Jim Oberweis' favorite small-cap stocks

Jim Oberweis is president and lead portfolio manager of Oberweis Asset Management and president of The Oberweis Funds. Oberweis Asset Management, Inc. is a growth equity investment management firm that manages approximately $1.5 billion in micro, small, and small/mid capitalization growth strategies globally, primarily for institutional investors and its own proprietary mutual fund family. Oberweis is a Chartered Financial Analyst. He earned an MBA with high honors from the University of Chicago and a B.S. in Computer Science from the University of Illinois.

What qualities do you look for in a small-cap stock? Have your criterion changed given the current macro environment?

“We look for companies that are growing at very rapid rates and are doing so by creating new products that are innovative a way that no one has been in the past. Our favorite type of company is one that comes in with a new product or service and is able to either create a new market or create significant market share by winning market share from competitors. We like industries where there’s the ability to integrate a set of new providers of services.

“We’re generally looking for a minimum growth rate of 30% annually. In many cases we’re looking for growth rates much faster than that. The average company in our portfolio is probably growing faster than 50% a year. You can understand why a 200- or 300-basis-point change doesn’t have as much impact on a company that’s growing 50% a year. Those companies are doing something different and not just trying to grow earnings at a rate commensurate to the overall economic environment. 

“We pay a lot of attention to valuation. If we can buy companies with those high growth rates during periods in which nobody loves them and valuations are sharply below their historical norms, that is a terrific opportunity. Few people actually do it because usually the times when valuations are lowest are falling periods in which the area has reentered the form without marketplace. It’s those times when few . . .

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