Core Insights - Current market dynamics are influenced by skepticism around AI spending, geopolitical tensions in the Middle East, and stress in private credit markets [1] - Successful investing involves identifying businesses with durable models, strong growth outlooks, and appropriate valuations, particularly in small-cap stocks where inefficiencies exist [2] Company Summaries Phibro Animal Health (PAHC) - Phibro Animal Health operates in the global livestock and animal nutrition markets, benefiting from consistent demand linked to global protein consumption [5] - The company has seen consistent earnings revisions, supporting a Zacks Rank 1 (Strong Buy) rating, indicating improving fundamental momentum [6] - Shares trade at 17.6x forward earnings with a PEG ratio of 0.82, supported by projected EPS growth of 21.5% annually over the next 3–5 years, suggesting growth is not fully priced in [7] Deluxe (DLX) - Deluxe has transitioned from a legacy check-printing company to a diversified provider of payments, data, and marketing solutions, generating revenue from higher-margin digital services [9] - The company holds a Zacks Rank 2 (Buy) as its transformation continues to improve sentiment [10] - Shares trade at 6.7x forward earnings with a PEG ratio of 0.55, indicating a favorable risk/reward setup, and are forming a bull flag pattern, suggesting potential for a breakout [11] Remitly Global (RELY) - Remitly Global facilitates cross-border payments, with revenues expected to grow at nearly 20% annually over the next two years, supported by structural demand [12] - The stock trades at approximately 30x forward earnings, justified by projected EPS growth of 55.3% annually over the next 3–5 years, resulting in a PEG ratio of 0.54 [13] - With a Zacks Rank 2 (Buy), the company is positioned for strong fundamental performance and potential multiple expansion [14] BrightSpring Health Services (BTSG) - BrightSpring Health Services is well-positioned in the healthcare sector, benefiting from demographic trends related to an aging population and rising demand for home and community-based care [15] - The company has a Zacks Rank 1 (Strong Buy) reflecting strong earnings momentum, with projected EPS growth of 47.2% annually over the next 3–5 years, despite trading at 25.8x forward earnings [17] - The stock has shown a steady uptrend, indicating accumulation by long-term investors, which could support continued upward momentum [18] Investment Opportunities - The four companies—PAHC, DLX, RELY, and BTSG—stand out for their earnings momentum, attractive growth-adjusted valuations, and favorable technical setups, presenting differentiated investment opportunities in a crowded market [19]

Core Viewpoint - The Russell 2000 index has entered correction territory, indicating a decline of more than 10% from its recent high, marking it as the first major U.S. benchmark to do so [1] Group 1: Market Performance - Small caps, represented by the Russell 2000, initially outperformed at the start of 2026, being only 1% off its peak due to expectations of easier monetary policy and a shift away from large-cap stocks [2] - However, the index has experienced a significant decline of over 6% this month, primarily driven by the ongoing war in Iran, which has led to a more than 50% increase in Brent crude oil futures [3] Group 2: Broader Market Trends - Other major averages are also showing signs of decline, with the Dow Jones Industrial Average and the Nasdaq Composite both more than 9% off their all-time highs, while the S&P 500 is down by over 6% [4]

Core Viewpoint - Small-cap stocks, particularly the iShares Russell 2000 ETF (IWM), are facing significant downward pressure, with potential declines towards previous lows observed in August and April [1][4]. Group 1: Market Dynamics - The unusual options activity for IWM indicates a shift in sentiment among investors, with a notable increase in put volume suggesting preparations for a technical breakdown [4]. - IWM has been characterized as a "no-alpha asset class," failing to deliver returns that justify its higher volatility compared to other investment options like the Invesco S&P 500 Equal Weight ETF (RSP) [4]. Group 2: Investment Strategy - For investors seeking genuine small-cap growth, targeting smaller-cap stocks may provide better opportunities, as IWM is seen as trapped in a middle ground that captures market downsides without significant upside potential [5]. - The iShares Micro-Cap ETF (IWC) has been added to core portfolios as a more favorable alternative to IWM [5]. Group 3: Sector Analysis - The sector mix of IWM, heavily weighted towards healthcare and industrials, is contributing to its struggles, especially in a market environment characterized by persistent inflation [6]. - Smaller firms within these sectors are likely to experience higher borrowing costs and more severe drawdowns during market fluctuations, exacerbating the challenges faced by IWM [6].

