How does this affect small caps?
Navellier: On a micro cap you might have four market makers – that is, people holding inventory of stock and making a market on it. On a small cap you might have seven or eight. A mid cap might have 15, and large cap, like Dell (DELL), might have 80. Because small caps have fewer market makers, when the market maker leaves it's more devastating. I think that's one of the main reasons small caps have done poorly.
But lack of inventory can be a plus when demand turns.
Navellier: That's right. Although the new rules caused the worst correction in the Nasdaq last year, worse than 1987 and 1990, it's a two-edge sword. If volume goes to the upside and there's no inventory, the stock prices can go nuts.
Internet stocks are a good example of this. They have very thin floats, and even though they're out gobbling each other up, their stocks are still restricted. The firm Yahoo (YHOO) bought the other day still can't sell their stock for almost five years. So with restricted shares and lots of demand, stocks can really take off.
What small company stocks do you like right now?
Navellier: I like Unify (UNFY), TransSwitch (TXCC), Tarrant Apparel (TAGS), Sonic Automotive (SAH), Salton (SALT), Proxim (PROX), Mobile Mini (MINI), Cybex Computer Products (CBXC), Chico's FAS (CHCS), and Amtran (AMTR).
What makes these stocks attractive?
Navellier: These all have a big earnings surprises history. They have positive analyst earnings estimate changes and tremendous profit margins. We also see them as becoming "institutionalized." Basically this whole game is staying one step ahead of other institutional investors. I call it institutional surfing. We buy at where we think the wave of institutional money is going to be tomorrow.
|
