No single ticker was named. Small caps ETFs are one way for retail investors to get exposure. Not a recommendation.
Small cap value cyclicals in recession present opportunities
The investment thesis presented is to buy small-cap cyclical businesses that are already experiencing declining earnings and revenues and are currently in recession.
The argument
The guest argued that while many parts of the market are artificially propped up by government spending and passive flows, several small-cap sectors like consumer discretionary, transportation, and energy are already in a recession, making their valuations highly attractive for disciplined value investors.
The thesis, stress-tested
✓ What validates it
- ✓Stabilization or rebound in earnings for cyclical consumer and transportation small caps
- ✓A reversal of the current negative flow trend in small-cap ETFs
▸ Risks discussed
- ▸Prolonged lack of passive flows into small caps
- ▸Further deterioration of consumer purchasing power
- ▸Extrapolating temporary COVID-era peak earnings instead of normalizing margins
Hear it yourself
"We really love to buy cyclicals that are experiencing declining earnings, declining revenues and are in recession. So but to answer your question, I think it often slows earnings growth and buybacks too."
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