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Top manager Hodges on small caps, JC Penney

Craig Hodges, CEO of Hodges Capital Management, a small-stock specialist with $2 billion under management, sat down with CNBC's Mike Santoli for an in-depth conversation on why it may make sense for the average investor to add exposure to small- and mid-cap stocks.

"It is the most inefficient part of the market," said Hodges, in regard to small- and mid-cap companies. Those inefficiencies translate to opportunities, said the money manager, whose fund, the Hodges Retail fund, is up 22 percent this year, making it No. 1 in its category, according to Morningstar. The fund has a five-year annual return of 17 percent, seventh best in its category, according to the fund-tracking site.

In this exclusive interview, Hodges shares his investment thesis behind the stock picks for CNBC PRO's "Platinum Portfolio" competition, including his bullish stance on shares of JCPenney, which have rallied more than 40 percent this year. Other topics include:

  • Investing in index ETFs versus individual stocks.
  • What to look for when selecting small-cap equities.
  • Some of his favorite industries for the months ahead.
  • How to navigate market volatility.
  • The most common mistake average investors make and how to avoid it.

PRO subscribers can also read the entire transcript of the exclusive interview below.