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The SEC Won’t Let Buffett Invest in These Small-Cap Stocks

The SEC Won't Let Buffett Invest in These Small-Cap Stocks

It’s easy to say that Warren Buffett is one of the most successful investors in history.

But what does that really mean?

His net worth is more than $120 billion.

His company Berkshire Hathaway (NYSE: BRK) is so large that it honestly defies understanding.

And I truly mean that.

While preparing my presentation for Banyan Hill’s upcoming Total Wealth Symposium, I picked apart Buffett’s oil stocks.

I wanted to show, based on the sheer size of Berkshire Hathaway, just how few choices Buffett has when he eyes a sector, like oil and gas.

For example, you’ve probably heard about Occidental Petroleum (NYSE: OXY), the oil & gas stock that Buffett was buying hand over fist last year.

Occidental Petroleum is an oil giant. A $50 billion company and the largest producer in the thriving Permian basin, where the American shale gas industry is booming.

Berkshire Hathaway owns 30% of the OXY’s outstanding shares.

But 30% of OXY only adds up to 3.9% of Berkshire’s colossal investment portfolio.

That means Berkshire could buy all of Occidental Petroleum, seven times over, and still have plenty of cash left to spare.

Again, Buffett’s clout and the size of his capital pool sound like a tremendous advantage. And sometimes, they are.

Berkshire’s massive amount of capital allows it to dictate terms and make massive deals — like when Buffett bought America’s largest freight railroad (Burlington Northern Santa Fe) outright.

At the same time, Buffett and Berkshire have also begun to find the limits of their own success … they have, you could say, grown too big for their own good.

Because in order to turn a meaningful profit on any one position, they need to make massive investment.

And that means, instead of being able to choose from thousands of listed securities on merit, they’re limited to just the small handful of massive companies that can field $12 billion investments like the one Buffett made in Occidental last December.

In Buffett’s own words: “Size is an anchor to performance.”

But as regular, hardworking “little guy” investors … we aren’t held back by this disadvantage.

We have the ability to find and invest in any company … making judgements on merit, using proven technical and fundamental analysis (like you’ll find in my Green Zone Power Ratings system) instead of merely its size.

In fact, that’s exactly what my presentation for Total Wealth Symposium is going to be about…

I’m going to show how Buffett’s Chevron (NYSE: CVX) and OXY shares stack up against the much smaller oil and gas stocks I’ve added to the Green Zone Fortunes portfolio.

Without giving too much away, I can tell you that these smaller stocks not only score higher in Green Zone Power Ratings, but they’ve also outperformed Buffett’s investments to boot!

All that said, our “little guy” advantage isn’t limited to the size of our funds and investments either…

There are also regulatory hurdles the big boys have to contend with, whereas we do not. Every large bank, fund and firm deals with this in varying degrees. Merrill Lynch, Goldman Sachs and Vanguard —they’re all limited as to what they can buy and when.

The SEC even forbids most of these companies from buying any stock under $5!

That means regular investors like you and I have a serious advantage when it comes to investing in “small” stocks, whether you look at companies with market caps under $2 billion, or stocks with share prices under $5 (or both!).

And 2024 is the perfect year for us to put that advantage to work.

Here’s why…

The Stock Market’s “David vs. Goliath” Story

Over the long arc of market history, small-cap stocks have outperformed large-cap stocks.

Countless studies on U.S. stocks, as well as foreign-developed and emerging-market stocks, have delivered the same results.

All this research points to a single conclusion … that right now is the perfect time to build an overweight small-cap portfolio.

That’s easier than you think, too.

With so many great small caps selling for just a few dollars a share, you can build an entire portfolio for less than you’d spend on a single share of Chipotle (NYSE: CMG), now selling above $2,330.

Of course — with thousands of small-cap stocks to choose from, you’ll still need to figure out which ones are the most likely to reach 5X or even 10X gains.

And that’s where Green Zone Power Ratings come in…

Stay in the Green Zone (and OUT of the “Red Zone”)

In April of last year, I told Money & Markets Daily readers how they can use Green Zone Power Ratings not just to find great small caps — but to steer clear of the biggest losers.

One of the stocks I talked about avoiding was Canopy Growth (Nasdaq: CGC).

Canopy Growth was once a $50 stock — and not too long ago.

It was a darling of the “pot stock” era, and it’s still around, even though share prices have crumbled from its all-time high in February 2021. Buying up shares for a fraction of the price might have seemed like a strong small-cap, post-recession investment.

But one quick look at CGC’s Green Zone Power Ratings showed us otherwise. In April of last year, it rated just a 9 out of 100, landing in our “High-Risk” category (aka the “Red Zone”).

Sure enough, share prices tumbled even further. CGC is down 70% since I warned readers about it last April.

Another small cap that rated much higher on my system, Denison Mines (NYSE: DNN), cleared gains of 80% during roughly the same period.

Best of all, since Green Zone Power Ratings is a fully automated system, it can keep up with the volatility of these small-cap stocks.

Where a traditional stock analyst might take weeks or even months to provide updates on a specific small cap, Green Zone Power Ratings are updated frequently. So as prices climb (or fall), a stock’s rating can change to account for that.

For example, DNN’s impressive 80% gain makes the stock less of a value proposition, and it also hurts the company’s Volatility rating (as you can see below):

So DNN still has a “Bullish” Green Zone Power Rating.

It’s also got weak scores for Volatility, Value and Quality. So there’s good reason to look for something even better.

And that’s exactly what I’ve found.

But first…

1 Final Mind-Blowing Statistic About Small-Cap Stocks

Earlier this week, my colleague and Money and Markets’ Chief Market Technician Michael Carr shared a truly amazing observation about low-priced small-cap stocks.

Mike found that out of the 25 different stocks that soared for 200% gains or more over the last six months…

Twenty-two of those stocks started at $5 or less per share.

So while a handful of top “magnificent seven” tech stocks had a banner year…

There were nearly two dozen $5 stocks that would’ve tripled your money.

And three of those stocks reached gains of over 1,000% in that same period!

The message is crystal clear — small-cap stocks (especially the $5 variety) are already experiencing a resurgence. They’ll continue surging in the year ahead, too.

That’s why I’m urging everyone to load up on small caps while they’re still selling for bargain prices. Because some of these stocks won’t be available for $5 much longer…

(To get my list of the top five small caps to buy today, check out my special video presentation HERE.)

To good profits,

Adam O’Dell

Chief Investment Strategist, Money & Markets

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