Overview

ProPicks AI’s September Investor Letter highlights a pronounced breakout for U.S. small‑cap equities in 2026. The firm’s AI‑driven "Small‑Cap Sprinters" strategy posted a 69.3% one‑year return, beating the Russell 1000 index by 46.8 percentage points and achieving a 91% win rate year‑to‑date. Consensus estimates suggest small‑cap earnings will grow several times faster than the S&P 500 over the next year, yet the group trades at 16‑18× forward earnings compared with roughly 22× for large‑caps, indicating a valuation gap.

Performance Highlights

The September rebalance delivered a 5.1% return for the month, outpacing the Russell 1000 by 2.4 percentage points. The strategy’s maximum drawdown during the period was –42.6%.

Exits

The AI model exited two positions after they reached model‑determined fair value: Dorian LPG, which generated a total return of +25.9% over a 92‑day holding period, and Haemonetics Corporation, which delivered a +86.9% return over a 365‑day holding period. Both exits were prompted by valuation constraints and operational considerations such as high insider selling and a downgrade to "Hold" for Dorian LPG.

New September Picks

  • Kohl’s Corp (Consumer Discretionary): Added as a new position with a September price gain of +21.0% and a year‑to‑date decline of –5.9%. The stock trades at roughly 7.6× earnings, well below half its book value. Quarterly earnings per share of $1.28 beat consensus by 124%, nearly doubled full‑year profit guidance, and digital marketplace revenue grew 88% quarter‑over‑quarter. The PEG ratio stands at 0.79, free‑cash‑flow yield is about 52%, and the company resumed share buybacks for the first time since 2022.
  • Puma Biotechnology (Healthcare): Added with a September price increase of +12.0% and a year‑to‑date gain of +62.9%. The debt‑free biotech reported quarterly EPS of $0.16, surpassing expectations by more than 400% on $56.5 million of revenue, driven by continued U.S. demand for its NERLYNX product. Full‑year net‑income guidance is $17‑$20 million. The balance sheet holds approximately $94 million in cash, a P/E multiple of about 17.5×, and a fair‑value estimate of $11.70 versus a current market price near $9.

Portfolio Holdings Overview

Other active positions as of September 2 include:

  • Global Partners (GLP): +6.8% September, +25.7% YTD.
  • Kosmos Energy (KOS): +21.1% September, +222.0% YTD.
  • Consensus Cloud (CVLT): –1.1% September, +17.3% YTD.
  • Ardent Health (ARDT): –10.8% September, +66.7% YTD.
  • Republic Airways (RJET): –14.8% September, +30.3% YTD.
  • Koppers (KOP): +11.9% September, –11.9% YTD.
  • NVE Corp (NVEC): +1.6% September, +41.7% YTD.
  • Alphatec (ATEC): –13.8% September, +17.9% YTD.

These holdings represent a diversified exposure across consumer discretionary, energy, technology, healthcare, industrials and other small‑cap segments.

Strategic Context

The letter notes that the S&P 500 has become an “AI index,” with nearly half its weight in technology and communications, whereas the Russell 2000 mirrors the real U.S. economy with heavy weighting in industrials, financials and consumer cyclicals. This structural shift underpins the superior earnings recovery observed in small‑caps. The AI model’s forward‑looking earnings growth assumptions and valuation metrics drive the ongoing rotation from large‑cap AI‑centric names to small‑cap firms whose profits are more closely tied to the broader economic cycle.