Stock Smarts: Buy Small, Win Big?
The first quarter is behind us, and the first three months of 2002 have produced some interesting results. With the war against terrorism in full swing, and the continuing fall-out from Enron, the large cap stocks have not been the top dogs.
Not So Happy New Year?
$1,000 Invested on January 1, 2002
So where did we get some positive returns?
Less Is More?
$1000 Invested on January 1, 2002
S&P 600 Small Cap Index
S&P 600 Small Cap Value Index
Is now the time to get small?
Gregg Hymowitz of Entrust Capital says it makes sense to be in the small caps if you understand the rationale behind why they are moving up: with low interest rates – growth stocks (small stocks) do well. He thinks that the larger stocks have been weighed down by the Enron collapse, and this trend will continue. The Dow is up on the year, though.
Dagen McDowell of FOX Business News thinks that the smaller companies are successful right now because international interests do not weigh them down. They can focus on business in the U.S. And another reason why small cap stocks are doing so well is the fact that a lot of money is flowing into mutual funds that focus on small cap stocks.
Hilary Kramer of the Cisneros Group says there is still opportunity out there with small caps, but they are still risky plays. And while the economic recovery has been positive for the consumer, it has not been good for the business world. There is still the problem of a lack of corporate earnings.
Jonathan Hoenig of Capitalistpig Asset Management still likes the small caps So many people have money tied up in “index-centric” large cap stocks (GE, Microsoft) that they need to take a break from these issues and look elsewhere. He still doesn’t like the broader markets, and notes that an economic recovery doesn’t mean recovery in the markets.
Jonas Max Ferris of Maxfunds.com says you can always bet on cheap, so the small cap value stocks are still good investments. He is looking towards international stocks and utilities moving forward in 2002.
Some members of the panel picked some stocks they like for the rest of the year.
Hilary’s stock: Syncor (SCOR). Gregg wouldn’t buy the stock yet, at least not until the issues surrounding its deals with Bristol-Meyers Squibb (BMY) and Eli Lilly (LLY). Jonathan doesn’t like the play. (Hilary has a position in SCOR)
Jonathan’s stock: Buenaventura (BVN). Gregg and Hilary do not like this stock. (Jonathan has a position in BVN)
Gregg’s stock: Liberty Media (L). Hilary likes the play (it’s like a media mutual fund), Jonathan does not. (Gregg has a position in L)
Mutual Fund Face-Off
Panel: Dagen and Jonas
Topic: Best Emerging Markets Fund
Dagen: Harbor International II Fund (HAIIX)
2001: DOWN 18.3%
Minimum Investment: $1,000
Expenses: $9.30 for every $1,000 invested
Jonas: Dreyfus Emerging Markets Funds (DRFMX)
2001: UP 7.7%
Minimum Investment: $2,500
Expenses: $17.20 for every $1,000 invested
Dagen and Jonathan wrapped up the show by answering some email questions from viewers:
Question: “What is the best method of determining what a stock is really worth?”
Dagen: Look at the past. If the price-to-earnings ratio is high, then you have an expensive stock. You also can look at the financial information that the company provides – but be careful (re: Enron).
Jonathan: I’m a technical analyst, so looking at the charts is the best way to go.
Question: “Is PepsiCo (PEP) a good buy?”
Jonathan: It has been a great investment over time, but you should take a look at the Mexican operations of both Pepsi (GEM) and Coke (KOF).
Dagen: The stock isn’t cheap, but it is a good core holding.
Question: “I have most of my 401(k) money in the Fidelity Magellan Fund. But now my company is offering the Sequoia Fund. Which fund is better?”
Dagen: Magellan is not a bad fund, but get some money in the Sequoia Fund. This fund is currently closed to new investors, but it does have a lot invested in the “B” shares of Berkshire Hathaway (BRK.B). You might want to look into getting in on that.
Jonathan: Another large cap stock fund. Ask your 401(k) managers about possibly getting onto a small cap fund.
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