Group 1 - Crossroads Capital LLC reported a 2.7% net return in Q4 2025, leading to an annual return of 37.7% net, with a compounded rate of 21.2% gross and 17.1% net since inception [1] - The Fund's overall non-delta adjusted gross and net exposure were 89.7% and 72.1% respectively by the end of December 2025 [1] - Market sentiment shifted rapidly in November due to concerns over the AI bubble, Federal Reserve uncertainty, and bearish positioning, highlighting the market's volatile nature [1] Group 2 - AST SpaceMobile, Inc. (NASDAQ:ASTS) is highlighted as a key stock, with a market capitalization of $30.1 billion and a one-month return of -24.26%, while gaining 209.09% over the past 52 weeks [2] - The company is transitioning from an R&D-oriented startup to a scaleup, focusing on expanding revenue, headcount, and market reach, with significant progress in launch cadence, manufacturing throughput, and commercial agreements [3]

Core Insights - Small-cap stocks are gaining attention as they have outperformed the S&P 500 for eight consecutive days, with the iShares Russell 2000 ETF up 5.4% year-to-date [2][7] Company Summaries Select Water Solutions - Q3 2025 revenue was $322.2 million, a decrease of 13.2% year-over-year and 11.5% sequentially [3] - Net income fell to $2.3 million from $18.8 million a year earlier, with operating income at $1.9 million [3] - Free cash flow was negative at −$23.5 million due to capital expenditures of $91.1 million for infrastructure development [3] - Chemical Technologies revenue rose 13% sequentially to $76.6 million, with management guiding for 10% growth in Water Infrastructure for Q4 [4] Gorman-Rupp - Full-year 2025 net sales reached a record $682.4 million, up 3.4% year-over-year, with record net income of $53.0 million and adjusted EPS of $2.14, a 22% increase [5] - Q4 adjusted EPS of $0.55 beat estimates of $0.47, although revenue of $166.6 million was slightly below the $169.6 million estimate [5] - The company ended 2025 with a backlog of $244 million, an increase of 18.4% from the previous year, and record incoming orders of $728.4 million, up 10.5% [6]

Core Insights - Small-cap stocks are gaining renewed investor interest in 2026 as capital shifts away from mega-cap stocks, with Goldman Sachs highlighting potential opportunities among AI ecosystem suppliers [2][3] - The easing rate environment is expected to benefit small-cap stocks, with anticipated rate cuts and accelerating earnings providing compelling investment opportunities [3] - The S&P 500 index has remained flat year-to-date, indicating a shift in the AI narrative and a drag from large-cap tech stocks, while the equal-weight S&P 500 shows positive performance [4][5] Company Summaries CeriBell, Inc. (NASDAQ:CBLL) - CeriBell reported Q4 2025 sales of $24.8 million, a 34% increase from the previous year, driven by growth in new and existing accounts [11] - The company achieved a gross profit of $21.6 million with a gross margin of 87%, but reported a net loss of $13.5 million [11] - For the full year, total income reached $89.1 million, up 36% from 2024, with a gross margin of 88% and expectations of $111 million to $115 million in sales for 2026 [12][13] HealthStream, Inc. (NASDAQ:HSTM) - HealthStream's Q4 2025 revenue was $79.7 million, a 7.4% increase year-over-year, with operational income impacted by a stock-based compensation charge [15] - The company reported a full-year revenue of $304.1 million, up 4.3%, and adjusted EBITDA growth of 7.5% to $71.8 million [16] - HealthStream is focused on providing healthcare workforce solutions, enhancing staff competency and regulatory adherence through its cloud-based platforms [17]

Core Viewpoint - Small-cap stocks, like Alphatec Holdings, are often overlooked but may present significant long-term investment opportunities due to their focused strategies and growth potential [1]. Company Overview - Alphatec Holdings (ATEC) has a market capitalization of $2.07 billion and is dedicated solely to the spine surgery market, which is large and evolving [3]. - The company has developed an integrated ecosystem that includes implants, imaging, navigation, and data-driven surgical tools to simplify spinal procedures [3]. Financial Performance - In Q4 2025, Alphatec reported revenues of $213 million, reflecting a 20% year-over-year increase, with surgical revenue growing by 21% due to a 21% increase in procedural volume and a 23% rise in new surgeon users [4]. - For the full year, surgical revenue reached $687 million, up 26% from 2024, driven by 22% procedural volume growth and a 3% increase in average revenue per procedure [5]. - Total revenue for the year was $764 million, a 25% year-over-year increase, attributed to surgeon adoption, rising utilization, and increasing procedural complexity [5]. Profitability and Cash Flow - The company achieved its third profitable quarter with an adjusted net income of $9 million, and for the full year, it reported an adjusted net income of $8 million, a turnaround from a loss in 2024 [6]. - Gross margin remained stable at approximately 70%, and despite heavy investments in instruments and inventory, Alphatec generated $3 million in free cash flow for the year [6]. - Management anticipates at least $20 million in free cash flow in 2026 while continuing aggressive growth investments [6]. Strategic Focus - Alphatec's predictable adoption model allows new surgeons to start with lateral procedures and gradually expand their utilization, leading to consistent multi-year growth without solely relying on new additions [6].

