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Small Caps Have Room to Run: DeSanctis

Tuesday, 5 Feb 2013 | 12:56 PM ET
20% Upside In Small Caps?
The FMHR traders discuss today's top three trades, including Netflix shares trading higher; and Steven DeSanctis, BofA Merrill Lynch, offers insight on the Russell 2000's recent record highs, and whether small caps have room to run.

Plenty of small-cap stocks still offer attractive valuation and re-accelerating earnings, Steven DeSanctis of Bank of America Merrill Lynch said Tuesday on CNBC.

"Lots of names out there in the universe that still trade under 10 times earnings, three times cash, which generally gives you pretty good market going forward," he said.

"You also have earnings starting to re-accelerate as the U.S. economy is going to re-accelerate, and small-cap's got a nice tailwind with the U.S. housing market doing well, so I think they've got a lot more room to run."

On "Fast Money," DeSanctis said that technology was his top sector for 2013, citing attractive valuations, earnings momentum, some overseas exposure and good balance sheets.

"Health care is another group, looks attractive on a valuation basis," he added.

DeSanctis also shared which sectors appeared less favorable.

"We've gotten a little bit less defensive, so we're underweight staples and utilities. They look expensive. They perform well when the market is down or goes sideways, which we don't think is going to happen," he said. "And so I think growth over value with tech and health care is kind of our two favorite groups."

Trader disclosure: On Feb. 5, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Joe Terranova is long VRTS; Joe Terranova is long AAPL; Joe Terranova is long MJN; Joe Terranova is long JPM; Joe Terranova is long DIS; Joe Terranova is long GS; Joe Terranova is long SWN; Joe Terranova is long XOM; Mike Murphy is long GS; Mike Murphy is long TGT; Mike Murphy is long FB; Mike Murphy is long TOL; Josh Brown is long AAPL; Josh Brown is long GLD; Josh Brown is long XLU; Josh Brown is long TLT; Josh Brown is long XLF; Josh Brown is long TGT.

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