Getting Big Returns From Tiny Stocks
Wasatch currently owns BofI Holding (BOFI), which operates Bank of Internet USA. The company is growing rapidly by offering specialized loans, such as jumbo mortgages. Bythrow says that the shares remain cheap because investors are wary about the safety of a bank that does not rely on bricks-and-mortar branches.
But he says that the Internet bank is a cautious operator, typically loaning only 55% of the value of a house. The stock currently has a capitalization of $506 million. "This will be a $1 billion company in five years," Bythrow says
Another strong-performing mutual fund is AllianzGI Ultra Micro Cap (GUCAX), which returned 15% annually during the past five years. Portfolio Manager Bob Marren prefers companies with market capitalizations of less than $300 million. Some of his holdings are solid businesses in the early stages of a growth phase.
In other instances, he will take companies that appear to be poised for turnarounds after periods of stagnation. Last year the fund enjoyed a special boost when several of its holdings were purchased at premiums by bigger companies. Marren said that his stocks often make tempting acquisition targets. "Corporate purchasers like to buy companies with good growth prospects and low valuations," he says.
The fund recently bought Marlin Business Services (MRLN), which provides financing for small businesses that are seeking to purchase copiers and computers. The company has a market cap of $292 million. Revenue grew 21% in the latest quarter. Another recent purchase is Rudolph Technologies (RTEC), which produces systems that are used by semiconductor makers to spot defects. Follow @StanLuxenberg This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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