Why small caps are beating the Mag 7 in 2026
Our AI’s read on the market’s structural shift.
Plus 2 brand-new stock picks for September revealed at the bottom.
Strategy spotlight
Small-Cap Sprinters
1-year return
+69.3%
vs. Russell 1000
+46.8pp
Win rate YTD
91%
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Small-caps are breaking out—and this time, it isn’t just a catch-up rally. After five years trailing the mega-caps, smaller companies have outpaced the Magnificent Seven, the S&P 500, and the Nasdaq 100 so far in 2026, and the reason matters as much as the move: the gains rest on a genuine earnings recovery. The contrast with large-caps comes down to what is driving profits. The S&P 500 has effectively become an AI index, with nearly half its weight in tech and communications and earnings tied to the AI build-out. The Russell 2000 is the mirror image, with almost half its weight in industrials, financials, and consumer cyclicals, where profits track the real US economy. Consensus estimates have small-cap earnings growing several times faster than the S&P 500 over the coming year, yet the group still trades near 16 to 18 times forward earnings against roughly 22 for large-caps. In a market where almost nothing looks cheap, that gap is arguably where the most unclaimed value now sits. Our AI’s September rebalance of Small-Cap Sprinters leaned into exactly this breadth, rotating out two winners that had run their course and adding two still pairing value with a catalyst. Dorian LPG exited after a +25.9% gain and Haemonetics after +86.9%, both having reached fair value, according to our models. In their place, our AI selected Kohl’s, near 7.6 times earnings and under half book value after a quarterly profit that beat estimates by 124%, and Puma Biotechnology, a debt-free biotech whose latest quarter crushed expectations by over 400%. |
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Strategy performance · as at Sep 2 close
★ Featured this month
Small-Cap Sprinters
+69.3% 1-year return
+46.8pp vs Russell 1000
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Tech Titans
+183.3% Return since launch
+102.3pp vs S&P 500
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Mid-Cap Movers
+99.0% Return since launch
+39.9pp vs S&P Midcap 400
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Top Value Stocks
+91.7% Return since launch
+17.0pp vs S&P 500 Pure Value
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Energy Elite
+76.4% Return since launch
+27.4pp vs S&P 500 Energy
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Best of Buffett
+64.0% Return since launch
-10.7pp vs S&P 500 Pure Value
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Small-Cap Sprinters - September performance
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Strategy return
+5.1%
August 2026
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vs. Russell 1000
+2.4pp
Outperformance
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Spotlight exit
+86.9%
HAE - exited
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Max drawdown
-42.6%
CCB - held
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Spotlight - exits this month
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LPG
Dorian LPG · Held 92 days
Total return since picked
+25.9%
Following a massive ~120% year-to-date surge trading near 52-week highs, the model reallocated capital as Dorian LPG’s valuation left only modest upside to its analyst fair value target (~7% higher). Operational metrics remain outstanding, with ~80% revenue growth and an ~8% dividend yield, but growth was heavily boosted by a likely non-repeating Strait of Hormuz closure, narrowing the margin of safety alongside recent insider selling and a Freedom Broker downgrade to Hold.
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HAE
Haemonetics Corporation · Held 365 days
Total return since picked
+86.9%
Following a remarkable ~89% one-year rally, the model reallocated capital as valuation ran well ahead of fundamentals, with a GAAP P/E near 50x against under 1% revenue growth and net debt of roughly 2.7x EBITDA limiting flexibility. The business remains operationally healthy, beating Q1 estimates and raising guidance, but stronger alternatives on valuation and balance sheet narrowed its edge.
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New picks - September rebalance
| KSS New · Sep
Kohl’s Corp · Consumer Discretionary
| YTD -5.9%
HEALTH Good · 3/5 |
• PEG ratio: 0.79• 124% EPS beat
A quarterly EPS of $1.28 crushing consensus estimates by over 124%, nearly doubled full-year profit guidance, and an 88% surge in digital marketplace growth demonstrate rapid operational acceleration. While a ~21% three-month rally reflects powerful market momentum, a valuation of just ~7.6x earnings, less than half book value, and an extraordinary ~52% free cash flow yield signal the stock remains deeply discounted relative to its earnings trajectory. The resumption of share buybacks for the first time since 2022 also positions the business for sustained financial recovery.
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| PBYI New · Sep
Puma Biotechnology · Healthcare
| YTD +62.9%
HEALTH Great · 4/5 |
• P/E ratio: ~17.5x• ~$94M cash (debt-free)
A quarterly EPS of $0.16 crushed expectations by over 400% on $56.5 million in revenue, consecutive annual U.S. demand growth for NERLYNX, and full-year net income guidance of $17-$20 million demonstrate accelerating operational profitability. While an ~81% one-year run reflects powerful market momentum, a fully debt-free balance sheet backed by ~$94 million in cash and a fair value of ~$11.70 signal the stock remains meaningfully undervalued relative to its growth trajectory (~$9 current price).
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The full portfolio
| All active positions | 4 of 20 visible |
| | Stock | Sep | YTD | Status | KSS
Kohl’s Corp | +21.0% | -5.9% | NEW | PBYI
Puma Biotechnology | +12.0% | +62.9% | NEW | GLP
Global Partners | +6.8% | +25.7% | Held | KOS
Kosmos Energy | +21.1% | +222.0% | Held | CVLT
Consensus Cloud | -1.1% | +17.3% | Held | ARDT
Ardent Health | -10.8% | +66.7% | Held | RJET
Republic Airways | -14.8% | +30.3% | Held | KOP
Koppers | +11.9% | -11.9% | Held | NVEC
NVE Corp | +1.6% | +41.7% | Held | ATEC
Alphatec | -13.8% | +17.9% | Held | |
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*Data as of the Sep 2, 2026 market close. Performance figures reflect close-to-close returns since each strategy’s launch. Past performance does not guarantee future results. This material is for informational purposes only and is not investment advice.
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