Skip to main content

Reporter's Notebook: Small-Cap Confab

Serving moderate income consumers and the upside of enthusiastic executives are themes.

Portfolio managers and analysts flocked to New York this week for the Brean Murray, Carret Small Cap Institutional Investor Conference. Stock pickers appeared cautiously hopeful they'd find new ideas among the sometimes ignored smaller-cap stocks.

One of the themes that emerged on the first day was the opportunity for serving moderate income consumers and the average American family -- particularly busy moms. Companies such as

Stage Stores



Kuhlman Company



Capitol Bancorp


, which develops community banks, were among those who pressed the Americana theme.

Claire's Stores


co-CEO Marla Schaefer gave a solid account of her company, indicating that average sales per square foot of $401 in 2005 will be higher this year. She attributed some of her company's success to the popularity of its jewelry, which enjoys a high margin. Thursday, Claire's reported same-store sales of 9% in January, including a "mid-teens" rise in North America and a "negative low single digits number for Claire's International.

Stage Stores CEO James Scarborough gave one of the more impressive talks. He was dynamic, passionate and informative. The following day, Wednesday, his stock rose on volume more than 50% higher than normal. But on Thursday, Stage Stores shares tanked on tepid 1.5% January same-store sales figures. The consensus estimate was a gain of 2.6%.

I wouldn't be shocked if some of the managers in attendance use the selloff to revisit the stock based on the enthusiastic response to Scarborough's presentation. One manager that I spoke with (who wished to remain anonymous) said that despite the miss, Stage Stores is a stock that he would put in his children's accounts, if he wanted retail exposure. The manager is currently very long retail and wants to scale back before considering Stage. He added that Scarborough, "was just as impressive one-on-one as he was in the group session."

Scroll to Continue

TheStreet Recommends

To watch Marc's video version of this column, please click here


This brings me to my next point: Investor relations departments, listen up: if you're going to spend the time and money to send your executives to investor conferences, make sure to send the ones with some charisma and enthusiasm.

The few execs that I saw who possessed those traits often had a swarm of people waiting to talk to them after the presentation. On the other hand, several CFOs came across like Ben Stein's character in

Ferris Bueller's Day Off

, reading their PowerPoint presentation like it was section 5233 of the U.S. Tax Code.

Looking for a Breakthrough

No themes seemed to dominate day two, which featured technology and biotech companies. Many of the biotech firms that presented are micro-cap stocks that are not particularly liquid. Nevertheless, their presentations were filled with health-care fund managers who were looking for the next great medical breakthrough. There were several exciting stories including

CardioDynamics International



Progenics Pharmaceuticals



Progenics has an interesting drug that reverses the side effects of opioids. CEO Paul Maddon explained that many patients with chronic pain need to stop taking pain medication because of serious side effects such as a nonworking gastrointestinal tract. Progenics' Methylnaltrexone, which is in phase III trials, has been shown to relieve bowel dysfunction in previous clinical trials.

Whether any of these stocks are actually a decent investment requires more research. Over the next several weeks, I will be taking a deeper look into some of the companies that I met at the conference and will report back if any are worth your consideration.

There is a lot of opportunity in small-cap stocks. Many of today's mid- and large-caps were small-caps at some point. However, the space is filled with land mines, so prudence is essential. But I'm optimistic that the conference will generate at least a few ideas that will be featured in upcoming columns. After all, many of the companies that attended expect very good performance in 2006. As one CEO stated, "If that weren't the case, we wouldn't be here today."

Please note that due to factors including low market capitalization and/or insufficient public float, we consider CardioDynamics and Kuhlman to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86,87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

click here

to send him an email.