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 this past month:

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 August 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

251 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 205 A rated stocks according to the stringent 115 factor analysis run daily by the Zen Ratings model. Yet quickly we can narrow down to 111 small cap stocks by selecting those under $2 billion market cap. 

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

Zen Strategies is the exciting new service we launched in August 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 +38.49% going back to 2003. 

And it is our top performing strategy in 2025 boasting a whopping +51.18% gain.

If you are not already a member of Zen Strategies, then consider joining me this coming Wednesday September 10th for a vital presentation entitled…

10 Minutes a Month to Beat the Market >

At the heart of this story is how to use the new Zen Strategies service to successfully carve timely trading profits from the stock market. And yes, as the name implies, it can be done in as little as 10 minutes a month.

If you are already a member of Zen Strategies then feel free to take a pass.

For the rest of you, it’s time to discover why this is our fastest growing service.

Register for Webinar Here > 

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.