A Wall Street expert breaks down his precise 5-part strategy that could quadruple returns for investors buying the market’s smallest companies

A Wall Street expert breaks down his precise 5-part strategy that could quadruple returns for investors buying the market’s smallest companies

Scott Opsal of Leuthold Group says he's found five measurements that can help investors identify the highest-quality and best-returning small-company stocks.All five elements are associated with better stock performance on their own, and the advantage increases when they're combined.Over the last 25 years, the highest-quality stocks brought in almost four times the returns of their peers. A large portion of small-company stocks aren't profitable, and investors have gotten comfortable betting on money-losing companies over the years.Click here to sign up for our weekly newsletter Investing Insider.Visit Business Insider's homepage for more stories.

So many smaller companies lose money so often that it's tempting to ask if measurements like quality and profitability matter at all.

Scott Opsal, director of research and equities at Leuthold Group, says those categories matter a great deal because they strengthen the returns investors get on the money they put into small-cap stocks.

Opsal found five characteristics of high-quality companies that were linked to better-than-average performance, and then found the best metrics to evaluate each.

After looking at 25 years of returns for 1,000 smaller companies, he writes that those traits each add to returns on their own, especially for the companies that rank in the top 20% for each metric. Combining