On December 24, The Wall Street Transcript interviewed R. Brent Byrne, President and CEO of Divi-Vest Advisors, Inc. Key excerpts, including his smallcap picks, follow:
TWST: When you look at Traffix (TRFX) and other small cap companies, is it different from looking at larger caps? Are you looking for anything different in their valuations or in debt mode?
Mr. Byrne: Well, yes. Debt becomes a much bigger issue with small caps versus large cap. In the case of Traffix, they have no debt and plenty of cash. They are set to merge, so the ongoing entity will have different fundamental factors than Traffix today. The interesting part of Traffix is the vertical efficiencies between Traffix and the new company, New Motion. It seems like a great marriage. As we all know, the mobile handset market is taking over everything else in consumer technology, and here is a company that seems to be taking advantage of that development.
TWST: Do you have another smaller cap or mid-cap name you can tell us about?
Mr. Byrne: Another stock we like at the current quote is Furniture Brands (FBN), one of the nation's leading manufacturers of home furnishings. FBN presents an interesting opportunity, one that should bounce back once a little life is breathed back into the consumer mindset. At the current quote of over $10, Furniture Brands trades at an approximate 40% discount to book value and yields about 5.7%. It appears that two groups of activist type investors are buying up the stock in addition to an assortment of insiders. While the current retail sales environment for home furnishing is weak, Furniture Brands should trade higher with the return of any uplift in consumer spending later in 2008. If the Fed brings back the overnight lending rate to the 3% level, this should benefit the consumer. We know that Americans like nothing more than to spend money. As soon as they sense the all-clear signal, consumer discretionary stocks should come into play. We believe Furniture Brands is a well-run company that suffered with the pullback in consumer spending and the degradation of real estate in this country. As things start to heal economically, this brand of stock should bounce back.
Another stock in the small cap space that we like at this level is StarTek (NYSE:SRT). StarTek is an interesting small cap that deserves some consideration at the current depressed price, under $10 a share. StarTek operates customer call centers for big telecom and cable companies. As the complexity of gadgets and services expand, more customer interface will be needed. This presents an opportunity for StarTek in that demand for such services appears to outstrip available supply. StarTek has very little debt to speak of and around $3 per share in cash. We like the stock quite a bit at the current quote.