The words “small cap” and “retirement portfolio” aren’t often heard in the same sentence. Stocks with smaller market capitalizations can be fantastic long-term growth investments. After all, most mega-cap stocks started out as small-cap stocks. Plus, small caps (along with value stocks) have been proven to outperform the market over time, according to Fama and French. So it makes all the sense in the world to keep small caps on your radar as an investor. But small caps generally fail my basic tests of suitability for a retirement portfolio. As I wrote in my critique of Warren Buffett’s Berkshire Hathway (BRK.A), a stock to be held in a long-term retirement portfolio should have a highly predictable business model, should be “technology proof” and should pay steadily rising dividend. Most small-cap stocks will fail one — or often all — of these criteria.
But there are definitely some small-cap stocks out there that are completely appropriate for a retirement portfolio, and I’m going to offer up six of them today. With any luck, none of them will be small caps forever. Their steady growth will eventually land them in mid-cap or even large-cap territory: StoneMor Partners (STON), Preferred Apartment Communities (APTS), STAG Industrial (STAG), Retail Opportunities Investment Corp (ROIC), Blue Knight Energy Partners (BKEP) and Teekay Corporation.
Source: Charles Sizemore
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