Micro cap stocks are stocks that have a market capitalization of less than $250 million. The main difference between smart cap stocks and penny stocks is that penny stocks are worth less than $1 whereas many of these smart cap stocks can be more than $1.
Micro cap stocks investing in smart cap stocks that is smart cap stocks mean smart investing in small cap and micro cap stocks. For the sake of expediency and handiness, it is cooperatively called as smart cap stocks. Small-cap stocks are stocks whose total capital value ranges from $250 million to $2 billion. Micro cap stocks can be traded on any stock exchange; they are mainly listed in NASDAQ and over-the counter (OTC) exchanges because of the indulgent listing rules in these interactions. Though smart cap stocks are not given their due consideration, this does not mean they are poorly-managed companies. There can be many undiscovered gems in this lot.
Advantages of the smart cap stocks and micro cap stocks-
1. Growth prospective- Small companies have more impending to grow up when evaluated to large companies. The leading companies of today like GE, Microsoft and Wal mart have all evolved from small start-up companies. These micro cap stocks can double in value when the company does the right things.
2. Inappropriate value or pricing- Most of these micro cap stocks, because of their small market capitalization, do not get much concentration from Wall Street. When they are so under-reported, there is a high possibility that they may be priced improperly. More often than not, they are under-priced. These companies will be worth more than the price at which they are traded. Individual investors can profit from these differences.
Stock Type 3 yr return 5 yr return
Large Growth stocks 9.00% 10.33%
Mid-cap Growth 11.15% 13.88%
Small Growth 8.25% 13.26%
Large Blend 8.65% 10.70%
Mid-cap Blend 9.00% 13.97%
Small Blend 7.04% 14.06%
Large Value 8.25% 11.52%
Mid-cap Value 8.46% 13.99%
Small Value 5.34% 13.23%
Disadvantages of the micro cap stocks have their disadvantages are-
1. Privileged Risk- The high risk allied with these micro cap stocks. They are predictable to grow well, but sometimes, they may not have the requisite funds to withstand big storms in the market. This is a flip side to micro cap stocks.
2. Lack of information- It is possible that there might not be sufficient information accessible about these companies' earnings and forecasts. Media and most of the financiers are concerned only about the micro cap stocks and so these small companies will be more often than not unobserved.
3. Time and Power- It requires a lot of time and energy to identify the micro cap stocks. They are not easy to get and a lot of investigation is essential.
