If you are looking for bargains in a market off its record highs, don't settle on the small-caps.

Since valuations on the small-cap Russell 2000 peaked last November, the forward price-to-earnings ratio has declined by the most of any size segment (down 12% versus down 10% for both mid and large-cap) points out Bank of America Merrill Lynch. Even still, all size segments continue to trade at double-digit premiums to their historical median valuations since 1985 across an array of metrics.

According to BofA's research, the Russell 2000 trades at a forward price-to-earnings ratio of 19.7 times. That's down from 22.2 times during the cycle peak in November, but is still a whopping 20% premium to historical norms and a 14% premium compared to the Russell 1000. The exorbitant valuations are fairly evident throughout the sector: only the industrials patch trades at a discount to its corresponding large-cap sector across the measures BofA tracks.

With the Trump administration in full on tariff mode, it's the small-cap U.S. focused companies that could feel the sharpest impact of a trade war with China. Apparently, investors aren't making that connection as small-caps have been viewed as a "safe" place to hide during the latest bout of market volatility. The logic is likely to blow up in the face of those same investors if current trade fears morph into actual laws. 

Want a good bargain in this market? Take a look at FAANG (Facebook (FB) , Apple (AAPL) , Amazon (AMZN) , Netflix (NFLX) , Alphabet (GOOGL) names that are unlikely to succumb to the quick government regulation that sparked a massive selloff in the space in March. Facebook, Apple, Amazon and Alphabet are holdings in Action Alerts Plus

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