Small Caps vs Large Caps—Where to Invest Now

With small-cap stocks thus far outperforming their large-cap counterparts through the recovery, do companies with smaller market share still have room to the upside?

Bill McVail, lead manager of Turner Small Cap Growth Fund, told CNBC that small-cap companies are still a buy, because they still have more upside leverage to earnings than large caps. (See his stock picks, below.)

"People are coming back to those small-cap growth stocks," McVail said.

"The valuations are great, [and] the dynamics in terms of the market are wonderful."

Small-cap stocks typically run faster out of a recession than larger companies because it's easier for them to lower costs, and there isn't a huge supply of them, McVail explained.

The Big Cap Argument

But Kent Croft, chief investment officer of Croft Funds, said his firm has recently been looking at bigger, steadier names that have good opportunities for global growth. His goal is to buy stocks that the firm can own today, and for the next three to five years, he said.

"We don't think you're paying that much for those earnings as you maybe had in the past," Croft said.

Small/Big Stock Recommendations:

McVail Likes:

HHgregg — The retailer, which sells a large mix of appliances, has experienced a square-footage growth due to Circuit City's bankruptcy. HHgregg has twice the square footage for appliances as Best Buy , McVail said.

Bank of Ozarks — "These are the kinds of banks that, when the FDIC is trying to lay off the good assets of a bad bank, these guys are in a great position to add very, very profitable assets," he said.

Salix Pharmaceuticals

Croft Likes:

Cisco Systems and Lowe's — "These are companies that were able during the downturn to take advantage of their balance sheets [and] their size to pick up market share, and to emerge out of this even stronger," he said.

Becton Dickinson
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Disclosure information was not available for Croft, McVail or their companies.