Large-cap stocks are generally considered a safe bet in times of volatility, but some Wall Street experts say small-cap stocks are growing in appeal as recession risks increase. Small-cap stocks are generally less popular than larger stocks due to previously perceived earnings volatility, greater domestic bias, and lower visibility. They are also often shunned when the market is volatile in favor of more stable options. But history shows that investors may have been wrong. “Historically, recessions tend to be good buying opportunities for small-cap stocks,” said Lori Calvasina, head of US equity strategy at RBC Capital Markets. “We also show that small-cap companies are suffering a lot economically.” The brokerage believes small-cap stocks are “very close” to valuation during a recession, which can be seen “quite obvious” in valuations. It noted that small-cap stocks currently look historically cheap compared to large-cap stocks, with the small-cap Russell 2000 Index trading in a price-to-earnings range that “tends to bottom.” . According to Christian Galipeau, senior market strategist at Putnam Investments, small-cap stocks not only perform better during recessions, but also do so for a long time after the economy exits the recession. recession, according to Christian Galipeau, senior market strategist at Putnam Investments. He observed that small-cap stocks tend to underperform large-cap stocks in the months leading up to and during recessions, as well as “over the next three years” as the economy emerges from recession. withdrawal. Citigroup notes that small-cap stocks were the first group to weaken as inflationary pressures hold, and in turn, could now be “the first to recover.” It said the valuation of small-cap stocks is implying they are “significantly risk-reducing” and pricing in recession fears. Citigroup strategists, led by Scott Chronert, wrote in a July 26 note. Bank of America Top Stock Ideas Bank of America says “a lot has changed” since the start of the year, with several developments: Fed policy, geopolitics, market volatility, inflation rampant and recession fears. Bank of America strategist Jill Hall wrote in a recent report: “But volatility and regime change present opportunities, and we continue to see a favorable backdrop for stock picking. It notes that stocks with protective margins and pricing power have been rewarded in an environment of rising interest rates and inflation. The bank prefers food delivery service provider DoorDash, which the company says is not directly exposed to raw commodities and food price inflation due to its status as a third-party platform. The bank has a $90 price target for the stock, which closed at $72 on Monday, representing a potential upside of 20%. Bank of America also likes Illinois-based Option Care Health as the home care service name that is least exposed to labor cost pressures. The company could grow further with an improved free cash flow implementation, says Hall. The bank’s $38 price target on the stock implies an 11.8% upside from the stock’s closing price around $34 on Monday. Read more Has the market bottomed yet? Here’s what Wall Street has to say after US stocks rallied in July Is the US in a recession? The strategist is tracking 14 indexes Top tech analysts say the FAANG stock is at an ‘inflection point’ – and helped drive Florida-based electronics maker Jabil up 33%. The company is lent to end markets that are seeing secular growth, as well as sectors like healthcare, which the bank considers “recession proof in general”. Its shares closed at around $59 on Monday, which means a 40% gain from the bank’s $82 price target on the stock. Bank of America also likes chipmaker ON Semiconductor, because of its strong turnaround potential, superior products, and exposure to the hyper-growth trend in the electric vehicle sector. The bank has given a price target of $80, representing a potential 25% upside from the stock’s closing price of around $64 on Aug. 1. Barclays also named a range of equity stocks. Small investments are rated as “highly convincing” that they say offer the potential for superior risk-adjusted returns. Bank options include cybersecurity firm CyberArk, biopharmaceutical company Sarepta Therapeutics and home builder Skyline Champion.