In this article, we examined small companies to invest in 2021 according to billionaire Ken Fisher. If you want to skip our detailed analysis of Fisher’s history, investment philosophy, and hedge fund performance, go directly to the 5 Small Companies to Invest in 2021.
Ken Fisher, billionaire investor and the founder of Fisher Asset Management, believes that value and relative smallness are inherently entangled, claiming that small-cap stocks generally offer higher value than large-cap stocks, and typically by wider margins. Investing in small-cap stocks is one of the key elements of Fisher’s strategy as these small companies tend to make bigger moves on market reports and economic factors. It true that large caps have better liquidity potential, but there is always a great chance for small caps to double in value when compared to large caps. Ken Fisher’s $159 billion hedge fund held numerous positions in small-cap stocks as of the first quarter of 2021 to enjoy the potential gains. Here is what billionaire Ken Fisher stated about small-cap stocks in his most recent article:
“Then, too, a simple, almost never stated truth, is that on a relative basis value is always small-cap. I pretty much don’t care how you dice or slice the stock market, if you take the stocks you consider the biggest value stocks and compare them to the biggest stocks you think aren’t value stocks you see that the value ones have smaller caps—and typically by a lot. I know some readers will say, “Not the way I figure value.” Maybe! But those same folks will agree if asked about how most investors calculate what a value stock versus a growth stock is. And they will agree if looking at the components of growth and value indexes. Value is entangled with relative smallness. And liquidity early in bear markets dries up disproportionately in them.”
Small-cap stocks have been shining over the last twelve months and outperformed the broader market index since the beginning of this year. The small-cap benchmark Russell 2000 index rallied more than 17% so far this year compared to the S&P 500 index growth of 14% and tech-heavy NASDAQ index surge of 11%.
The outperformance isn’t surprising. Small-cap stocks are always significantly responsive to market cycles and economic trends. Economic recovery and improving spending behaviors along with easy financing policies supported the upside momentum in small companies’ share price.
Jeff Buchbinder, an equity strategist at LPL Financial, recently painted a bullish outlook for small-cap stocks:
“We believe the latest recession is over and the new economic expansion has begun.”Small caps tend to outperform large caps coming out of a recession and the greater economic sensitivity provided by small caps may be helpful when economic growth expectations go from bad to less bad, and eventually to good.”
Fisher Asset Management believes in creating a well-diversified stock portfolio to capitalize on gains from asset classes of different sizes. The firm has been holding a position in large, mid, and small caps. Among the top 10 holdings of Fisher as of the first quarter of 2021 are Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc Class A (NASDAQ: GOOGL). Additionally, it has expanded exposure towards several sectors. At the end of the first quarter, Fisher Asset Management’s portfolio is more inclined towards the information technology sector followed by finance, communications, and consumer discretionary. According to the latest quarterly filings, Fisher Asset Management held a position in 933 stocks, with the top ten positions representing 30.66% of the overall portfolio.
Ken Fisher of Fisher Asset Management
While Ken Fisher’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start digging into some of the best small companies to invest in 2021 according to billionaire Ken Fisher. We used Fisher’s Q1 portfolio for this analysis.
Small Companies to Invest in 2021
10. Beacon Roofing Supply, Inc. (NASDAQ: BECN)
Number of Hedge Fund Holders: 21
At the end of the first quarter, billionaire Ken Fisher held a $77.59 million worth of stake in Beacon Roofing Supply, Inc. (NASDAQ: BECN), accounting for 0.05% of the overall portfolio. The firm first initiated a position in Beacon Roofing Supply, Inc. (NASDAQ: BECN) in 2012. Shares of Beacon Roofing Supply, Inc. (NASDAQ: BECN) surged 32% since the beginning of this year, extending twelve-month gains to 95%. The company is engaged in distributing residential and non-residential roofing materials, and complementary building products.
Like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc Class A (NASDAQ: GOOGL), Beacon Roofing Supply, Inc. (NASDAQ: BECN) is one of the best stocks to buy based on Ken Fisher’s Q1 portfolio.
