Because the major stock market indexes have been rallying on better-than-expected jobs data and the Fed’s announcement that it will commence tapering its bond-buying based on its confidence in the economic recovery, many large-cap stocks are trading at lofty valuations. But since concerns over production declines and inflation could cause these stocks to suffer a pullback in the near term, we think it could be wise to bet on fundamentally sound micro-cap stocks Lee Enterprises (LEE), Friedman Industries (FRD), Lifeway Foods (LWAY), and Educational Development (EDUC). So, let’s take a closer look at these names.An upbeat job market, and the Fed’s announcement that it will now begin tapering its asset-purchase program based on its confidence that the economy is now able to handle persistent issues on its own, have been fueling the stock market’s rally. Consequently, most large-cap stocks are currently trading at lofty valuations.
However, rising inflation, supply-chain logjams, reduced production, and an expanded trade deficit are worrying to investors regarding a potential market correction as a result. Because high-priced stocks could suffer a pullback if there is a market correction in the near term, we think micro-cap stocks from relatively stable industries could be smart bets now. Indeed, the iShares Micro-Cap ETF (IWC) has gained 8.9% over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) 6.4% returns, indicating investors’ interest in micro-cap stocks given the support from the continuing low-interest-rate environment.
We believe undervalued micro-cap stocks Lee Enterprises, Incorporated (LEE), Friedman Industries, Incorporated (FRD), Lifeway Foods, Inc. (LWAY), and Educational Development Corporation (EDUC) are well-positioned to gain substantially in the coming months. Each of these stocks is rated ‘Strong Buy’ in our proprietary POWR Ratings system.