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Lost in the great accounting panic of 2002 is the plain fact that the shares of small, cheap, blue-collar companies are beating the pinstriped pants off their bigger, more expensive brethren.

Indices produced by the financial consultants at Russell Co. tell the story best:

Through Feb. 4, the Russell 1000 Growth Index -- representing the most expensive half of 1,000 U.S. stocks, with an average market capitalization of $13 billion -- lost 5.04%.

The Russell Midcap Growth Index -- representing the most expensive half of 800 stocks, with an average market cap of $4 billion -- lost 6.72%.

The Russell 2000 Value Index -- representing the least expensive half of 2000 stocks, with an average market cap of $520 million -- lost just 0.59%.

While value small-caps clearly haven't hit the ball out of


Field yet, they are at least on the same path they followed in 2001, when they also started stronger than their flashier, larger peers. When the year was done, the Russell 2000 Value Index outperformed the Russell 1000 Growth Index, 14.03% to minus-20.40%.

This exercise reveals the value of paying less attention to broad market indices, which largely track math-challenged big-cap stocks, than to individual stocks themselves. Take the analysis one step further to examine valuation metrics on individual stocks, and you'll have grass-roots proof of Russell index results: Of those small-cap stocks that have posted gains, twice as many have

price-to-sales ratios less than 3.0 as have ratios greater than 3.0.

The small-cap value thesis becomes even more vivid in a screen of the year's top-performing stocks. Of the 25 top performers this year through Feb. 2 with prices greater than $2, only three have price-to-sales ratios greater than 3.0. Indeed, the median price-to-sales ratio of those 25 winners was a paltry 0.62, while the median ratio of the winners' price-to-sales multiple to their industry average was even punier, at 0.28.

It seems that these cheap, tiny companies have largely been orphaned by the Wall Street investment community, as only 10 sport brokerage analyst ratings. It wouldn't surprise me to see a handful continue to roar back into favor over the coming months as fund managers move down in market capitalization to seek growing companies that are untainted by the accounting maladies afflicting larger firms. After all, if you can't afford the $5 million salary of a McKinsey or Andersen-trained chief financial officer, you probably aren't using rocket-science financial engineering tricks to falsely boost your bottom line.

Here's a list of the top 10 stocks of the year so far that have prices greater than $2, little debt and price ratios much lower than their industry and the market.

Bush Disappoints Broadband Pushers

Like a comic-book superhero flourishing a star-spangled cape and a menacing wink, President Bush warned at length in his State of the Union speech on Jan. 29 of an "axis of evil" that threatens our nation with weapons of mass destruction. But the Defender of Kandahar failed to find even a moment to speak of the danger that lurks in the shadows of a nation beset with slow, lousy, expensive Internet service.

The omission irked a great many technologists who had lobbied the White House for months in an effort to get State of the Union support for the high-speed Internet service known as "broadband." Distressed but defiant, they blamed the antideregulation pall cast by the Enron debacle, and vowed to press the fight in the months ahead.

Trey Thomas, a Boston hedge-fund group chairman and captain of the battle, said he learned that the industry would gain administration support only once they stop attempting to "myopically" push their own technological solution. All technologies -- DSL, cable and wireless -- must have a seat at the table, he insisted.

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Thomas said it also became clear that White House support is not enough. Congress must admit that the once-promising Telecommunications Act of 1996 was a time-wasting fiasco, and repeal it. The bill's list of problems is longer than a fiber-optic line stretching around the earth, but the bottom line is that it ultimately ended up being an act of anticapitalism that required regional telephone monopolies to surrender their broadband infrastructure to competitors at a discount. Something they refused to do. Go figure.

The law helped neither consumers nor businesses. From 1996 to 2002, the Telecom Act encouraged the number of competitive local-exchange carriers, or CLECs, to multiply, until at the peak there were about 600 of them. Most were never viable enterprises, depending for their livelihood on easy access to capital through offering of shares to the public or bond issuance -- and for their future on the notion that Baby Bells would build infrastructure and rent it to them cheap.

Stonewalled at every turn, the CLECs withered and died. The massive bankruptcies in the past two weeks of

Global Crossing





were the latest two examples.

I hope that Thomas and his pals don't give up on pressing their case to the White House and Congress. The Silicon Valley-based organization TechNet, made up of many leading industry executives, at least has vowed to keep pushing for a public-sector-supported plan to connect 100 million homes and businesses to a next-generation Internet that would be 50 to 100 times faster than today's broadband.

This sort of capacity already exists in an initiative called Internet2, which connects research universities and laboratories at 100-megabit speeds. Benefits would not only be science-fiction applications, such as telemedicine and streaming video that rival the quality of high-definition television, but also the heads-down science required to make such speeds ubiquitous as well as a big boost to the economy as thousands more routers, software bits and fiber-optic lines would be manufactured, sold and lit.

In this scenario, companies such as


(CSCO) - Get Cisco Systems Inc. Report



(LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report

would fulfill the promises they made to investors long ago.

At the time of publication, Jon Markman owned shares in none of the equities mentioned in this column.