While large-cap companies get the most attention, there are more hidden gems among small caps. Since small-cap stocks are less followed by Wall Street and investors in general, fundamental analysts are more likely to discover stocks that trade at a huge discount to their intrinsic values. Last October, Forbes magazine named 20 small-cap stocks picked by six small-cap gurus: Ryan E. Crane, Chris Faber, Brandon M. Nelson, Jim Oberweis, John Rogers and William F. K. Schaff. The definition of small-cap can vary, but generally it is a company with a market capitalization of between $300 million and $2 billion. However, only 14 of Forbes 20 small-cap stocks currently fit this criterion. Here are the top 20 small-cap stock picks by investment gurus and their performances during the past six months:
| Stock | Ticker | Market Cap | Return |
1 | Akamai Technologies | 7.48B | -13.41% | |
2 | Darling International | 1.80B | 53.39% | |
3 | Deckers Outdoor | 3.71B | 80.29% | |
4 | Dionex | 2.00B | 32.66% | |
5 | F5 Networks | 8.63B | 15.54% | |
6 | GeoResources | 0.73B | 62.84% | |
7 | HMS Holdings | 2.28B | 36.23% | |
8 | ICF International | 0.47B | -9.83% | |
9 | Iconix Brand Group | 1.61B | 25.21% | |
10 | iRobot | 0.94B | 91.82% | |
11 | Middleby | 1.65B | 23.90% | |
12 | Monro Muffler Brake | 0.96B | -33.54% | |
13 | Neogen | 0.96B | 16.21% | |
14 | Portfolio Recovery Associates | 1.43B | 26.82% | |
15 | Skyworks Solutions | 5.23B | 30.51% | |
16 | Strayer Education | 1.59B | -7.96% | |
17 | Synaptics | 0.95B | 6.60% | |
18 | Thoratec | 1.79B | -7.95% | |
19 | Under Armour | 4.02B | 72.18% | |
20 | Volterra Semiconductor | 0.62B | 31.66% | |
Average | 26.66% | |||
*From 10.21.2010 to 04.21.2011 | ||||
In the last six months 20 picks of six small-cap gurus gained 26.66% versus a 13% gain for S&P 500 (SPY) and 19.69% gain for iShares Russell 2000 Small-Cap Index ETF (IWM). The top performer in this list is iRobot. Jim Simons’ Renaissance had the largest position in IRBT at the end of December. Deckers Outdoor was the second best performer in this list and it is also more popular than IRBT. Chuck Royce, Jim Simons, Cliff Asness and Richard Driehaus had large positions in DECK. Under Armour returned 72% during the past six months. Phill Gross’ Adage Capital was the biggest winner in this case, followed by Jim Simons’ Renaissance. It is interesting to see that Jim Simons’ Renaissance had the largest or second largest position among the top performing stocks. It is because Renaissance employs momentum strategies to generate above market returns. It is the best hedge fund we have come across (check out their returns and alpha here).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
