M&A activity to spark small-cap recovery
The guest argued that corporate M&A and value-unlocking transactions will serve as the catalyst to highlight the deep discount to intrinsic value in small and mid-cap stocks.
The argument
Small caps have suffered from a lack of sell-side research coverage and passive flows favoring mega-caps. However, recent corporate actions (such as asset sales and mergers) are beginning to highlight these valuation discrepancies, which should eventually spark a sustained small-cap run.
The thesis, stress-tested
✓ What validates it
- ✓A sustained period of outperformance by the S&P 600 over the S&P 500
- ✓An acceleration of cash-settled M&A transactions in the small and mid-cap space
▸ Risks discussed
- ▸Higher interest rates could continue to pressure small-cap balance sheets
- ▸Passive index flows could remain concentrated in mega-caps indefinitely
Hear it yourself
"Besides interest rates getting lower, I think what's really going to help, small cap, investors is the fact, you know, once you start getting m and a activity, and that will highlight the discount to intrinsic value many of these companies are."
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