Small-Cap Stocks Stage a Remarkable Comeback
Editor’s Note: The Magnificent Seven have dominated the market for the last few years, but their lead over average stocks is astonishing. From early 2023 to summer 2024, the Magnificent Seven surged approximately 150%, while the Russell 2000, which tracks 2,000 small-cap stocks, only increased by 17%.
However, a significant shift occurred since summer 2024. The Magnificent Seven reached their peak on July 10, 2024, and have since declined about 1%. In contrast, the Russell 2000 has gained over 15%. For the first time in this bull market that began in late 2022, small-cap stocks consistently outperform Big Tech players.
This change is noteworthy and may necessitate a shift in your investment strategy. Fortunately, my colleague Luke Lango has dedicated much of the past year to developing such a strategy, yielding impressive results. A comprehensive backtest revealed its ability to outperform the market by more than 10 times over 5-, 10-, 15-, and 20-year periods. Each month, it generates a new portfolio, with the next one launching on January 2. For more about Luke’s successful strategy and to ensure you receive his next monthly portfolio, click here. Stay tuned, as I’ve invited Luke to discuss further how the market will evolve in 2025 and how his new strategy may be the optimal way to engage with it.
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The U.S. economy thrived in 2023 and most of 2024, largely due to significant AI investments from major tech companies.
These tech giants invested billions into creating AI data centers, advanced chips, and chatbots. While this expenditure boosted their growth and benefited their suppliers, it largely overlooked smaller companies. During that period, the Magnificent Seven outperformed small-cap stocks by a staggering 9-to-1.
However, 2025 promises to be different.
With the new administration focusing on pro-growth policies, anticipated rate cuts, and reduced inflation, many believe—myself included—that the economy is set for substantial improvement next year. AI will undoubtedly be one of the key beneficiaries.
Whether you call it a small-cap revival, a resurgence in the U.S. economy, or the return of local businesses, the outcome is clear: small-cap stocks are on the rise.
For the first time in years, the stock market is shifting from being a “market of the few” to a “market of the many.”
Yet, a random approach of buying small-cap stocks won’t suffice.
Furthermore, only a select few stocks today are worthy of long-term investment.
To thrive in the current market, updating your trading approach is crucial.
Introducing the Ultimate Stock-Screening Tool
With the newly launched Auspex Trader, I employ a detailed stock-screening tool aimed at pinpointing the “best stocks at the best time.”
This Auspex tool evaluates a combination of fundamental, technical, and sentiment indicators.
Fundamentally, Auspex prioritizes companies with strong sales growth, rising profits, and improving profit margins, akin to Louis Navellier’s Stock Grader system.
From a technical standpoint, Auspex assesses positive trends in moving averages and favorable price movements. This approach is similar to what I utilize in my Breakout Trader service.
On the sentiment front, Auspex tracks increasing trading volumes and the flow of significant investments into stocks, reflecting the methodology of my colleague Jason Bodner’s Quantum Edge system.
In essence, Auspex integrates top strategies from our various successful trading systems into one highly effective tool.
Auspex is designed for dollar-cost averaging in and out of the most promising stocks each month.
The traditional buy-and-hold approach is outdated.
Close your eyes and hope for the best no longer works.
At the end of every month, Auspex screens over 10,000 stocks and applies rigorous criteria to reveal those that are fundamentally, technically, and sentimentally robust.
This review generally uncovers 5-20 stocks, from which I select the top performers for our Auspex Trader monthly portfolio. You simply sell the previous month’s stocks and buy the recommended new ones.
Since launching Auspex with a select group of members in July, the tool has shown consistent performance with strong, market-beating results. We’ve yet to see a subpar month!
In comprehensive backtesting, Auspex outperformed the market by about 10 times, across 5-, 10-, 15-, and 20-year assessments.
For instance, in March, Auspex identified Forestar Group Inc. (FOR) as one of the top stocks. Forestar’s stock rose nearly 20%, while the S&P 500 only increased by 3%.
In February, Auspex flagged ICON Public Limited Co. (ICLR) and Couchbase Inc. (BASE) as strong stocks as well. ICON stock surged over 20%, while Couchbase hiked nearly 15%. Meanwhile, the S&P could only manage 3.5% growth.
Similarly, in December 2023, Auspex highlighted OppFi Inc. (OPFI) and Talkspace Inc. (TALK) as top picks. OppFi’s stock soared around 45%, with Talkspace also seeing a 25% rise. In contrast, the S&P managed just a 4% gain.
As the market landscape transitions from a “market of the few” to a “market of the many,” Auspex stands poised as a transformative tool for investors looking to capitalize.
By combining fundamental, technical, and sentiment analysis, Auspex consistently proves its ability to spotlight rising stocks before they gain significant momentum each month.
This tool is essential for navigating today’s evolving stock market.
Closing Thoughts
As we progress from an era defined by buy-and-hold tactics and Big Tech dominance, Auspex is ready to steer investors toward the next wave of market leaders, month after month.
In a time where flexibility and accuracy are critical, Auspex symbolizes the future of intelligent investing.
What’s more, it requires only 5 to 10 minutes of commitment each month. You’ll get an alert at the beginning of each month, buy the recommended stocks, sell those that no longer qualify, and check back when it’s time to update—it’s that straightforward.
Get ready, as Auspex’s latest recommendations will be available on January 2. To position yourself for success in 2025 and beyond, click here to learn more.
The next stock market stars await. Allow Auspex and my team to help you discover them before they soar.
Sincerely,
Luke Lango
Editor, Hypergrowth Investing
