don, in this thread we appreciate any factual info we can get on ED
to better guide our investment strategy. it is neccessary for me, from time to time, as the unelected, unnominated, self appointed editor of the underground ( or , underwire ) Vivus thread web site,often rained on ( I am not complaining),to wander into other threads to keep our , NON-DUES PAYING (yet?)readers, of what is going on in the ED field, including competing products.Today my foray took me into HVSF ( I didn't know there was still life in that planet after the dive from 10 to 0.39 ), but hey, what do I know. I hope I've made some new friends there. Same for the PFE thread I also visited today ( they are riding high -at PE of 40? ). At this point in time I try and limit my visits to ZONAGEN because I understand that the patient's family is discussing a CODE status for the patient, as to whether they should continue with aggressive care or just call hospice;Yesterday Barons atated in the " Mutual Choice "section: ( scroll down to the last 3 paragraphs to read about ZONAGEN).
Barrons,Monday, February 2, 1998
Not Just Seeking The Next Microsoft
Value approach in small-cap fund a winner
By Barry Henderson
Blow up or grow up. In small-cap land, those are your options. At least that's how most investors see it.
They're trying to pick the next Microsoft and avoid this week's Iomega or Mercury Finance. The rest of it -- the more humdrum middling section of the market -- doesn't interest them in the slightest.
Maybe it should. Because in between that either/or, there are a slew of small-cap offerings that are worth mulling over. Greg McCrickard, who runs the T. Rowe Price Small Company Stock fund, has had a good run. During the past 12 months, the fund has returned 26.26%, according to Lipper Analytical Services, compared with 14.38% for the average small-cap fund. Over three years, it has generated a 106.75% gain, versus 74.86% for its peer-group average.
McCrickard dubs his investment approach a "highly flexible blend of growth and value," with a bias toward value in this fund's core holdings. That means he's scouring the landscape for smaller-company stocks -- under $1 billion -- with good growth prospects. But like the rest of the T. Rowe managers, he's not anxious to pay big multiples for them. Those higher-multiple stocks that were the darlings of the momentum crowd in early 1996 have since come crashing back to earth and many have never recovered.
To avoid that trap, he tries not to pay too much more than the market multiple for any of his stocks, and adheres to a fairly rigorous sell discipline. "We look at valuation in terms of discounted cash flow, or price-to-assets, or P/E," depending on the company and industry. And when one of his picks begins to drift up much beyond its peer group, McCrickard isn't afraid to sell. "You might miss some of the upside, but I'd rather sell a little early, instead of not being able to get out of a stock." Getting out becomes even more important in some of the smaller, less liquid stocks with market capitalizations of under $1 billion. "You don't want to be in one of these stocks trying to get out and there's no one to take the other side of the trade," McCrickard says, grimacing.
In that vein, McCrickard had minimal exposure to technology, which made up 8.4% of the fund.
Despite the fact that he tries to reduce risk by using a value approach, he also holds a broadly diversifed portfolio -- about 200 stocks. That approach isn't exactly trendy right now. Concentrated portfolios are all the rage. McCrickard recalls: "A couple of years ago an institutional client said, 'We like your style, but can't you just run a fund with 20 or 30 of your best ideas?' " After a punishing year and a half in a concentrated growth portfolio, this unnamed institution recently came back to McCrickard's way of thinking............... ............... ....
The best-performing stocks in the portfolio this year have been Aliant Communications, Cowles Media and Carson Pirie Scott. Combined, these three added $15 million to the fund's value in the second half of '97 alone.............. ............. ...........
Unlike a surprising number of his counterparts, McCrickard doesn't mind discussing some of his losers. While they've been few and far between, this fund did take a hit when SED International got taken down 38% in the second half of 1997 as investors worried about its Latin American exposure. The company does get 40% of its revenues from the region, although McCrickard isn't convinced it won't pull through stronger than most analysts have expected.
Another loser that he still has hopes for: Zonagen, whose principal claim to fame is developing a drug -- Vasomax -- for "male erectile dysfunction." Although investors are nervous about the efficacy of the drug, McCrickard is cheered by Schering-Plough's decision to make a major investment in the project.
It's not unusual for McCrickard to think twice about jettisoning losers. His turnover, which was 23% last year, proves he's fairly patient. To some extent, that approach is part of this fund's history. Its oldest holding -- Woodward Governor, which makes aircraft engine components -- has been in the fund since the late 1950s. Still in the portfolio, it seems like a kind of talisman.
Don't expect that situation to repeat itself under McCrickard's watch. "I don't exactly have a 40-year time horizon for my stocks," he says, laughing.
TA |
