FRPT strong buy here 3.50 ask on it's way back up
This guy's numbers are flawed
Getting the most from microcaps
Perritt Emerging Opportunities manager thinks big with little stocks
By Jonathan Burton, MarketWatch
Last Update: 9:46 PM ET May 14, 2006
SAN FRANCISCO (MarketWatch) -- Sweating the small stuff is part of the job for Michael Corbett.
The lead manager of the Perritt Emerging Opportunities Fund (PREOX
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PREOX ) focuses on microcap stocks with market values below $250 million. Companies in the $90 million no-load fund are the smallest of the small, little known operations that Corbett hopes will attract more attention from investors over time as their business and profitability improves.
"They're under-followed, under-researched and unloved stocks," Corbett said. Ideally, he'll give a stock two-to-five years to reach a market cap of $500 million to $600 million, the range where a winning stock is typically sold. "We think something big is going to happen several years down the road, and then liquidity will follow."
Emerging Opportunities has put up big results since its introduction in August 2004. The fund rose 39.5% in the 12 months through May 12, compared to an average 25.3% gain for its small-cap value category peers, according to fund tracker Lipper Inc.
The fund holds about 110 stocks; diversification being key to Corbett's investment strategy. So no one fund position usually reflects more than about 1.5% of the portfolio.
"A lot of companies in this space tend to have few products or services," Corbett said. "Some will fall hard; some won't do a lot, and a few will help you out and make a lot of money. The best thing you can do is diversify."
One stock making a strong contribution to the fund's return is Century Casinos Inc. (CNTY
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CNTY ) , which owns and operates smaller casinos in less-glamorous surroundings than Las Vegas or Atlantic City. The company runs casinos in Colorado, Canada, and on cruise ships and riverboats, splitting revenue with the municipalities that license the business.
Corbett said Century Casinos' small-market strategy is paying off. "Earnings are starting to come through," he said.
Shares of Century Casinos slid 5 cents on Friday to $10.83. The stock has traded in a 52-week range between $11.38 and $6.02 a share. "It's had a nice run," Corbett said of the stock, which has a market cap of about $249 million and reflects a 1% fund position.
Corbett has a similar stake of the fund in Rimage Corp. (RIMG
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RIMG ) , which has a core business in the medical imaging market, selling to hospitals and other medical facilities.
Now Rimage is expanding into the consumer sector, Corbett said. Most promising is a venture with Eastman Kodak Co. for Wal-Mart customers to transfer photographs from digital cameras to compact discs or DVDs.
"They have a stable medical imaging business," Corbett said. "There's growth on the consumer side, and a nice partner to lead to more things."
In addition, Rimage, with a market cap of about $206 million, boasts a strong balance sheet, Corbett said, with about $7 a share in cash and no debt. On Friday, shares of Rimage fell 81 cents to $20.99. The stock is off its 52-week high of $33.95, set on Feb. 1.
"There was too much excitement over the Kodak deal," Corbett said. "The stock got well ahead of itself. But in the low 20s or even into the teens, I'd be buying the stock in a bigger way."
One recent addition to the fund has been soaring lately, to the point where Corbett is increasingly concerned that shares of Force Protection (FRPT
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FRPT ) , a maker of armored military vehicles, are appreciating too far, too fast. The Bulletin-Board traded stock closed Friday at $3.91, down 12 cents. Shares traded at 69 cents on Dec. 30.
"I don't care if it's the best product in the world," Corbett said. "There's a certain point at which a stock is overpriced. If they send it up too high, I might have to trade out of it."
Still, Corbett is optimistic about Force Protection's prospects, which center on three types of vehicles designed to protect occupants from roadside bombs, land mines and other explosives that soldiers commonly encounter in Iraq. Orders have been coming in strong, he said, predicting that the company, with a market cap of about $141 million, could double annual revenue this year to north of $100 million.
"It's going to be $100 million in revenue, and your market cap is at that level, one times revenue," Corbett said of Force Protection. "They keep growing the bottom line, and that's how any good business evolves."
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