How about this from the WSJ(edited):
December 16, 1998
Wall Street Journal New England
There May Be Bargains to Be Had Among New England's Tiny Firms
By JEFFREY KRASNER and JOHN HECHINGER
Staff Reporters of THE WALL STREET JOURNAL
"Let's get small," went Steve Martin's famous line in the 1970s.
It might be time for some hardy investors to take his advice. While the broader market has recovered from the steep correction of August and September and is flirting again with record highs, small- and micro-cap stocks continue to suffer. Some analysts say those declines have created strong buying opportunities for some New England microcaps.
As of Monday, the Russell 2000, a widely watched measure of smaller
stocks, is down more than 11% for the year. Meanwhile, the Dow Jones
Industrial Average has recovered and is now up nearly 10% for the year. The Nasdaq Composite shows a gain of more than 25%.
Small Is Beautiful
These small New England stocks could be attractive growth candidates
Stock
(exchange/symbol)
P/E Ratio*
Share Price
Market Value
Executive Risk
(NYSE: ER)
13
$52.3125
$581 million
Brookline Bancorp
(Nasdaq: BRKL)
16
11.0625
322 million
EPIX Medical
(Nasdaq: EPIX)
N/A
9.5000
109 million
Signal Technology
(Amex: STZ)
N/A
2.5000
18 million
*Based on analysts' consensus estimate for 1999 earnings
Sources: First Call, Market Guide
Strong Stomachs
The question is whether an investor has the patience and constitution to dive into microcaps. "There isn't any near-term catalyst to move these stocks, and you've got to have a stomach for volatility," says James Ackor, vice president and equity analyst for brokerage firm Tucker Anthony in Portland, Maine.
"You see an enormous amount of value opportunity in small and micro stocks, but a decided hesitancy on the part of investors."
Adds Mark D'Annolfo, head of the information-technology-services group at Boston brokerage firm Adams Harkness & Hill, "There does seem to be a valuation gap between mid- and small-cap stocks." One reason, he says, is liquidity: When the markets plunged in August and September, many investors sold shares in companies below a half-billion dollars in market capitalization.
Why? Shares of these stocks are more thinly traded than larger-cap stocks, so the price swings of smaller-cap stocks can be more volatile.
The result, according to Mr. D'Annolfo, is notably lower price/earnings ratios for the smaller issues. "They're lagging" bigger issues, he says, and that's where opportunity lies.
How do you define a true micro-cap stock? Every investment firm has its own threshold for these tiniest of publicly traded companies. Many set the limit at a $500 million market capitalization.
Then there is Signal Technology, a Danvers, Mass., maker of electronic components for the defense industry. The company, which has been struggling with accounting problems, had $102 million in sales last year and was once quite profitable.
The company's shares stopped trading on the American Stock Exchange from Aug. 17 to Nov. 9 as the company pored over its books. Signal had to restate 1996, 1997 and first-quarter 1998 financial results.
Mr. Isabelle says a new chief executive, George Lombard, could turn the company around. Without expanding the business, he estimates that Signal could earn 75 cents a share if it returns to its level of profitability of 1993 and 1994. And Mr. Isabelle says it can, without too much work. So, he figures within 18 months, shares could trade for more than $10.
"The valuation at these levels is so good, so cheap," Mr. Isabelle says. "The downside here is like nothing."
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