After years of market leadership by mega-cap stocks like the "Magnificent Seven," small-caps are making a comeback. Over the trailing 12 months as of mid-2026, the S&P SmallCap 600 returned roughly 31.8%, compared with about 20.3% for the S&P 500.

In this webinar for BetterInvesting's Online Chapter, SmallCap Informer Editor-in-Chief Doug Gerlach explains what's driving the small-cap resurgence and shows how long-term investors can adapt the Stock Selection Guide (SSG) to find quality small-company stocks at reasonable prices.

Watch on YouTube.

Among the topics covered in this presentation are the following:

7 Reasons to Pay Attention to Small-Caps Now

1. Valuation fatigue. Mega-cap P/E ratios sit near historic highs, while small-caps have historically traded at about 15 to 16 times earnings versus more than 20 for large caps.
2. Interest rate expectations. Anticipated easing in borrowing costs benefits smaller companies that rely on access to capital.
3. Stronger earnings growth. Small companies are expected to grow earnings faster than the S&P 500 in 2026.
4. M&A activity. Cash-rich large corporations are ramping up mergers, acquisitions, and IPOs, often targeting smaller businesses.
5. Fiscal policy and regulation. The benefits of past deregulation and stimulus are finally reaching small businesses.
6. Innovation impact. While tech giants struggle to find their next breakthrough, a single targeted innovation can dramatically move a small company's bottom line.
7. Non-correlation. Small-cap returns don't move in lockstep with large-caps, making them a valuable source of diversification.

Defining Small-Caps the BetterInvesting Way

BetterInvesting traditionally defines small companies by annual revenue of less than $1 billion, which is now closer to $1.2 to $1.3 billion after adjusting for inflation. Doug explains why using revenues is a more reliable yardstick than market capitalization, which can swing widely with daily sentiment and P/E ratios.

Adapting the SSG for Small-Caps

• Focus on value. High-growth small-caps trading at 180 to 200 times earnings or more are speculative trader stocks, so long-term investors should look for overlooked companies with reasonable valuations and solid total return potential.
• Use the "Q Factor." With little Wall Street coverage, pre-tax profit margins become a key gauge of management quality, and the best candidates rank in the top 10% of their industry.
• Work with limited data. Recent IPOs and spin-offs may have less than five years of public history, so investors need to review pro forma results and set their own comfort level.

Small-cap investing comes with more volatility, but adding small-cap value stocks to your portfolio on a consistent, disciplined basis improves diversification and positions you to benefit as market leadership rotates away from the mega-caps.

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