Big Returns in Small Stocks

In his latest article for Canada’s Globe and Mail, Validea CEO John Reese takes a look at his small-stock-focused Motley Fool-based strategy, which has returned 16.1% per year in its eight-year history in the U.S., vs. 3.5% for the S&P 500.

“Just as analysts and institutional buyers (which are often too big to take a meaningful stake in small stocks) tend to overlook smaller stocks, so too do average investors,” Reese writes. “Because of that, smaller stocks are often a great place to look for bargains using fundamental analysis. If a big company is trading at very attractive valuations and has a pristine balance sheet, it’s a good bet that legions of big investors will quickly be on to it. But with the little guys, a financially sound, bargain-priced firm can slide by unnoticed by the masses.”

Reese says his Fool-based model, which is inspired by the writings of Motley Fool co-creators Tom and David Gardner, has found plenty of those stocks over the years, both in the U.S. and Canada — his Canada-based Fool portfolio has returned more than 40% since its inception a little less than a year ago. He offers four picks from north of the border that currently get high marks from the approach, including Calgary-based energy services firm Pason Systems. To read the full article and see all the picks, click here.