S&P likes small caps in 2002
PowerPicks Portfolio
Jason Chow -- Financial Post
Small cap stocks are set to outperform the market this year, according to Standard & Poor's equity research team.
The stock market indexer issued its PowerPicks Portfolio of 35 stocks earlier this week, heavily favouring small companies over big blue chips.
The stock picks are selected by S&P's equity research staff, who predict the portfolio will outperform the total return generated by the benchmark Standard & Poor's 500 index.
The median capitalization of the S&P PowerPicks is about US$5-billion, compared with the US$8.3-billion median market capitalization of the stocks listed on the S&P 500.
Property and casualty insurer American International Group (AIG/NYSE) is the largest company listed among the PowerPicks, with a total market capitalization of US$209.1-billion. S&P said AIG would benefit from improving property-casualty premium rates.
In contrast, Steel Dynamics Inc. (STLD/NASDAQ) is the smallest company chosen. The minimill, with a market cap of US$500-million, is predicted to see gains while the rest of the steel industry cuts capacity.
Other notable names on the list include International Business Machines Corp. (IBM/NYSE) and Sears, Roebuck & Co. (S/NYSE). The retailer was picked because of its low valuation and its efforts to streamline its product mix, while IBM was seen to benefit from the "growing trend toward e-business solution deployments."
Nearly two-thirds of the list are companies in the information technology, health care, financial, and consumer discretionary sector.
Some of the picks reflected the analysts' belief in a rebound in technology stocks. Business software maker Siebel Systems Inc. (SEBL/NASDAQ) and wireless company Nextel Inc. (NXTL/NASDAQ) were picked to outperform the index in 2002 though they posted losses of 48% and 52%, respectively, over the past year.
Since its inception in 1997, the PowerPicks portfolios' cumulative return performance through November, 2001, was 86.9% compared to 64.5% for the S&P 500 index.
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