The stocks in our microcap Model Portfolios might get caught up in the capitulative mayhem in a macro sense, but we know that their growth outlooks, combined with their cheap valuations, will make for a recovery that we think will blow the pants off of their mega cap counterparts when this new cloud of dust settles. 

To distill it down just a tad, it’s easier to double a $10 or $20 million revenue base than to double a greater than billion dollar valuation. Furthermore, the potential drop in stock prices of these large companies is steep. They’ve already grown to near their max potential but many still have P/Es in excess of 50x to 100x, or non-applicable P/Es because they’re losing money, which in a literal sense means there is no bottom to the stock’s price until you get to the value of ip, customer base, plants, property and equipment. It won’t take much for the latter to crumble, nor will it take much for the former to excel.

Now, we believe the pendulum has swung to where earnings and P/E ratios will matter again. Hopefully, it will be the dominating factor in valuing companies as we transition from this bear market into the next bull trend. That’s how the environment was set up for the first 20 years of my career, where high-quality undervalued microcap companies were in high demand.