Are small- and mid-cap stocks past their prime? Here’s what this influential City broker thinks


Here’s our take on the headlines from an equity strategy note released by JP Morgan Cazenove (JPMC) that probably raises more questions than it answers.

It focuses on small- and mid-cap stocks in Europe (JPMC refers to them as Smid-Caps). In the very short teaser we’ve seen, it says that the consolidation across the sector could continue.

Problem is, it doesn’t actually provide a great deal of grist to back this up.

It does, however, give this insight, which could prove instructive to the lay stock picker: “Our conversations with investors over the last week and a half suggest market participants are worried about the short-term outlook for SMid-Caps (and equities in general).

“We can understand such worries short-term. After all, SMid-Caps and equities, in general, have had a strong rally, are sitting near all-time high valuation multiples, risk premia in the market denotes complacency, and we are heading into the seasonally weak August, September, October months.”

JPMC makes an interesting observation as part of its latest analysis, pointing out that 20% of the European Smid-Caps are down more than 20% from their mid-March highs.

In order to find bargain buys it suggests screens to find those stocks that fit in the above category (down more than 20% in the last three or so months) that also have either above industry average net profit margins, or forward price-to-earnings multiples below those of their peers.


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