Like you, I’m obviously feeling the pain in the market right now. But you know what really has me scared about the market? (This may surprise you.) Missing. The. Rebound. It may not be readily apparent if you only look at the U.S. S&P 500, down more than 10% over the past year. Or the Dow Jones Index, also down over 10%. But when you start looking at the Nasdaq Composite down over 20% year over year with the implosion in tech stocks since last fall, you start to the get the picture… Here’s what really caught my attention though, and it should catch yours as well… The U.S. Russell 2000 — a proxy for the small-cap portion of the market — is down some 23% over the past year. It’s lost nearly a quarter of its value! (And, of course, they’re all down even more off their one-year highs.)

In fact, The Wall Street Journal recently stated that U.S. small caps are at their cheapest valuation in relation to large caps since all the way back in 2001!

And for what reason? That’s the intriguing — and, in my mind, downright exciting — part… You see, it doesn’t seem to have much of anything to do with the stocks themselves. See, while we’re of course dedicated long-term investors here at The Motley Fool… That doesn’t mean we aren’t looking to capitalize on a generational investing opportunity when one arises. And that’s precisely what I see right now in the small-cap market. After all, how frequently do we get a 20%+ drop in any index in just a single year? You could tick off the number of times it’s happened since the turn of the century and would have plenty of fingers to spare. Most recently during the pandemic crash of 2020, when the U.S. Russell 2000 dropped a staggering 40% in the span of roughly a month.

Chart refers to U.S. market.

Brutal, right? Well, not really, to be honest. Unless you sold everything at the bottom. Because look at what happened next.

Chart refers to U.S. market.

We see an immediate “rebound” effect from the U.S. Russell 2000, and within just a single year it’s not only more than doubled off its low point… … It was actually sitting around 30% HIGHER than right before it took that tumble in the first place! How about the notorious decline during the 2008 financial crisis?

Chart refers to U.S. market.

As you can see, the U.S. Russell 2000 lost a staggering 55% of its value in just half a year from September 2008 to March 2009. Biggest market crash since The Great Depression. Took years to come back from the financial crisis, right? Actually, not so much. Yet again with small-cap stocks, we see this rubber band-esque “rebound” effect.

Chart refers to U.S. market.

And within the span of a little more than a year, the U.S. Russell 2000 has not only more than doubled off its bottom… It’s right back up to where it was before the drop! Again, just one year to recover from the single biggest market collapse since the Hoover administration. I could go on giving examples, but Barron’s defines this “rebound” effect far more succinctly: After all, there’s a reason the Russell 2000 is up over 260% and looks like this over the past two decades…

Chart refers to U.S. market.

Of course, those overarching returns would be a lot more impressive if we hadn’t taken the nearly 25% haircut over the past year that I mentioned earlier. Which brings me back to my original point: Isn’t this correction starting to look strikingly similar to the other few we’ve discussed so far today?

Chart refers to U.S. market.

Moreover, if we know that the Russell 2000 doubled off its low within roughly a year of both its most notable declines over the past two decades… And we’ve seen a very similar 20%+ decline in the current market…

Well, shouldn’t we be downright ecstatic about the potential for small caps over the year ahead?

And I’ll emphasize — specifically for small caps. Remember, the U.S. S&P 500 is down about 10% year over year. With how much they’ve been (I’d argue unfairly) crushed by the market, it seems clear to me that small caps are the obvious place to focus. Which is why I’m so excited to share our research today from The Motley Fool’s preeminent small- and microcap service Rising Stars today. You see, Rising Stars focuses on unearthing stocks just 1/20 the size of our flagship entry level U.S. stock-picking service, Stock Advisor.

Refers to U.S. market, in U.S. dollars.

Here’s the backstory on Rising Stars. Nearly five years ago now, Motley Fool CEO Tom Gardner decided to take all the cumulative small-cap knowledge we’d accrued and put it toward a decidedly ambitious goal: Target the handful of microcap and small-cap stocks that he thought could deliver far superior returns, while concentrating his bets in the handful of “Rising Stars” that represented his highest-conviction ideas. The results validated his plan… pretty spectacularly. The original Rising Stars portfolio has already doubled in value since being launched in late 2017, and has easily outpaced the market in the process! Now, many investors would probably have been content to just rest on their laurels. But not Tom. Which is why two years later in late 2019, he decided to prove that the original Rising Stars portfolio wasn’t just a “flash in the pan.” He rolled out the Rising Stars 2020 portfolio, which is already up nearly 50% in just 2.5 years. That’s the value of targeting the tiny, ambitious, aggressive companies our team has identified with the “Rising Stars formula.” Plain and simple. Once you have the data and the insight to understand it, from there it’s just simple math. And on that note, let’s dig a little more into…

Precisely how the “Rising Stars formula” has consistently produced such massive winners.

