Topeka, Kan. -- With only crumpled gift wrap and tattered boxes left under most Christmas trees, most families will spend the rest of the week cleaning up, catching up and preparing for 2002. Reflections on the year that has been and resolutions for the upcoming year are front and center on agendas everywhere.
This week's Bottom of the Barrel does the same: year-end housekeeping and New Year's resolutions.
Since our debut in October, we've had decent success. While not every name in the barrel has produced the intended results, our methodology seems to be working. Of the ten stocks we have profiled as possible portfolio additions, seven have posted gains. The average gain these stocks have posted since being profiled is 9.7%. Not bad for a quarter or less of action.
And the one name we suggested you avoid --
Goody's Family Clothing
-- is down nearly 18% since our column on Nov. 28. That saved you enough cash to put a merry little jingle in your pocket.
What Have You Done for Me Lately?
While the historical performance of the stocks in our barrel is comforting, we're looking ahead too. The table below shows the performance of the stocks we have profiled as well as our current stance on each of the stocks, using the following categories:
Positive: We like the outlook for the company and we like the prospects for the stock over the next 3-6 months.
Stable: We like the outlook for the company and we think the stock remains a long-term portfolio holding. But the recent rise in the stock makes us less enthusiastic regarding appreciation in the short term.
Neutral: We like the outlook for the company, but think valuation may be an issue either because of recent appreciation in the stock price or news that dampens short-term prospects. (We may combine "neutral" with a "positive" rating if we feel longer-term prospects are compelling.)
Negative: We are cautious about the company's future and are uninterested at current prices.
Here's a look back at each of the stocks in the barrel.
Our first barrel stock,
, makes traffic safety equipment. The afternoon after this column profiled the company, it warned it would miss its quarter, but the stock held firm. Now Quixote says it will only make 5 cents a share this quarter, vs. estimates of 21 cents, the second consecutive warning. The company says state and federal highway projects, a big part of its revenue, have been slow to materialize. The stock is down nearly 25% since it was profiled here.
It will take time -- perhaps six months -- for business to improve, but I think it will. And when it does, Quixote will get its share. We are neutral now, but positive over the next year, assuming the economy improves. Still, it's disappointing that one director sold 30,000 shares on Nov. 30, less than two weeks before the recent warning.
Processed food company
reported 2001 results (its fiscal year ends in November) Friday showing increased sales but a 28.8% decline in net profits. The company cites higher costs, lower margins and a slow economy for the profit squeeze. Originally a one-barrel stock, our outlook is neutral.
We continue to like
, the manufacturer of water and air purification systems. While its third quarter was hurt by the terror of Sept. 11, company management remains upbeat about fourth-quarter results. The fourth quarter looks flat, but 2002 should be a solid year. The stock is up 12.2% since it was profiled here, and our outlook is stable.
recovered last week, but is still down 8.5% since our late-October profile. The stores checked this week appeared to have good traffic, which is a plus. A November shelf registration of one million shares for a current shareholder, combined with a tough third quarter, has pressured the stock. Our outlook is stable.
, up 62%,
, up 21%, and
, up 15%, all have good business prospects but you can't ignore the recent price appreciation. As a result, our outlook for Witness and Coinstar is neutral and for VitalWorks, stable.
has gained more than 13% since our profile in November, we think this professional liability insurer can continue to grow and will be a major beneficiary of the
St. Paul Companies'
decision to exit the medical liability insurance business. Thus, our outlook is positive.
Our sources and personal checks of Goody's stores suggest the holiday season was not good for Goody's. While it may be hard to imagine the stock getting cheaper from here, both the economy and competition make it tough to imagine a Happy New Year for this retailer.
Our two most recent profiles,
, have performed nicely with little news. Our outlook for both remains positive. However, we do note in recent filings that executives of Coastal sold shares in October when the stock was just above $32.
Happy New Year
My resolutions for 2002 are simple. First, to keep sifting the small-caps for interesting, potentially profitable companies, and watch for those that raise red flags. And, equally important, to objectively assess the opportunities and risks of such investments.
Second, I'll continue to highlight both the potential risks and rewards of investing in small-cap stocks. They are inherently volatile and many are thinly traded. Many have little institutional sponsorship and aren't widely followed by Wall Street analysts -- and that raises the risk profile.
At the same time, the possibility of vaulting to the big leagues is what every company looks toward and investors hope for. We are resolved to find those companies for you. And we'll start with our first pick of 2002 next week.
So, from the bottom of our barrel, Happy New Year. Here's to a profitable 2002.
Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to