The number of long hedge fund positions stood at 21, down from 23 in the prior quarter.
9. Artisan Partners Asset Management Inc. (NYSE: APAM)
Number of Hedge Fund Holders: 21
With a market cap of $3.84 billion, Artisan Partners Asset Management Inc. (NYSE: APAM) appears like one of the best small companies to invest in 2021. This is because of its steady share price upside potential along with a hefty dividend yield of 6.70%. At the end of the first quarter, Fisher Asset Management held $78 million worth of position in Artisan Partners Asset Management Inc. (NYSE: APAM), representing 0.06% of the entire portfolio.
At the end of the first quarter, the number of hedge fund positions remained flat in Artisan Partners Asset Management Inc. (NYSE: APAM) compared to the prior quarter. It was 21 hedge fund portfolios at the end of March.
Like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc Class A (NASDAQ: GOOGL), Artisan Partners Asset Management Inc. (NYSE: APAM) is one of the best stocks to buy based on Ken Fisher’s Q1 portfolio.
8. Stamps.com Inc. (NASDAQ: STMP)
Number of Hedge Fund Holders: 32
Internet-based mailing and shipping solutions company Stamps.com Inc. (NASDAQ: STMP) is a member of Ken Fisher’s portfolio since 2015. At the end of the first quarter, Stamps weighted 0.08% of the Fisher Asset Management portfolio. Stamps.com Inc. (NASDAQ: STMP) has been underperforming over the last year. However, it could turn out to be a great buying opportunity for new investors.
Stamps.com was in 32 hedge funds’ portfolios at the end of the first quarter of 2021 compared to 38 positions in the prior quarter.
Like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc Class A (NASDAQ: GOOGL), Stamps.com Inc. (NASDAQ: STMP) is one of the best stocks to buy based on Ken Fisher’s Q1 portfolio.
7. Meritage Homes Corporation (NYSE: MTH)
Number of Hedge Fund Holders: 23
The homebuilding company Meritage Homes Corporation (NYSE: MTH) is on the list of small companies to invest in 2021, according to Ken Fisher. At the end of the first quarter, Fisher Asset Management was holding a stake worth $118 million, representing 0.08% of the overall portfolio. Meritage Homes Corporation (NYSE: MTH) soared 15% so far this year, accelerating twelve-month gains to 28%. The company operates through two segments, Homebuilding and Financial Services.
Meritage Homes Corp was in 23 hedge funds’ portfolios at the end of March compared to 33 positions in the prior quarter.
Like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc Class A (NASDAQ: GOOGL), Meritage Homes Corporation (NYSE: MTH) is one of the best stocks to buy based on Ken Fisher’s Q1 portfolio.
6. Terex Corporation (NYSE: TEX)
Number of Hedge Fund Holders: 31
Terex Corporation (NYSE: TEX), a manufacturer and seller of aerial work platforms and materials processing machinery worldwide, is a member of the Fisher Asset Management portfolio since 2013. Terex Corporation (NYSE: TEX) accounted for 0.08% of Ken Fisher’s hedge fund portfolio at the end of the March quarter. In fact, the firm benefited from its Terex Corporation (NYSE: TEX) position. This is because shares of Terex Corporation surged 114% in the last twelve months. Furthermore, the company offers a dividend yield of 1.12%.
Money managers were getting more bullish. The number of bullish hedge fund positions increased by 8 lately. Terex Corporation (NYSE: TEX) was in 31 hedge funds’ portfolios at the end of the first quarter of 2021, compared to 23 positions in the previous quarter. The all-time high for this statistic is 38.
Like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc Class A (NASDAQ: GOOGL), Terex Corporation (NYSE: TEX) is one of the best stocks to buy based on Ken Fisher’s Q1 portfolio.
Click to continue reading and see the 5 Small Companies to Invest in 2021.
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Disclosure: None. Small Companies to Invest in 2021 is originally published on Insider Monkey.
