Overlooked Small-Caps Get Noticed by Money Manager.

FRED Astman, who began running money for the old Eastman Dil brokerage about the time John F. Kennedy was getting inaugurated as president, last week joked, "I am finally getting the hang of it."

Putting Astman in high spirits was an audited return of 41.2 percent for the year 2000, for his Pasadena-based First Wilshire Securities Management Inc., an independent money manager which mines Wall Street for overlooked small-cap stocks. With only $43 million under management, Astman has the ability -- some would say the luxury -- to assume positions in small-caps, and then wait for the fundamentals and the market to go his way.

As oft-noted, the behemoth mutual funds rarely buy small-caps -- too much due diligence involved, per investment -- and such funds are under pressure to perform every quarter, or suffer outflows.

The result has been a proliferation of "orphan" stocks and overlooked quality companies on Wall Street, says Astman.]

Right now, Astman likes three Los Angeles stocks, all Korean banks -- Hanmi Bank, California Center Bank and Nara Bank. As a group, these banks got hurt in the mid-1990s' state economic slowdown, and the fallout from the 1992 riots.

"A lot of businesses folded after the riots, but not for several years. Their owners were not the type to just quit and walk away," said Scott Hood, portfolio manager for Astman.

Still, the three banks in 2000 showed big earnings growth, and have long enjoyed low default rates, said Hood. All had good runups in their stock prices in the last year. (Hanmi on Jan. 29 became listed on the Nasdaq. Nara Bank is also Nasdaq-listed, while California Center trades as a bulletin board stock.)

But because the three banks are small-caps, and had a couple rough years, they are cheap, said Astman. "These banks are trading at under 10 times earnings, when other similar regional banks are trading for 15 times earnings, on average," he says.

By way of comparison, the S&P 500, the blue-chip index, trades at about 25 times earnings.

As a rule, Astman likes to only buy companies that have an earnings growth rate above their price-earnings ratio. "In other words, if a company has earnings growth of 20 percent a year, but a P/E under 20, we call that a 'one,' and you might want to look at it," he says.

Astman expects the three Korean bank stocks to show earnings growth of 20 percent annually or above for the next several years, but at 10 times earnings or less, they are cheap, by the Astman measure.

Another difference between Astman and the big funds is that he places serious bets on Wall Street. Typically, his portfolio is heavily invested in just 10 stocks or less, with lighter positions in perhaps another five stocks. In contrast, most large funds own dozens of stocks, often more than 50, and sometimes more than 100 positions.

Some money managers scoff that most mutual funds are really just expensive index funds, they become so diversified.

Astman also likes the three bank stocks as all have upgraded public relations efforts, to get their names out on the street. All three have decided to attend an upcoming bank stock conference in Palm Springs held by brokerage Sandler O'Neill, something such outfits were loath to do even just a few years ago, noted Astman.

Another Astman favorite is an Antwerp, Belgium-based company named ALCN Ltd., whose stock trades on the Nasdaq under the symbol ACLNF. The company freight-forwards automobiles to 12 different nations in Africa, where demand is booming as oil prices rise. It's also a very political situation -- not anyone is allowed to bring a ship of cars into Africa and unload.

"They have the relationships," said Astman, who flew to Europe to visit ACLN officials. "If you want to sell cars in Africa, they are someone to know."

Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.