Found this article on finding the "gem small cap". I found it interesting and thought I'd pass it along. Full article is at link at end of post. Hope everyone out there is having a good holiday weekend. -Greenie
If small caps are presenting the best bets for those investors who are seeking out undervalued shares, they may find fewer values in the near future, according to Bill Danzell, head of Danzell Investment Management.
"There seems to be a dramatic shift on the way right now," said Danzell.
He pointed to a change in the fate of the Russell 2000 index, a gauge of activity in the small cap area.
After bottoming out about six weeks ago at a loss for more than 20 percent over the past year, the index is moving upward again, even outperforming the S&P 500 index.
Traders are moving away from high price-to-earnings ratios, which have been particularly prevalent in the technology sector. Instead, Danzell said, they're moving into the lower P/E ratio stocks.
Investors seek "better values, and that's what you find in the small and mid-cap area," said Danzell.
But Jan Holman, market strategist at American Express Financial Advisors, feels the price-to-earnings ratio - the price of a stock divided by its earnings per share -- can be misleading.
Instead, Holman uses price-to-cash-flow as a measure.
"The reason is that many of these companies don't have earnings, so it's hard to figure out what a good price would be," said Holman.
"On a price-to-cash-flow basis, these [small cap] stocks are selling at about a 50 percent discount to what they usually sell for, relative to large cap stocks. That is a great opportunity."
Finding which stocks in particular are undervalued is a challenge for even the most experienced investor, but Cardillo feels that taking a long-term, future-oriented approach is best.
"I like stocks that have potential earnings possibilities," said Cardillo. "Those are the ones that could someday be market leaders."
cnnfn.com |
