We’ve covered biotechs and banks plenty recently, as the top groups leading the charge higher for small caps.
But there is another unsung hero contributing to this trend and that is industrials.
At 18%, they are right behind Financials as the second largest sector weight in the Russell 2000.
The S&P Small Cap Industrials ETF $PSCI has been one of the strongest corners of the market this year, outpacing broader small cap indexes and even many large-cap sectors.
What makes the small cap industrial space so compelling is its diversity.
On one hand, it’s home to some of the most speculative and growth-heavy themes in the market— think eVTOLs, drones, space exploration, robotics.
And on the other, you’ve got durable, steady-compounder businesses like waste management, construction, and building products.
Such a wide mix of names gives us optionality in terms of expressing a bullish thesis. Needless to say, I like fishing in this pond.
And the price action confirms this is where we want to be. At the index level, $PSCI is pressing toward a big base breakout.
Above 148, we want to own it for broad exposure with a target of 192.
But as always, the real alpha comes from stock selection.
This universe is packed with relative strength and leadership. We filtered our small-cap industrials universe to remove any names that have underperformed PSCI year-to-date, then narrowed the list to those closest to 52-week highs.
Here are some of the top stocks pressing up against fresh highs.
Here are our favorite setups right now:
Our first idea is a $5.3B industrial distribution stock focused on “smart home” technology. Here’s Resideo Technologies $REZI:
Resideo Technologies is breaking out to new all-time highs, pushing through a shelf of former highs and its 2020 IPO price.
On a relative basis, REZI is also breaking out of a multi-year downtrend versus its peers.
As long as we’re above 33, we like it long with a target of 51.
