10 large-cap market beaters and five surging small-caps

Stockopedia's Ben Hobson finds statistically appealing, high-quality stocks with improving momentum.

This week there have been continuing signs of optimism in UK stocks, with the FTSE All Share index moving higher to chalk up a gain of around 9% for the month of April. It’s a welcome move after the collapse that rattled through shares in February and March.

But, of course, there’s a long way back for world economies; plenty of bad news could well await. Betting that markets have properly priced in the impact of a massive economic and social shock would be brave to say the least. There’s so much still unknown.

That said, it’s not unreasonable to take a view that more and more equities will start to recover from here, and some already have. While many companies have seen their earnings outlooks vapourise, others have suffered far less.

In some cases it is impossible to make accurate valuations, but in others there is light in the tunnel, even if it’s a year or so out. For now, it seems like this sense of optimism is starting to get traction and lift the market.

But in the immediate aftermath of coronavirus there are some interesting trends to pull out of the market, especially when it comes to those stocks that are leading the price action.

In more normal times, on any given day, the strongest risers are often found among small and micro-cap stocks. These are the ones where relatively small moves translate into big percentages. They’re often news-driven, and they often pull back just as quickly. 

But over the past three months, the much-maligned micro-cap biotech, gold and tech stocks have been market-beaters.

The top five are below, but generally the top 50 best-performing shares over the past three months have been what we’d term small and highly speculative. These are the lottery ticket-type investments that, statistically speaking, usually lose but pay off handsomely on occasion.

Source: Stockopedia  Past performance is not a guide to future performance

The coronavirus pandemic has played a hand here. The biggest riser - Synairgen (LSE:SNG) - is associated with a possible treatment, so no surprise that its shares have rocketed. 

Against Stockopedia’s market-wide StockRanks classifications - which score shares based on whether they’re ‘good’, ‘cheap’ and ‘improving’ - stocks like this usually rate badly against these assessments. But in a crisis, investors have leapt on anything that seems like it could play a role in solving it.

But, these aren’t the only winners.

Focus on large-caps and you’ll see there have been solid, market-beating performances at the top of the market, too. Here, by contrast, the strongest gains have been delivered by stocks in some of the more defensive sectors, such as big pharma, mining, food retail, fast-moving consumer goods (FMCGs) and even insurance.

To be fair, the scale of relative outperformance against the market is nowhere near as strong among the large-caps (as it is with the micro-caps). But these are a much more statistically appealing bunch. Most pay a dividend - although yields have fallen in places as a result of dividend cuts. But in StockRanks terms, these are much higher ranking names when it comes to high quality, appealing valuations and improving momentum.

It seems that if you want to avoid the risks that come from lottery-like stocks, then the big early winners in this market are the ones that give people what they want in literally the worst times - food, medicines, the perceived safety of precious metals, insurance.

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