Is Now the Time for Small Caps?

Dear WallStreetZen Member,

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

In fact, if we go back 100 years they produce about 15% more profit every year for investors. 

This happens because smaller companies are more nimble and thus more capable of producing higher earnings growth which translates to superior stock returns. 

That script has totally been flipped the past 5 years with large caps enjoying a nearly 3 to 1 lead in performance. 

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 PE valuation by market cap chart shows, that party should be coming to a close with small and mid caps leading the way: 

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

Large Caps (red) 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 (green) and mid caps (blue) are not just a better value than their large cap peers. They are also attractively priced versus their long term averages. 

This points to small and mid caps being solid outperformers going forward. In fact, that outperformance seems to have already started in 2026:

Note how Mega Caps loaded with the Mag 7 have been clear laggards. And yet going back to the Forward PE chart further above, it shows small and mid caps are still the much better values. 

In fact, they would need to rise about 35% from current levels to match the valuations of large caps. Historically that gap has always closed…just a matter of when. And that time seems at hand. 

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

260 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 209 A rated stocks according to the stringent 115 factor analysis run daily by the Zen Ratings model. Yet quickly we can narrow down to 105 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 +37.68% going back to 2003. 

And looking back the past year it boasts a +55.94% gain.

For as good as that is, we actually have 3 strategies in the service that did better the past year: 

+133.43% Buy the Dip

+82.39% Momentum

+82.06% Stocks Under $10

If you are enjoying better results…then please ignore. 

But if you are tired of sub par returns, perhaps you should see why so many people are joining Zen Strategies to finally experience consistent market beating results. 

The next step on that journey is to watch this presentation that tells you all about Zen Strategies and how you could enjoy these results in as little as 10 minutes a month. 

I know that sounds crazy…but that’s how I personally use it and happy to share the process with you. And I show the real live results from my Schwab account. 

This weekend is the perfect time to turn your portfolio around. Just click the link below to get started. 

Zen Strategies Presentation >

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.