PRISM MarketView does not provide investment advice.

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