The secret to the “Rising Stars formula” isn’t really any big secret. It’s all about identifying the long-range potential in a stock… Then snapping up shares before everyone else sees that potential. It takes talent and vision. It takes a heck of a lot of research. Most of all, it takes guts. But the value of getting in early cannot be overstated. I see this as the key to the whole “Rising Stars formula.” And it’s why we’ve seen our Rising Stars suite develop into the “incubator” of many great stock ideas at The Motley Fool. It’s where many current Motley Fool favorites got their start. Take The Trade Desk (NASDAQ: TTD) for instance. Nowadays, TTD is recommended in roughly 20 different services and portfolios across The Motley Fool. And if you’d followed along with our original U.S. Stock Advisor recommendation of TTD back in November of 2019, you’d probably be quite satisfied right now. After all, despite a recent pullback, it’s up over 150%. Nearly 3X your money in just two and a half years. But if you were a member of Rising Stars, you would have seen The Trade Desk recommended by Tom Gardner and team all the way back in September of 2017. More than TWO YEARS earlier. What kind of difference would that have made to your portfolio? That early recommendation of The Trade Desk is already up over 600%. Not only would that nearly 7X an investment in less than half a decade, but it’s nearly 4X the (admittedly impressive) 150%+ return that Stock Advisor members who followed our guidance have seen.

Chart refers to U.S. market.

4X the return from getting in just a few years earlier. That’s how important it is — not to mention how lucrative it can be — to have the guts to get in as soon as you’re confident you’ve identified a winner. Percentages are great, but if you’re anything like me, you want to really quantify that difference in good old dollars and cents. A $10,000 investment into U.S. Stock Advisor’s recommendation of The Trade Desk would be sitting at over $25,000 today. Not bad at all, normally. But it’s downright underwhelming compared to the $70,000+ you’d be sitting on if you had staked $10,000 on The Trade Desk back when Rising Stars first recommended it.

Chart refers to U.S. market.

That’s $45,000 in additional profits from a mere $10,000 investment. That’s the value of getting in early. Plain and simple.¬ One-time wonder? Flash in the pan? Hardly. Let’s take a look at Kinsale Capital Group (NYSE:KNSL). Nowadays, you see Kinsale all over the place at The Motley Fool. By my count, it’s recommended in 15 different services and portfolios. But back in summer of 2017? A big, fat zero. That’s until September 6, when Tom Gardner included it in his initial Rising Stars portfolio. And since then, the stock has skyrocketed — up over 340% for nearly 4.5X the money. I think we’d all take that. But look at how those other 14 Kinsale recommendations have managed.

Chart refers to U.S. market.

The non-Rising Stars 2017 recommendations of Kinsale are up over 40%. Hey, that’s certainly not hurting, especially with what we’ve seen in the market of late. But it’s a mere 1/7th the return of that original Rising Stars recommendation back in 2017. And again, here’s the difference in a pocketbook from getting in early vs… not.

Chart refers to U.S. market.

A clean $10,000 invested in Kinsale back when Tom first brought it to The Motley Fool’s universe back in fall of 2017 would already be worth over $44,000. Meanwhile, that same $10K invested across the rest of the Fool’s Kinsale recommendations would have grown to just over… $14,000. That’s a full $30,000 in profits investors would have lost out on — again, SOLELY due to waiting to get in! Need another example? How about MongoDB, up over 280% since it was also recommended back in the original Rising Stars portfolio. Now compare that to the other 12 times we’ve rec’d MongoDB here at the Fool — those positions are up an average of around just 99%. Our Rising Stars pick is outperforming other Motley Fool picks by nearly 3X.

Chart refers to U.S. market.

And, again, here’s the actual cash impact.

Chart refers to U.S. market.

