On some measures of value, small-cap stocks—which are often used to
juice a portfolio—look pricier than they ever have been. With that in
mind, investors should consider cutting their holdings of small
companies and favor the least speculative parts of the market, some
Investors expect bigger returns on small-company stocks, typically those
with a market capitalization of $5 billion or less, than their larger
peers. That is because small companies have uncertain earnings and
revenues, making them riskier.
Some investors prefer measuring the stock price against sales, since
small companies may not have profits. By that method, such stocks look
even more overpriced.
To the extent that an investor keeps a small slug of small caps, he
should tilt toward high-quality companies with earnings and away from
companies not making a profit, Mr. DeSanctis says. That means being wary
of biotechnology and pharmaceutical companies, many of which aren't