Stability is great, but low-volatility stocks may struggle to deliver market-beating returns over time as they sometimes underperform during bull markets.
Over the past six months, AvidXchange has been a great trade, beating the S&P 500 by 7.1%. Its stock price has climbed to $9.94, representing a healthy 28.3% increase. This run-up might have investors contemplating their next move.
Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings.
However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on.
However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
A stock with low volatility can be reassuring, but it doesn’t always mean strong long-term performance.
Investors who prioritize stability may miss out on higher-reward opportunities elsewhere.
Stocks under $10 pique our interest because they have room to grow (as well as the most affordable option contract premiums).
That doesn’t mean they’re bargains though, and we urge investors to be careful as many have risky business models.
"You get what you pay for" often applies to expensive stocks with best-in-class business models and execution.
While their quality can sometimes justify the premium, they typically experience elevated volatility during market downturns when expectations change.
Dan Loeb's Third Point portfolio had mixed earnings results this week, with decreased stakes in Cinemark and Corpay, and an acquisition of AvidXchange.
Corpay, Inc. to acquire AvidXchange for $2.2 billion in cash, reflecting a 22% increase over recent stock price and a 16% premium over 90-day average trading price.
The company has reportedly been working with advisor Financial Technology Partners to consider options after receiving offers over the past few months.