As you can see, from getting in back when Rising Stars first recommended MongoDB, you’re currently looking at $18,000+ in additional profits on a $10,000 investment. With performances like these, it’s not hard to see why the original Rising Stars portfolio in general has outperformed the market so thoroughly…

And why investing alongside the original Rising Stars portfolio would have turned a $500,000 portfolio into $1,000,000 in less than half a decade!

It’s all thanks to the team’s incredible vision and stock research… And the key benefit: Getting in early, plain and simple. This formula has delivered massive success to Rising Stars… in full view of the handful of Motley Fool members who were bold enough to follow Tom Gardner and his team as they picked these aggressive, visionary companies… … Often before any other portfolio service team at The Motley Fool. And this “early bird” success is a big part of why I’m confident you’ll never see well-known stocks like Tesla, Apple, Amazon, and Microsoft recommended in a Rising Stars portfolio. After all: #1: They’re just too big. Rising Stars is all about targeting U.S. small-cap and microcap stocks — with the team aiming for market caps of US$6 billion or less. In fact, the team is targeting stocks less than 1/20th the size of the average U.S. Stock Advisor pick.

Refers to U.S. market, in U.S. dollars.

#2: These stocks are simply too well-known. I don’t think you need a premium service like Rising Stars to tell you about Netflix, or Apple, or Shopify, or Tesla. The team is happy to leave those kinds of picks to the broader internet. #3: These stocks are already Fool recommendations many times over. And again, the whole point of Rising Stars is to find under-the-radar stocks. Early. That “early bird” focus was key to Rising Stars’ smashing successes with The Trade Desk, Kinsale Capital Group, and MongoDB. Plus, and I can’t emphasize this enough… We can never actually guarantee that any stock first identified by the Rising Stars team will even be picked later by another team. Tom and the rest of the Rising Stars team are looking for a precise type of stock that matches the “Rising Stars formula.” And their aggressive approach is simply not shared by every other Motley Fool analyst team. With the Rising Stars team targeting stocks that are less than 1/20th the size of the average U.S. Stock Advisor pick, I’m quite confident that plenty of the stocks earning the title “Rising Star” will never be recommended outside this unique suite of products. Case in point, look at Five9 (NASDAQ: FIVN), a stock that has never been recommended outside the Rising Stars universe, and which has gained 170%+ since its initial recommendation back in 2017. That’s 170%+ worth of gains that those without access to Rising Stars simply would have missed out on entirely.

Chart refers to U.S. market.

Poof. Think about it this way: A $20,000 investment in Five9 would already be worth over $50,000. That’s at least $30,000 in profits. On a single stock. Missed. Now, I don’t want you to miss out on the next Five9. And if you need further convincing to avoid doing so, perhaps this will help. Allow me to explain…

Why we believe now is the perfect time for aggressive investors to follow the “Rising Stars formula” in pursuit of massive potential gains.

I won’t spend a lot of time rehashing why the macro situation appears to be so favorable to microcap and small-cap investing, with Barron’s saying: I think it’s pretty clear that we could be in a true “win-win” situation where small-caps and microcaps could win whether the market goes up or even down! (Of course, to be clear, we’d never advocate that an entire portfolio should be small caps.) No, the reason I’m really most excited about pursuing the “Rising Stars formula” right now is quite simply… Because we now have enough data that I think even the most skeptical investor will agree that it’s been a smashing success! Look, I 100% understand why plenty of folks chose not to join Rising Stars in 2017. This was an unproven formula. Moreover, a formula that aggressively embraced potential volatility, instead of shying away from it. And even though our CEO Tom Gardner and the broader analyst team here at The Motley Fool were highly confident in its eventual success, I’m sure plenty of our members were skeptical. Of course, they missed out on what’s been an incredible run ever since. Take OTC Markets Group (OTC:OTCM), up over 100% since first introduced to The Motley Fool via its Rising Stars debut in September 2017, and recommended in just one Motley Fool service since. Again, that’s just the power of getting in extremely early in the lifecycle of a company you’ve done your homework on, and already have incredibly high conviction in. All that’s left to do is pull the trigger and buy! Unfortunately, so many investors hold off waiting for JUST the right price… or for the company to have proven itself as an investment beyond any reasonable doubt. News flash… That waiting period is precisely where they could be missing out on the big gains! Now, when Tom and team launched Rising Stars 2020, I’m sure there were some who thought the Rising Stars team just got lucky and couldn’t duplicate those results. Of course, they went on to do just that. Have a look at Fulgent Genetics (NASDAQ:FLGT), a company that Tom brought to the Fool for the very first time in Rising Stars 2020. In fewer than three years, our RS 2020 recommendation of Fulgent is already up over 190%, nearly 3X the money. And here’s why it pays to get in early… The Motley Fool has gone on to recommend Fulgent a whopping 13 more times across the company, but due to the recent pullback in the market due to inflation, the average pick outside of Rising Stars 2020 is actually down around 8%.

