Is it time to buy microcaps?

According to our expert Chris Wood, the answer is a resounding yes.

Chris says today’s opportunity in microcaps is similar to March 2020… Back when everything was on sale. And right before microcaps charged 150%+ higher.

Of course, it’s been a rough go for microcaps over the past year. Yet Chris was able to achieve a 53% average in 2021 by taking profits at the right time.

Now, the script has flipped. He’s buying: and he suggests you do the same.

Today, Chris will share more details on this opportunity. He’ll even share the name and ticker of a pick in his Project 5X advisory to consider.

And a quick reminder, if you haven’t read your invitation to claim your 2022 RiskHedge All-Access pass—which gives you instant access to all of our premium advisories for up to 82% off—go here.

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Chris Reilly: Chris, you recently told me the script has flipped with microcaps…

When the markets were red-hot… like they were for the second half of 2020 and into 2021, you played defense by taking profits. Since early 2020, you’ve sold 10 stocks in Project 5X for an average gain of over 200%.

But now you’re buying again?

Chris Wood: That’s right. You see, microcaps are feast or famine. They boom and bust. We’re at the tail end of the bust… and now is the time to get positioned for the fast rebound.

Let me explain…

Take Kopin (KOPN), the little-known microcap that supplies display technology for AR and VR headsets.

On March 16, 2020, KOPN sunk to $0.19 per share. It was down 84.9% from where I first identified it.

Reilly: I remember… In fact, I called you to ask if you were ready to cut your losses…

Wood: Remember what I said? The stock’s valuation made absolutely no sense. The stock was trading like the company was dead in the water. And that wasn’t true on any level.

So I told our subscribers to hang tight… and that our patience would be rewarded soon.

Reilly: It was a great call… Kopin came roaring back.

Wood: It went on to soar 5,657% over the next 11 months to close at $10.94 on February 12, 2021. That’s when we exited the position.

We nailed the timing pretty well, closing the position one day before KOPN’s peak. That incredible gain shows the power of microcaps. Because of their small size, microcaps can grow in ways that are simply impossible for larger companies.

Another example is Magnite (MGNI). We bought Magnite when it was called The Rubicon Project on January 23, 2020. Soon after, it announced a merger with connected TV specialist Telaria.

Rubicon developed an online exchange to automate the selling of digital ads. And we said the merger with Telaria would change the game in digital advertising.

On April 3, 2020, Magnite hit a low of $4.09—57% below the price I recommend it at. But again, the valuation made no sense. At the time I said, “This is by far my highest-conviction pick right now.”

Magnite roared back.

It soared 1,409% over the next 10 months to close at $61.70… which is when we exited the position.

Kopin and Magnite ran up well over 1,000% in less than 11 months.

Reilly: Those were two incredible trades. Still, I assume the “feast or famine” nature of microcaps isn’t for everyone…

Wood: It’s definitely not for everyone.

Many folks can’t handle the volatility. And that’s fine. You must do what’s right for you.

There’s nothing wrong with parking your money in an index fund to earn 7–8% a year.

But remember that’s before inflation.

If we look at the inflation-adjusted return of the S&P 500 over the past 20 years, it’s a mere 5.3%.

So it makes sense to allocate at least a small part of your portfolio to microcaps because of their explosive upside. They’re the best way I know to beat inflation.

And because their upside is so high, you only need to risk a little to make a lot.

Reilly: So you think it’s time to buy microcaps again. Why?

Wood: Because they’ve reached the point of “stupid” cheap.

As I’ve mentioned, my analysis shows that relative to large-caps, small stocks have only been this cheap two other times in the past 20+ years. Once during the corona crash, and once during the dot-com bust.

And that’s a “surface level” comparison of all small stocks vs. all large stocks. But the smallest stocks—microcaps—aren’t just cheap. They’ve got another important trait that makes them ideal to own when markets rebound.

See, when things bottom out, smaller stocks tend to come roaring back much faster than the broader market. Just consider what happened during the Great Recession a little more than a decade ago.

The S&P 500 bottomed out on March 9, 2009, down 57%. It didn’t get back to its former peak until four years later…

The Russell 2000—the most widely followed benchmark for small-caps—also bottomed on March 9, 2009. But it only took the Russell 2000 a little over two years to fully recover. And it doubled off its 2009 bottom in only one year.

Reilly: You mentioned Kopin and Magnite earlier. Do you see any microcaps today that remind you of Kopin or Magnite during the corona crash?

Wood: Every company in our Project 5X portfolio fits the bill.

But one in particular comes to mind: Resonant (RESN).

It’s a tiny company with a big breakthrough for the massive 5G market.

Like Kopin and Magnite, it provides “enabling” technology that will allow this market to thrive.

Kopin’s microdisplay technology enables growth in the VR and AR markets. Magnite’s platform helps the digital advertising market thrive.

Put simply, Resonant’s radio frequency (RF) technology is the breakthrough necessary to usher in true 5G—the new lightning-fast networks that most cell phones will soon run on.

Reilly: Go on…

Wood: The job of an RF filter is to let the right signals in and keep the wrong signals out.

Without these filters none of our wireless devices would work.

But today’s filters can’t handle the frequency and bandwidth requirements needed for 5G. Resonant’s RF filter technology fixes that. It’s the breakthrough necessary to usher in true 5G and beyond.

And despite a lucrative partnership with the world’s largest filter manufacturer, Resonant is still flying under the radar… just like Kopin and Magnite before they took off.

Our Project 5X members have already taken a free ride on Resonant. But the stock is still cheap right now. It’s currently priced at about $1.25 per share. And I have it as a strong buy up to $2.00.

[***Important editor’s note: As we go to press on Tuesday morning, Resonant has announced a buyout from filter manufacturer Murata at $4.50 a share—good for a 266% gain from its closing price yesterday. Congratulations to all Project 5X subscribers who’ll cash in for a big win.]

Reilly: Thanks, Chris. Great stuff as always.

If you’re interested in getting in on the next Kopin, or Magnite (which handed out 399% and 422% gains to Project 5X readers)… I have great news.

We just made 200 RiskHedge All-Access passes available, and you’re invited to claim yours here.

These passes not only give you instant access to Chris’s Project 5X… they get you all of RiskHedge’s premium advisories for up to 82% off.

It’s the most cost-effective way to take advantage of our research in 2022.

Decide for yourself if it’s right for you at this link.

Chris Reilly
Executive Editor, RiskHedge