Bringing up the rear.Small-cap stocks still lagging behind the rest of the market Each year for nearly the last nine, small-capitalization market gurus have been predicting that finally large-cap growth stocks will lose steam and small-cap stocks will become the new market leaders. And for nearly every year, those prognosticators have been proven wrong. It looks like 1999 will be yet another disappointment for small-cap aficionados, as a robust economy with little inflation fuels the fast-rising earnings of large-caps, making them hard to beat--especially in recent months. The market averages tell the story. The Russell 2000 index Russell 2000 Index An index measuring the performance of the 2,000 smallest companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States. , which tracks small-cap stocks, is down 1.15% as of September 24. The Dow Jones Dow Jones the best known of several U.S. indexes of movements in price on Wall Street. [Am. Hist.: Payton, 202] See : Finance industrial average's 11.96% return so far this year beats it cleanly, as does the Standard & Poor's 500 index's 3.92% gain. "There's been a complete thrashing of the overall market, if you will, particularly of small-caps," says Dawn Alston Paige, a portfolio manager with Loomis Sayles & Co. in Bloomfield Hills, Michigan Bloomfield Hills is a city in Oakland County of the U.S. state of Michigan. It is located in the Metro Detroit area, nearly completely surrounded by Bloomfield Township; it also borders the city of Birmingham. As of the 2000 census, the city population was 3,940. . Whether or not it's time It's Time was a successful political campaign run by the Australian Labor Party (ALP) under Gough Whitlam at the 1972 election in Australia. Campaigning on the perceived need for change after 23 years of conservative (Liberal Party of Australia) government, Labor put forward a for small-caps to rise "all depends on their earnings outlook relative to large-cap stocks," says Alston Paige, who runs the Loomis Sayles Midcap Value fund (800-633-3330). And she expects the earnings of large-cap stocks to keep growing. But all is not gloomy for small caps--that is, if investors are willing to take a long-term view, says Alston Paige. Now is the time to buy small-cap stocks with solid franchises, unique businesses and good long-term growth prospects, she says. Meanwhile, William Thomason, president of Thomason Capital Management L.L.C. in San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden , says another way to play small caps is to buy stocks that will benefit from the top sectors in this bull market. For example, Thomason, who runs the SRI Equity Fund (800-343-5345), notes the semiconductor capital equipment industry is on the comeback trail and has benefited from the renewed boom in technology stocks. One small-cap name he thinks can be lifted by this trend is Helix Technology (Nasdaq: HELX). Helix, based in Mansfield, Massachusetts, manufactures cryogenic vacuum pumps for semiconductor equipment, and one of its biggest clients is Applied Materials (Nasdaq: AMAT AMAT Applied Materials (stock symbol) AMAT Average Memory Access Time AMAT Automatic Message Accounting Transmitter AMAT Anti-Materiel (bomb or mine) AMAT Ageing Management Assessment Team ). Helix's stock has enjoyed healthy price gains, recently closing at $31.75, up 148% year-to-date. Alston Paige favors small caps that have a unique niche, such as NOVA Corp. (NYSE NYSE See: New York Stock Exchange : NIS Niš or Nish (both: nēsh), city (1991 pop. 175,391), SE Serbia, on the Nišava River. An important railway and industrial center, it has industries that manufacture textiles, electronics, spirits, and locomotives. ), an Atlanta-based processor of credit-card transactions. The company is planning to set up interactive billing for its clients' Websites. Once this business is up and running, it should boost the stock price and could make NOVA an attractive takeover candidate, particularly for larger transaction processors like First Data Corp. (NYSE: FDC FDC - Floppy Disk Controller ), she adds. NOVA is not for the timid. It closed at $25.75, down 25.8% so far this year. But that's the kind of long-term turnaround story some professional investors are betting on. [GRAPHS OMITTED] |
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