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Published: November 4, 2010
Just like most of the rest of the stock
market, September was a surprisingly strong month for small
caps. And October started out with a bang, but ended in a
whimper.
Together, however, it was an impressive two-month rise in stocks
with market capitalizations under $2 billion, as the
Russell 2000 index of smaller stocks rose +12.3% in
September, and a smaller but respectable +4.1% last month. By
comparison, the S&P 500 Index was up nearly +9% in September and
gained +3.7% in October -- which still was its best percentage
return for that month since 2003.
Still, as traders finished out the month on Oct. 29, which
marked the 81st anniversary of the Crash of 1929, called "Black
Tuesday," they're looking ahead to what the midterm
elections might bring and what Federal Reserve Chairman Ben
Bernanke might have up his sleeve to try to kick-start a
stagnant economy in the waning months of 2010.
With that in mind, here is a look some of the best-performing
small-caps in October...
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ZAGG (Nasdaq: ZAGG)
Technology lifted the Nasdaq Index, and that trend carried over
to small caps as well. One of the better performers was ZAGG,
which rose +73% in October. The Salt Lake City company makes
protective gear (screen shields and cases) plus other
accessories for gadgets, primarily for Apple's (Nasdaq: APPL)
iPod, iPhone and iPad products. ZAGG's stock reflects these
products' popularity, with its share price nearly doubling this
year.
Some wonder if its reliance on Apple's success will come back to
haunt it, but I don't think the growth spurt is over for ZAGG's
business -- or its stock.
Rumors are rampant that Verizon Wireless
(NYSE: VZ) will start selling the iPhone sometime early in
2011, which promises to give ZAGG millions more potential
customers. Apple is also expected to come out with a
second-generation iPad, which could further generate buzz and
send business ZAGG's way. Apple has also been cracking down on
non-authorized third-party accessory companies, which have
undercut ZAGG, so more customers will turn to ZAGG and others
that wear the "made for" iPad and iPhone seal of approval.
Motricity (Nasdaq: MOTR)
Motricity turned in the best monthly return among the Russell
2000 membership, popping nearly +83% higher. In the final week
of October, the provider of mobile Internet services that only
went public in June was catching a lot of Web chatter and
attention from Jim Kramer on CNBC. On Oct. 25, shares jumped
+14%, and it closed out the month with a +12% gain. The
IPO was priced at $10 to $11, but traded around $8 the first
day. The stock is currently trading for twice the offering price
-- mostly on gains since mid-October and could continue higher
as demand for mobile Internet services continues to increase.
3D Systems (Nasdaq: TDSC)
Also gaining traction in October was 3D Systems, up +64.5%. The
provider of 3-D printing technology reported a strong third
quarter, with sales rising +50% as
net income climbed to $5.4
million from $900,000 the year before. Shares are up an
impressive +135% in 2010, as the 3-D craze carries over from
movies into printing and object modeling. The stock hasn't
caught the attention of many analysts, but after the strong
quarter that sent shares to a 52-week high and blowing past
12-month price targets, this one still might have some room to
grow.
MedQuist (Nasdaq: MEDQ)
MedQuist shares posted a +62% gain in October, as the provider
of medical transcription technology paid a $4.70 special
dividend upon completion of some financing activities -- a
rather hefty payout for a stock that was trading around $7 at
the time.
The stock has risen about +27% year-to-date, but the verdict is
still out on this one. After several years of losses, 2009 was a
turnaround year, but it has yet to be seen if the trend is
indeed continuing in 2010 and beyond.
Action to Take --> Small-cap stocks get hit hard when the
economy sours, but usually after the better-known stocks in the
Dow Jones Industrial Average and the S&P 500 Index have
capsized. They're also the first to regain traction as a
recession's effects wear off. Tradition has held so far: small
caps have helped lead the stock market back into positive
territory in 2010.
But while some analysts already are looking elsewhere to make
money, don't sell small caps short. It's not too late to explore
small-cap stocks for places to invest as part of a broader
investment strategy, as Motricity and 3D Systems demonstrate.
Both appear to have some room to grow because of their unique
positions in niche businesses.
-- Paul Rolfes
Contributor
StreetAuthority |
