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Microcap & Penny Stocks : Docucon ( DOCU )
DOCU 68.86-1.1%3:57 PM EST
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To: Paul Schmidt who wrote (126)1/1/1997 10:14:00 AM
From: Mita Raoljani   of 510
 
Paul: I agree with you that this January may be one of the stronger ones for the small cap sector in a long time (considering their poor relative performance in 1996) but I disagree completely about your opinion regarding microcaps. I'll be more specific: I could not disagree more regarding your opinion of Docucon. The microcap sector has underperformed just about every other broad market indicator for a number of years now and this has left many smaller growth companies ignored. In my opinion you are both right and wrong about mutual fund investment strategies because it may be a chicken-egg sort of thing: yes they tend to avoid microcap stocks but if managers begin to see a developing microcap surge, they will stampede to the sector. These managers could invest large amounts of money in individual microcap stocks, which are usually very cheap, with relatively little risk of shareholder complaints since the investment would be a tiny fraction of the entire portfolio. In my opinion, Docucon is a company whose recent earnings and increasing profitability fits perfectly into the mold of ignored microcap. My take on the cash reserves is similar to my understanding of DOCU's low PE: companies like DOCU who have shown strong earnings growth during the last 4 quarters after a period of poor performance will have distorted numbers while the company (and the stock market) adjust to the sales and earnings momentum.

In view of the continued strong volume and price strength after the year 2000 stuff, the trend towards quality microcap stocks like DOCU may have already begun.
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