Group 1: Small-Cap Stocks Outlook - Small-cap stocks are gaining traction, with the Russell 2000 index up over 3% in 2026 and outperforming the S&P 500 by approximately 400 basis points since April of the previous year, indicating a leadership shift in the market [1][2] - The end of a two-year earnings recession for small-cap companies has contributed to this positive trend, with current valuations at 25-year lows relative to large caps, presenting a significant long-term investment opportunity [1][2] Group 2: Interest Rates and Economic Environment - Approximately 40% of the debt in the Russell 2000 is variable, suggesting that previous Federal Reserve interest rate hikes have already been factored into the market [2] - The earnings potential of small-cap companies is expected to outweigh concerns regarding interest rates, particularly with the 10-year Treasury yield being monitored at the 4.5% level [2] Group 3: X3 Holdings Co. Ltd. (NASDAQ:XTKG) - X3 Holdings has entered the AI healthcare sector by partnering to manage global operations of an AI-powered healthcare smartwatch, aiming to shift healthcare from passive treatment to proactive management [7][10] - The smartwatch is designed to monitor and regulate emotional and neurological balance, utilizing a non-invasive brainwave sensing chip and cloud-based AI analytics to create a closed-loop system for health management [8][9] - X3 Holdings anticipates generating revenue from its first service contract under this agreement starting in March 2026 [10] Group 4: Wheels Up Experience Inc. (NYSE:UP) - Wheels Up Experience reported its first positive Adjusted EBITDAR of $37 million for Q4 2025, marking a 67% year-over-year improvement in net loss, despite total revenue remaining flat at $184 million [12] - The company achieved a 99% completion rate and 91% on-time performance, supported by a sale-leaseback transaction that generated $30 million in net cash proceeds [13] - Wheels Up is enhancing passenger experience by installing high-speed satellite Wi-Fi across its aircraft, with nearly full fleet coverage expected by the end of 2026 [14]

Core Viewpoint - The Invesco SmallCap Momentum ETF (XSMO) has demonstrated strong performance, returning 17.06% over the past year and 52.65% over five years, significantly outperforming its benchmarks, indicating the effectiveness of momentum strategies in small-cap investing [1]. Group 1: Performance Metrics - XSMO returned 17.06% over the past year, surpassing the iShares Russell 2000 ETF (IWM) at 16.19% and the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) at 13.02% [1]. - Over five years, XSMO achieved a gain of 52.65%, compared to SPSM's 34.46%, highlighting the persistence of momentum factor performance [1]. Group 2: Portfolio Composition - XSMO holds a significant concentration in Industrials at 29.2%, Financials at 16%, and Consumer Discretionary at 15.6%, which are sectors that typically perform well during economic expansions [1]. - The fund applies a momentum screen to the S&P SmallCap 600 universe, focusing on approximately 120 stocks with strong price and earnings trends [1]. Group 3: Investment Strategy - XSMO is designed as a tactical small-cap growth allocation for investors who believe that recent winners will continue to outperform [1]. - The fund's annual expense ratio is 0.36%, which is reasonable for a factor-based strategy, and it has $2.2 billion in assets, indicating strong institutional interest and liquidity [1]. Group 4: Risks and Considerations - The momentum strategy can lead to increased volatility, with potential for swift reversals in performance [1]. - The fund's near-30% weighting in Industrials presents a sector concentration risk compared to broader small-cap indexes [1].

Core Viewpoint - The SPDR Portfolio S&P 600 Small Cap ETF (SPSM) offers a low-cost way to gain exposure to small-cap stocks while spreading risk across over 700 holdings, but it is important to understand its cyclical nature and performance dynamics in different economic conditions [2]. Group 1: Fund Overview - SPSM tracks the S&P SmallCap 600 Index, focusing on profitable and liquid small-cap companies, avoiding speculative or unprofitable names [3]. - The fund charges an annual fee of just 0.03%, making it one of the most cost-effective options for accessing the small-cap market [3]. - With $14.1 billion in assets under management, SPSM provides sufficient liquidity for most investors [4]. Group 2: Portfolio Composition - The portfolio is tilted towards cyclical sectors, with Financials and Industrials making up 35.2% of holdings [4]. - SPSM holds established businesses like Moog Inc and Eastman Chemical, rather than early-stage growth companies [4]. Group 3: Performance Analysis - Over the past year, SPSM returned 14.27%, closely matching the S&P 500's 14.31% gain, reflecting a temporary convergence due to favorable market conditions for value-oriented stocks [5]. - However, the five-year performance shows SPSM's gain of 34.21% significantly lags behind the S&P 500's 76.23% return, attributed to higher borrowing costs and slower revenue growth impacting smaller companies [6].