RE: AXC's cheap price at this level:
Investors Business Daily 2/25 issue had an interesting article in mutual fund section about small cap managers facing hostile crowds in a recent road tour for their investors. small cap funds have underperformed the s&P for last 1,3,5,10, 15 years thru 1/31/97! On the plus side, small companies that get it right- have good products managed by savvy executives in exploding markets- can put together multiple years of rapid sales and eps growth. The funds mentioned above have annual earnings growth rates of 38%, compared to 17.7% for Vanguard's Index 500, WHICH HAS CLOBBERED SMALL CAPS. At some point, prices will reflect that growth pace, managers argue. One of the worst mistakes an investor can make is selling out of a sound investment approach at the bottom of its cycle, the panelist concurred. Pilgrim of PBHG Emerging growth noted that pe ratios of small caps have fallen to about 1.4 x large caps. Thats often the low point reached before returning to a period of outperformance.
Also got an old freebie copy of Louis navalliers MPT review, December copy so its a bit dated, but he had this to say:
Currently the stocks in my model portfolios are trading at 24X 97 forecasted eps, compared to almost 20X s&p 500's 97 eps. The main difference is my stocks are forecasted to have at least 180% earnings growth, compared to 8-9% for average s&p 500 stock. This is one of those rare times that the anomalies between small cap and large cap become extreme, which sets us up for a great buying opportunity. As a result, in late November I aggressively invested a substantial amt of my personal $ in a couple mutual funds I manage.
At the end of each Q earnings announcement period, we backtest what's working on wall street. I was surprised to learn that earnings momentum as an investment strategy is no longer outperforming s&p on a regular basis. As earnings momentum deteriorated, earnings surprises, as mentioned by Standardized Unexpected Earnings, became increasingly dominant. The rising star that appears to be substitute for earnings momentum is simply the Last Q Earnings % change- simple earnings growth.
Regardless of what happens to Dow and s&p, my favorite stocks are fundamentally superior with far better earnings growth and only modestly higher pe ratios. I feel we're in the midst of a wonderful buying opportunity.
So there you have it, a group of people wielding hundreds of millions of dollars apiece who are as frustrated as us re: small cap underperformance. Only fear is that instead of a rotation into small caps and their subsequent outperformance, that instead we'll just get a large cap sell-off and cream these already undervalued small caps.
And lastly, this from the St Paul Pioneer press 2/24, with an interview w/ Chuck Haggerty from WD (you know, the guy who on CNBC some months ago responded to an e-mail re: KM "i don't know what it is") gave a talk recently on myths of the computer industry. BTW, article mentions that disk drive industry went from 56 players 7 years ago to just 11 now! He said e-mail is supplanting paper in business world, NEED FOR MORE STORAGE OF INFO IS EXPLODING, and the computer, still used mainly to display the printed word, will mature as it shows richer pictures and eventually full motion. Gee, hasn't a guy named Bramson been saying that for years now? |
