Dow vs. Small Caps: Which Is the Better Value? – Giant Interactive Group Inc (ADR) (GA), The Men’s Wearhouse, Inc. (MW), Ingles Markets, Incorporated (IMKTA)

The better question, though, is which small caps are good values. After a big bull-market run, you should take a close look at small caps that still provide a good combination of attractive valuations and growth potential. To find the right balance, I like to find dividend-paying small caps that have demonstrated an ability to provide regular cash flow. These three stocks have their flaws, but they’re still worth a closer look:

Ingles Markets, Incorporated (NASDAQ:IMKTA) trades at about 11 times trailing earnings and pays a 3% yield. Despite a tough environment for grocery chains, Ingles has found its niche by sticking with a regional focus in the southeastern U.S., and CEO Robert Ingle and his family still have control of the company and substantial insider ownership.

The Men’s Wearhouse, Inc. (NYSE:MW) is in the tough retail sector, but its specialty in men’s clothing has given it brand-name recognition and a loyal customer base. A 2.5% yield rewards investors for their patience as they wait for a valuation pop from its current P/E of 11.

Chinese online-gaming company Giant Interactive Group Inc (ADR) (NYSE:GA) has been beaten down in a generally poor sector, but it has bounced back in 2013 as analysts have focused on its highly discounted valuation. Even after the run-up, Giant Interactive Group Inc (ADR) (NYSE:GA) has a 4.6% yield and trades at less than 10 times earnings, providing a margin of safety as well as an entry into the lucrative Chinese gaming market.

Get the right balance
In the end, the best portfolios will have a mix of large- and small-cap stocks. Whether the Dow beats the Russell 2000 over the next year or two may be interesting from a trivia perspective, but having both in your investing arsenal is a smart way to meet your long-term investing goals.

The article Dow vs. Small Caps: Which Is the Better Value? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Giant Interactive Group (NYSE:GA).

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