It's much like the old days before all the brand-name, blue-chip stocks started tossing their weight around
A change from major-league to small-time stocks means even more fascinating investing choices, but additionally much more research.
The stock of Whole Foods Market Inc. (WFMI), the progressively well-liked owner and operator of 135 organic and natural foods grocery stores in 25 states, has actually appreciated healthy gains in this small-cap-dominated market. Take a look at the link clear braces Melbourne. You might get some more good ideas there.
A few other beneficiaries of the recent smaller-is-better period are AtheroGenics Inc. (AGIX), a biotechnology company developing book medications to treat persistent inflamed conditions, and Dot Hill Systems Corp. (HILL), a producer of high-performance, disk-based storage space units.
That snappy triad has aided increase the eco mindful Winslow Green Growth Fund to a 58.06 percent gain in 2003. Almost like the days when Microsoft, General Electric and a handful of other Goliaths were all you needed to develop a smokin' portfolio. Little cap choices aren't almost so self-evident, however that also indicates some pleasurable surprises might be found.
Thanks to a near-30 percent gain by the Nasdaq index this year, more than double the increase of the Standard & Poor's 500, inventive stock-picking is back in vogue. This often rewards a unique selection process, such as grading companies on their environmental responsibility before considering their investment potential.
"We rate the world of possible investments into greens, cleans and dirties," explained Jackson Robinson, portfolio manager of the Boston- based Winslow Green Growth Fund, which has emphasized firms that will prosper in a no-growth economy. "We avoid the dirties to the extent we can, we seek out the greens, and we fill out the portfolio with cleans."
The small-cap market was down so far that it was bound to recover. Since 1920, it has generally moved in a five- to six-year cycle of rise and decline. It's been in a very gradual recovery mode since mid- 1999, but lately has accelerated.
The top-performing small-cap growth funds of 2003 have set a blistering pace: Oberweis Micro-Cap (OBMCX), up 60.61 percent; Winslow Green Growth (WGGFX), up 58.06 percent; Polynous Growth "A" (PAGFX), up 54.75 percent; Rockland Small Cap Growth (RKGRX), up 49.36 percent; and Kopp Emerging Growth "A" (KOPPX), up 48.88 percent.
"Speculative trades have come back in sharp fashion, with the focus returning to more aggressive firms with less earnings visibility and lower prices," said Satya Pradhuman, director of small- cap research for Merrill Lynch in New York. "This benefits the classic aggressive groups, such as technology and biotechnology."
Ah, yes, we all remember tech and biotech. Because small-cap stocks are notoriously volatile and can experience sudden drops, buy either a mutual fund that specializes in them or a basket of individual stocks to hedge your bets. Never put your entire personal portfolio into small-caps, but include them as a portion of an overall portfolio that also has large- and mid-caps.
"Small caps were lagging earlier this year, but starting mid-May they've been outperforming because investor tolerance for risk has increased," noted Mark Basham, director of small-cap research for Standard & Poor's Corp. in New York.
Smaller stocks typically outperform at the tops and bottoms of markets, Basham said, and most people in general think we're at the bottom right now and heading into an economic acceleration.
"Large-cap stocks had absorbed a disproportionately large chunk of the U.S. equity market relative to where it's always been in history," pointed out Kevin Caron, market strategist with Ryan Beck & Co. in Livingston, N.J. "There's usually a disproportionate movement by small- and mid-cap stocks early in a market cycle, followed after two or three years by better performance by some of the larger cap."
The Rockland Small Cap Growth Fund in Rockland, Del., has risen 49.36 percent this year thanks to tremendous gains by the stock of Coventry Health Care (CVH), a managed health-care company; Align Technology (ALGN), maker of clear braces used to align teeth; and Martek Biosciences (MATK), which makes nutritional oils used in infant formula and nutritional supplements.
"Coming out of recession, small caps do best because they've been beaten down, partly for liquidity reasons," said Richard Gould, portfolio manager of the Rockland fund. "These little companies tighten their belts, try to be as efficient as possible, and their earnings go through the roof when revenues kick back into gear."
Here are some small-cap stock recommendations that underscore the diverse nature of this category:
-- RehabCare Group (RHB), a provider of temporary health-care staffing and therapy program management for hospitals and skilled nursing facilities, is Basham's top pick.
-- Sovereign Bancorp Inc. (SOV), the parent of Sovereign Bank with 525 banking offices in the eastern U.S., is a Caron favorite.
-- Freeport-McMoRan Copper & Gold Inc. (FCS), a copper and gold mining and production company whose principal operating subsidiary is in Indonesia, is a Pradhuman selection.
-- American Axle & Manufacturing Holdings Inc. (AXL), which supplies driveline and powertrain components for trucks and passenger cars, is another Pradhuman recommendation.