Smart Money is onto MAPS
(from a Yahoo! Poster, thanks Medoc_90)
messages.yahoo.com
Smart Money
by: Medoc_90 2/17/00 9:20 am
Msg: 392 of 392
The following is from Smart Money:
smartmoney.com
Small Caps' Revenge
By Alec Appelbaum
SMALL WONDERS
SMALL STOCKS WITH momentum are like those Pashmina shawls so many women in New York are wearing this winter: they get more popular when people start noticing how popular they are.
Last week, the Russell 2000 index surged to record highs as a small-cap rally that began last April gained steam. But don't treat the new altitude as a warning sign. Finding small stocks with momentum can be a lot like hang gliding: you might crash, but the views are stunning.
It wasn't so long ago that the Russell 2000 (consisting of the smaller two-thirds of stocks with the 3,000 largest capitalizations) was lucky if it could get off the ground at all. But after several years of dismal performance, the Russell now looks like fertile investment ground. With that in mind, you could buy a Russell 2000 index fund. But don't. You're better off focusing on the sectors that are moving.
According to Brad Lawson, a senior research analyst with Frank Russell Company (which compiles the index) biotechnology and Internet-infrastructure stocks have dominated the gains. Moreover, these industries should weather recent interest-rate hikes because they raise most of their capital from equity rather than debt. Other stocks in the index, such as small banks and manufacturing companies, often get whacked when interest rates head north. If you want to ride the small-cap wave, it makes sense to start with the biggest swells.
We ran a screen looking for stocks small enough to list in the Russell 2000 that have seen some momentum in the past 24 weeks and promise strong earnings growth in the future (see recipe and screen results). We turned up companies whose descriptions boast a bevy of buzzwords, but there's nary a household name in the bunch.
Exar (EXAR) makes circuits for use in communications and electronic equipment. Aeroflex (ARX) tests such equipment. We also found specialized Internet software producer MapInfo (MAPS) and Internet consulting firm Forrester Research (FORR), along with a host of other software players. Our insistence on $15 million or more in annual revenues probably shut out most of the promising biotech stocks, but don't take this screen as a virtual portfolio. The point is that small stocks in hot sectors may well rise more sharply as we move into spring.
Two fund managers we surveyed think momentum stocks will surge further precisely because they're so hot now. Richard Gould, who co-manages the Rockland Growth Fund (RKGRX) for Greenville Capital Management, says small-cap stocks tend toward "big runs" after they reach record highs, as investors feel more satisfied and less anxious. |
