NEW YORK (TheStreet) -- Small-cap stocks, which have doubled the S&P 500 Index's 11% gain this year, may outperform again in 2011 if the economy continues to grow, fund managers say.
S&P SmallCap 600 Index
has jumped 24% so far this year, compared with an 11% increase for the large-cap S&P 500.
"We believe the next six to 12 months will provide plenty of opportunities for us to find smaller companies showing improving growth, explainable growth and sustainable growth as the economy improves," says Patrick Gundlach, manager of the
Marshall Small Cap Growth Fund
Gundlach's mutual fund has easily beaten the S&P SmallCap 600 Index this year, jumping 31%. His top two holdings are
( SNIC), which has soared 126% this year, and
( SNIC), down 8.3%.
Faster economic growth would be needed as a catalyst for small-cap companies' share prices, says Sam Dedio, manager of the
Artio U.S. Small-Cap Fund
. Dedio's fund has advanced 20% this year after rocketing 64% in 2009, beating 97% of his rivals.
, manager of the world's biggest bond fund, said last week the U.S. economy may grow 3% to 3.5% in the fourth quarter of 2011 from the same period this year, up from a previous forecast of 2% to 2.5%, as the government floods the country with money. The economy expanded 3.2% in the third quarter from a year earlier.
searched for four small-cap stars for 2011 with the help of Gundlach and Dedio.
Bermuda-based Energy XXI, which has a market value of $1.4 billion, is an oil and gas producer in the shallow waters off the Gulf of Mexico.
Reserves and production have soared, says Gundlach, as management focuses on its core oil assets, combined with some recent acquisitions. Energy XXI just announced the acquisition of $1 billion in oil and gas assets from
, which will take the company's production from 26,000 barrels of oil equivalent per day to about 46,000.
Gundlach contends this growth will be sustained through its continued focus on core properties, and the effective exploitation of the newly acquired assets.
"Energy XXI's growth stands to improve even more via its exploratory program in the shallow-water-ultra-deep play with
," says Gundlach. "Production is slated to commence from the Davy Jones discovery by the end of 2011, and upcoming results from Blackbeard East and Lafitte could also be impactful."
Hhgregg, which has a market value of just under $1 billion, is a specialty retailer of consumer electronics and home appliances, operating about 170 stores in over 15 states east of the Mississippi River. The Indianapolis-based company, which recently announced it's hiring 50 employees to staff a new store in Pensacola, Fla., opening in early 2011, is up 13% this year, outperforming both the
"A continued economic recovery bodes well for hhgregg, which will benefit from a recovery in discretionary spending on electronics and also sales of white goods that typically jump with housing turnover," says Artio's Dedio.
Gundlach describes Sonic Solutions as a company that "enables media from Hollywood to home." Currently, Sonic Solutions, which has a market cap of $533 million, is demonstrating a sharp increase in revenue in its premium content segment, says Gundlach.
This growth is being driven by sales of its tools that allow retailers to sell and rent movies that are downloaded online. Sonic Solutions' RoxioNow product powers a variety of movie-download services, including
Cinemanow and Blockbuster OnDemand.
"Sonic Solutions' growth should only accelerate going forward, as consumers continue to embrace the idea of downloading Hollywood content," says Gundlach. "Millions of devices are already enabled with Sonic's RoxioNow platform, and the device count stands to multiply several-fold over the coming year."
Stamford, Conn.-based Cenveo, which has a market value of $370 million, operates as a diversified printing company in North America. The company's two main lines of business are envelopes, forms and labels; and commercial printing. The envelopes, forms, and labels are sold primarily through a network of resale distributors to food and beverage, manufacturing and pharmacy chains. This segment is also big with financial companies for billing and direct-mail campaigns.
The commercial-printing business is a big supplier of print, design and content-management products to multinational consumer-products companies. Cenveo has had a rough 2010, down over 30%, but Dedio sees a comeback in the coming year.
"Cenveo is a printing company that should see improved earnings in 2011, due to better margins and a sales rebound, which in turn will allow them to reduce borrowings and make the stock more attractive to a broader investor base," says Dedio.
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