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3 Small Caps With Room to Run

Small companies have been on a roll, but these stocks still look undervalued.

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After a chilly winter, stocks sprung to life over the second quarter. The Morningstar US Market Index is up 9.5% over the past 13 weeks through May 31. Small caps in particular are on a roll--the Morningstar Small Cap Index is up nearly 14% over the period.

Of course, there's no saying if small caps' momentum will continue in the short term. And in fact, after an asset class has done well is often the worst time to jump aboard that train; many investors do so, only to find themselves buying high and selling low. Instead, investors would be wise to be naturally skeptical about valuations and consider the possibility that future returns may well be lower. But that doesn't mean you need to abandon stocks and asset classes that have appreciated if you are careful about valuations.

Karen Wallace does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.