It has 'never been easier to make money' on small and midcaps, JPMorgan strategist says
- JPMorgan's small and midcap team is taking aim at stocks which are down more than 30% from pre-Covid levels, but have "solid balance sheets, near trough valuations, in businesses that are not structurally damaged."
With one in every five small and midcap stocks still down more than 30% since the beginning of the coronavirus crisis, it has "never been easier to make money," according to JPMorgan's Global Head of Small and Midcap Equity Strategy Eduardo Lecubarri.
His comments come as economic data mostly points towards a continued recovery for the global economy in July, while governments and central banks have deployed unprecedented levels of monetary stimulus to keep markets functioning.
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"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," Lecubarri told CNBC's "Squawk Box Europe" on Monday.
Active investors use analysis and expertise to pick specific investments in an effort to beat the market, whereas passive investors simply track an index.
Most major stock indices are now less than 10% from the levels seen before the historic market downturn in March, but the recovery has been uneven on a sector level, with some cyclical sectors (those which broadly align with economic cycles such as autos and industrials) taking a deeper hit.
Lecubarri suggested that the market at present seemed to be pricing in a recovery fueled by central bank largesse, adding that investors should focus on out-of-favor small and midcap stocks with more recovery upside.
According to a recent note, JPMorgan's small and midcap team is taking aim at stocks which are down more than 30% from pre-Covid levels, but which have "solid balance sheets, near trough valuations, in businesses that are not structurally damaged."
One such business Lecubarri flagged is French furniture stores company Maisons du Monde.
"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," he said.
Maisons du Monde stock has recovered from its plunge in February and March and is now up around 1.4% since the start of the year, but remains well below its 2019 levels.
JPMorgan's small and midcap team recently added Maisons du Monde stock to their model portfolio, alongside British car dealership Inchcape.