Is Now the Time for Small Caps?

History is very clear on the fact that small caps outperform larger stocks. 

This happens because smaller companies on average have higher earnings growth which translates to superior stock returns. 

So why have large caps beaten their smaller peers for the past 5 years? 

Short answer = Magnificent 7

These stocks have been a veritable “Easy Button” for investors. 

As tech companies on the forefront of AI they are experiencing the most growth. And as some of the largest companies they also seem like a safe haven. 

Add it altogether and you understand the ongoing dominance of large caps. But as this valuation chart shows, that party should be coming to a close with small and mid caps leading the way: 

Here we see that Mega Caps are obscenely overvalued on any historical basis and will likely be underperformers in the years ahead til rectified.

Large Caps overall are on the high side of historical norms. Not a bubble...but hard to make a case for it to move much higher. 

Gladly we find that small and mid caps are not just a better value than their large cap peers. They are also attractively priced versus the long term averages. 

This points to these two groups being solid outperformers going forward. In fact, that outperformance seems to have already started since the middle of November:

+1.83% for S&P 500 (large cap index)

+8.12% for Russell 2000 (small cap index)

Add up all the above and you understand why I have been pounding the table on a VERY overdue rotation to small and mid caps.

Again, that party may have finally started in November and should keep going for a while as small caps would have to outperform by 37% to match the current valuation of large caps.

This means there is plenty of time to shift your portfolio towards small caps which should strongly outperform in the months, and probably, years ahead. 

Where to Find the Best Small Caps Now?

We have multiple resources on WallStreetZen.com to point you towards depending on what level of membership you have. 

Free Members = “Small Cap Growth” Stock Ideas List

246 interesting stocks appear on this pre-built screen on the site. You can use some of the screening tools to narrow down further. 

Premium Members = “All A Rated Stocks”

This stock idea screen starts with all 211 A rated stocks according to the stringent 115 factor analysis run daily by the Zen Ratings model. Yet quickly we can narrow down to 103 small cap stocks by selecting those under $2 billion market cap. 

Best Solution Overall = Zen Strategies = Top 7 Small Cap Stocks 

Zen Strategies is our popular service that features 11 different finely tuned stock picking strategies. Each with exactly the top 7 stocks per strategy based on their Zen Ratings. 

Our Small Caps strategy has generated an impressive average annual return of +38.27% going back to 2003. 

And it is our top performing strategy in 2025 boasting a whopping +58.19% gain.

If you are not already a member of Zen Strategies, and do not have access to these top 7 Small Cap stocks, then consider joining me this coming Wednesday December 10th for a vital presentation entitled…

2026 Stock Market Outlook > 

The main topic is pretty self explanatory in that I will discuss the unique market landscape for the year ahead. 

This will include a hearty bull vs. bear debate followed by the biggest fear facing investors in the year ahead. 

This culminates in a prescribed trading plan and top picks to beat the market in the coming year. 

I feel strongly that using the Top 7 Small Caps strategy, and the rest of the winning portfolios inside Zen Strategies, is the best way for you to excel in 2026. 

Thus, I will provide more details on all the features of this service, and how to get access to the daily flow of top picks it provides. 

Just click below to join me for this timely presentation on Wednesday December 10th: 

2026 Stock Market Outlook > 

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)

Editor-in-Chief of WallStreetZen

Want to get in touch? Email us at news@wallstreetzen.com.