Small-cap stocks defined as the bottom 10% of the market by capitalisation value are set for another year of positive gains says ABN Amro.
The sector is unlikely to outperform the large-cap sector, but “should match” its “modest gains” set to follow earnings growth through this year, ABN says. ”We believe the evidence of current sector weightings, a bottom-up December 2005 price/earnings ratio of 12.5x and earnings growth of 13% all justify current valuations.” According to the Hoare Govett Smaller Companies (HGSC) index used by ABN in its analysis, the sector returned 40.4% and 20.3% respectively in 2003 and 2004, although it is unlikely to repeat these figures. Last year some 19 companies in the HGSC + AIM stocks index...
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