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Insights: Finance

Micro-cap stocks are proof that great investment gifts can come in small packages

From the Print Edition:
Kevin Bacon, May/Jun 00

Vail Banks Inc. (Nasdaq, VAIL) operates 23 retail offices located primarily in the western slope region of Colorado. The company posted impressive gains in cash earnings (earnings excluding the amortization of intangible assets) in the fourth quarter and for the full year of 1999. At a recent $9 5/16 per share, Vail Banks trades at just 12 times earnings and at only 98 percent of book value. We are banking that investors will reward good earnings growth or a larger bank will spot this fundamentally appealing business bargain.    

TURNED AROUND  

Lamson & Sessions (NYSE, LMS) is a diversified manufacturer and distributor of a broad line of thermoplastic, consumer telecommunications, and fluid drainage products. Following a restructuring of part of the company in 1998 and the first half of 1999, Lamson & Sessions has posted strong performance in all its business segments. For the three months ended January 2, 2000, earnings were $0.78 per share compared to just $0.08 in the same period the year before. Investors have yet to notice this earnings turnaround, and at a recent $7 per share, Lamson is trading at just 6 times earnings. We view it as an outstanding "old economy" micro-cap stock bargain.  

Individuals comfortable doing their own investment research can come up with some interesting micro-cap ideas by examining little companies in their own neighborhoods. If you are looking for help, you might want to contact a reputable regional broker and take a look at its micro-cap research. A note of caution here: Be careful to distinguish between quality regional brokers and those "cold call" brokers from firms you've never heard of peddling "too good to be true" penny stocks. The former can be good sources for micro-cap stock ideas. The latter are predators adept at separating the unwary from their money.  

Through micro-cap stock mutual funds, investors can get more diversification and trading expertise--it is not easy accumulating shares in micro-cap companies, and large bid-and-ask spreads can make transactions very expensive. Morningstar and the mutual fund "supermarkets" will provide listings and performance data.    

Mario J. Gabelli is the founder and chairman of Gabelli Funds Inc., a Rye, New York-based financial services company. He appears regularly on CNN and CNBC.

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