Credit Suisse is telling clients to look beyond the fear in headline-grabbing large-cap stocks and turn focus to smaller companies. Like many others on Wall Street, the firm also is advising clients to cautiously focus on valuations when making investment decisions.
Value stocks have outperformed both growth and the broader market this year, still up 1.6 percent for the year despite the recent sell-off that has sent all market averages into negative territory.
"Longer-term, we see deeply compelling valuations in small-cap relative to large-cap and in large-cap banks relative to the broader market," Lori Calvasina, chief U.S. equity strategist at Credit Suisse, said in a report for clients. "But it is difficult to get excited about either in the short term, as both have consistently lagged in the pullback phases associated with post-2009 financial market shocks."
The firm also sees value in retail and transportation stocks in both the small- and large-cap spaces.
"Small caps continue to look deeply compelling relative to large cap, in what is a deep and broad-based story," Calvasina said. "Even if small caps lag shorter term due to general risk aversion, we think a historic opportunity in small caps has emerged that is both deep and broad based."