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Big opportunities in small-cap stocks: Pros

With the Russell 2000 down about 5 percent year-to-date, small-cap stocks are a bargain right now, two investing pros told CNBC Friday.

"A lot of the pullback that we saw in the small-cap space was, I think, concentrated mainly on the growth side but that's where I see more of the buying opportunities," Brian Jacobsen, chief portfolio strategist at Wells Fargo, said in an interview with "Closing Bell."

"I think that it actually somewhat overshot to the downside. Valuations are much more reasonable now than what they were about a year ago."

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Specifically, he likes health care and information technology because he said there's a lot of innovation in those sectors.

Penny on chart
Jodie Coston | Getty Images

He also thinks there will be additional acquisitions of small-cap IT companies.

"Large-cap companies have a lot of cash, and I think that they're actually looking to purchase companies at a premium," Jacobsen said.

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In fact, Elizabeth Lilly, portfolio manager with Gabelli Funds, believes the United States is in the middle of a "fifth wave" of merger and acquisition activity.

That small-cap stocks are quite attractive because smaller companies are "bite-size acquisitions" for businesses looking to grow faster than 1-2 percent, she said.

"This wave we think is going to continue for another 12 to 18 months, so we're very optimistic," Lilly noted.

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As for the inevitable rate hike from the Fed, Lilly doesn't think small caps will necessarily suffer.

"There's the perception that they're hit harder but as the economy improves a lot of small-cap companies have U.S.-domestic focused operations and their cost structures are leveraged to the economy. So as volume picks up and prices pick up, more drops to the bottom line," she said.

—CNBC's Laura Petti contributed to this report.