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JPMorgan strategist team goes bullish on small and midcap stocks of firms with good balance sheet post-COVID-19, singles out Maisons Du Monde.
COVID-19 brought with it a lot of downturn for governments and businesses, particularly those with small and midcap stocks. The global economy experienced a massive strain as the lockdown looms and the effects on businesses beyond shunted revenues. Nonetheless, JPMorgan Chase & Co (NYSE: JPM) strategists believe that investing in small and midcap stocks is strategic at this time.
The team claims these class of stocks which were down by about 30% but kept good balance sheets shows promise. Eduardo Lecubarri, Global Head of Small and Midcap Equity Strategy told CNBC’s “Squawk Box Europe” on Monday that it has “never been easier to make money” as most stocks are bound for recovery with the healthy balance sheet. Lecubarri noted:
“For every dollar that today is managed actively in the world, there is 80 cents managed passively with no regards for fundamentals. So the gap between fundamentals and valuations is actually pretty wide”.
These comments were on the backdrop of the economic data which points to economic recovery driven by government infused stimulus. As CNBC noted, active investors use analysis and expertise to outpace the market while picking specific investments. Passive ones, on the other hand, track an index which when aligned puts businesses with good balance sheets in a good spot.
Small and Midcap Stocks in COVID-19
The hard-hit most companies took during the COVID-19 lockdowns has little to do with the company size. The structural complexity of a firm may, however, have a positive bearing on how any firm responds to the pandemic. While some firm’s structure helped them wedge through, others have plunged their firms to a state of revenue generation impasse.
As a matter of classification, small-cap firms are companies with a market capitalization ranging between US$300M and $2B. Conversely, a mid-cap firm has a market cap between $2 and $10B and this classification is limited to revenue base. While most larger firms have enough funds to wedge through the hard times of COVID-19, most small and midcap sized firms relied on government bailouts to stand.
In the U.S., the government started the Paycheck Protection Program to help small businesses keep their staff on the payroll. These program has resulted in billions of dollar been disbursed since it came into effect in March 2020. Other countries have similar programs with the sole aim of helping small and midcap firms to cushion the effect of the coronavirus.
JPMorgan Strategist’s Bet on Surviving Businesses to Grow
With global efforts now tilted towards economic recoveries, the small businesses that have shown strength are now on analyst’s radar. French furniture stores company Maisons du Monde SA (EPA: MDM) was one of the companies flagged by Lecubarri.
The furniture brand has recovered from its deepest plunges since its worst nightmares in the second quarter of 2020. While MDM midcap stocks are up 1.4%, the performance is still sub-optimal when compared to its 2019 levels. Lecubarri commented on MDM:
“Even after this recovery that it has shown, it is still down huge with a solid balance sheet, and I think it is those types of names that still can give you a decent risk-reward opportunity here”.
Similarly, businesses that wedged through the COVID-19 pandemic and came out strong may be worth betting on in the future. A position the JPMorgan strategists tried to assert.