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Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuSmall caps are pulling ahead, and Baron Capital thinks they have further to go. The small-cap index Russell 2000 is up 13% in 2026, ahead of the S & P 500’s nearly 10% advance in that time. That lead held through a bruising week for stocks after Democrats won control of both chambers of Congress — and investors grew concerned that the election results could slow the artificial intelligence data center build-out. “The outlook is strong” for small caps, Cliff Greenberg, portfolio manager of Baron Capital’s small-cap fund, said Friday at the asset manager’s investment conference in New York City. .RUT .SPX YTD mountain Russell 2000 index vs. S & P 500 performance YTD Greenberg said nearly a decade of underperformance versus larger companies has left small caps relatively cheap and overlooked by investors. The Russell 2000 has returned 159% to investors over the past 10 years, while the S & P 500’s total return in that time exceeds 300%. However, the Russell trades at 16 times trailing 12-month earnings, a sharp discount to the S & P 500’s multiple of roughly 25, FactSet data shows. He added that cooling inflation could boost smaller stocks. Investors may have to be patient on that front after the latest consumer price index report came in hotter than expected. Yet, Brent and WTI oil prices are down 12% and 6%, respectively, over the past month. If oil keeps falling, it could ease inflationary pressures. Greenberg’s fund, Baron Small Cap Fund (BSCFX) has gained 8% this quarter. It’s up about 3% in 2026. Some of the fund’s holdings include industrial stock Vertiv , tech company Guidewire , casino operator Red Rock Resorts and healthcare name RadNet . Overall, the fund’s weighting is skewed toward industrials which account for 30% of the holdings , followed by information technology at 22.4%. Here are four names Greenberg highlighted at last week’s conference. Shake Shack Greenberg sees room for Shake Shack to open more restaurants, contributing to its long growth runway. Shake Shack said last week it opened 21 new company-operated Shacks in the third quarter and is targeting 1,500 locations for the long term. Baron Capital initiated a position in Shake Shack in the second quarter. Greenberg also called out Shake Shack stock’s cheap valuation. Its forward PE ratio of about 59 is far below a five-year average of 162. Shares of Shake Shack are up almost 15% over the past month. Waste Connections Greenberg pointed to Waste Connections for the solid waste services company’s strong market share and attractive valuation. The Woodlands, Texas-based company is the third largest solid waste company in North America. The company collects and disposes of waste for about 9 million customers across 46 U.S. states and six Canadian provinces. Its current business mix includes about 40% under exclusive or franchise contracts and 60% in competitive markets. Its revenue mix is largely skewed to the U.S., which accounts for 86% of sales, while Canada accounts for the remaining 14%. Shares are up more than 8% in 2026. Doncasters The Baron Capital portfolio manager is also excited about Doncasters, which is under DPC Holdings . Doncasters is an independent manufacturer of highly engineered engine products, including precision cast components. The company’s main end markets are aerospace and industrial gas turbines. Doncasters’ exposure to the industrial gas turbine market as a percentage of revenue is greater in comparison to its larger competitors, Rothschild & Co noted in July. Doncasters went public in June. The stock initially popped after its IPO but is down 22% over the past month. Texas Roadhouse The firm is also an investor in Texas Roadhouse . The casual dining chain known for its steaks, ribs and bread at affordable prices has opened 830 restaurants across 49 states since it first opened in 1993 . It also owns other restaurants including Bubba’s 33 and Jaggers. Greenberg likes how management continues to open restaurants and expand its footprint. According to the company’s third-quarter report released last week, Texas Roadhouse opened five company-owned locations, which included two Bubba’s and one Jaggers restaurant. The company has over 15 openings scheduled for the fourth quarter and remains on track to open about 35 restaurants across the three brands in 2026. Shares are up about 17% over the past year.Read More