Value stocks

Bullish Putnam on Small Cap Value Stocks

Michael Petro, portfolio manager of the Putnam Small Cap Value Fund, is bullish on small-cap value stocks.

“A resurgent economy combined with higher inflation could bring double-digit nominal growth rates to more of the investment universe,” he wrote in a commentary. “This should make reasonable growth less of a rarity and attract investors to the long-neglected small-cap value space.”

Petro and his colleagues are forecasting a reversal from the long low inflation trend, and that’s good for small-cap value stocks, he said.

“The Russell 2000 Value Index is more exposed to sectors likely to benefit from sustained inflation. These include financials, energy and basic materials stocks,” Petro said.

Rising interest rates should also help boost stocks, he said.

“These are companies whose earnings are generally valued here and now, as opposed to future earnings which will be discounted by increasingly higher interest rates,” he said.

Valuations are also attractive, Petro said.

“Investors may find small cap value multiples too good to pass up, especially when earnings start to pick up for these companies,” he said.

“At the end of 2021, small-cap value stocks were trading at a forward price-to-earnings ratio of 18.5. This compares to 50.1 for small cap growth stocks and 22.5 for the top 1,000 stocks.

As for the Putnam Small Cap Value Fund, its largest holdings since the peak as of Dec. 31:

· Outside view (VSTO) – Get the Vista Outdoor Inc reporta sporting goods company;

Small energy (SM) – Get SM Energy company reportoil producer;

Magnolia Oil and Gas (MGY) – Get Magnolia Oil & Gas Corp Class A Report.also oil producer;

The Hackett Group (HCKT) – Get the report from Hackett Group, Inc., a consulting firm; and

Unified (UFI) – Get Unifi, Inc. reporttextile manufacturer.