Chart refers to U.S. market.

As you can see, that’s an outperformance of nearly 200%. Again, just from getting in early. We have a systematic approach that has consistently beaten the broader market in the original Rising Stars portfolio… And then we ran it a second time in Rising Stars 2020, which — despite the recent carnage we’ve seen that’s obviously affected Rising Stars as well — has also still beat the broader market. At this point, I think it’s fair to say that Tom Gardner and his team have proven their ability to drive massive returns for investors… if they’re bold enough to follow them into these aggressive, ambitious, high-growth stocks. Now, listen, if you’re beating yourself up for not joining the original Rising Stars portfolio or Rising Stars 2020, there’s no need. As I said earlier, the “Rising Stars formula” was unproven in its early days. And I can entirely understand why plenty would have chosen to sit on the sidelines. Regardless, this is all in the past. There’s nothing to be done about it at this point. The only thing that matters now is: Knowing the power of the “Rising Stars formula,” what do you do next?

Which is why I’m very pleased to announce the launch of Rising Stars 2022!

Tom Gardner’s “all-in-one” small-cap and microcap-focused investing solution. In it, he and his analyst team have taken all the lessons of the past Rising Stars portfolios, as well as the “Rising Stars formula” that has twice delivered such incredible results… Every ounce of talent and knowledge they can bring to bear… Not to mention countless hours of research and analysis… And applied it all straight to identifying their highest-conviction, high-growth small-cap and microcap stocks for 2022 and beyond. When you join Rising Stars 2022, you’ll have a front-row seat for the first 10 stocks in the Rising Stars 2022 Portfolio, as we build it out over the coming weeks. And again, don’t expect any Microsofts, Apples, or Googles here. Tom and team are exclusively targeting stocks we think can deliver 500%+ returns in the coming years. (Yes, you read that correctly — Tom is hunting for 6X returns inside RS 2022.) Plus…

Our fully allocated game plan, backed by US$50,000 of The Motley Fool LLC’s own investment cash: No guessing about allocation here — every investment recommendation in the Rising Stars 2022 Portfolio will be backed by cash from The Motley Fool LLC, so you can see, dollar-for-dollar, EXACTLY how our team of professional analysts allocate money to each stock. This isn’t just a disparate cohort of stocks, but a team of companies welded together with the goal of helping members take full advantage of this time-sensitive small-cap/microcap window as effectively as possible.

Ongoing trade alerts: The team plans to allocate additional cash (and make additional stock purchases) quarterly over the course of the year ahead. Plus, the team may tactically recommend “Scout Positions” for those members looking to invest in the most bleeding-edge ideas that the team is excited for, but which haven’t as of yet earned an “official” recommendation nod. And, of course, should the team decide to sell any positions, they’ll alert members so they can close out their investment first.

Our brand-new US$50,000 Rising Stars 2022 Quant Portfolio: For the first time ever, we’ll be launching a 13-stock “quant” portfolio inside Rising Stars that will directly compete with the portfolio of stocks selected by Tom Gardner and team in the official Rising Stars 2022 Portfolio. As opposed to traditional qualitative investing factors, the Quant Portfolio will be based on complete trading algorithms backed by years of back-tested historical data. Of course, you won’t need a PhD in quantum mechanics to take full advantage of the portfolio — all the picks will still be delivered in the exact same “Plain English” format you’ve come to expect from The Motley Fool.

What’s more, just like the Rising Stars 2022 Portfolio, our Quant Portfolio will also be backed by US$50,000 of real Motley Fool LLC capital. That goes to show just how confident we are in this radical new investing style. Plus, the whole Quant Portfolio will be available starting July 13!

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