The U.S. dollar has been red-hot lately, and some of the drivers behind its ascent may be in place for the longer term. That could mean good times for US small-cap stocks, Validea CEO John P. Reese writes in a recent column.
“Consider what top strategist Francois Trahan recently told WealthTrack,” Reese writes in his latest Forbes.com piece. “He said that the US budget sequestration and the Fed’s tapering of its asset-purchasing plan were misperceived as great risks to the market, when in fact they’ve been greatly beneficial. Both helped push the dollar higher, and a rising dollar means rising P/E ratios, Trahan said. And through processes like the budget sequestration, the US has dealt with some of its structural issues, he says, while many other parts of the world are only just beginning to address theirs. Because of that, he likes US stocks — particularly small caps, which tend to have more of a US focus than larger stocks, which tend to have greater exposure to those struggling overseas economies.”
Reese says that that makes sense. “But, of course, you don’t want to blindly pile into any old small cap,” he adds. “As with any stock you buy, you should pay attention to financials and fundamentals.” He looks at a handful of small caps that get high marks from his Guru Strategies, each of which is based on the approach of the different investing great. Among them: OmniVision Technologies, which gets strong interest from his Peter Lynch-based model.