Tag - MELI

Selling interest in small-cap stocks picked up momentum in mid-session, stoked by investor concerns that President Obama’s inauguration speech did not provide details of his fiscal stimulus plans. Those concerns simply added to a market already bludgeoned by steep declines in the banking sector. At 1:43 p.m. ET, the Russell 2000 (NYSE:IWM) was down 19.28, or 4.24% at 446.67.

The KBW Banking Index was hammered today, down some 13% at midday as steep losses were posted for many of the nation’s most prominent banks. Money management firm State Street Corp. (NYSE:STT) was down some 48% on huge volume after reporting disappointing results.

Looking at sector activity so far today, anything tied to bank or financial stocks were struggling. The biggest losses were seen for asset management firms, regional banks, diversified financial services companies, diversified banks and real estate services firms. The only S&P sector groups on the rise were gold, insurance stocks and tobacco companies. Gold is often seen as a safe-haven refuge, and with stocks and credit instruments on the slide today, investors were attracted to gold as a spot to park cash.

Energy shares were lower so far today, but the selling fury trailed that in other sectors as crude oil prices bounced some 3% as cold weather draped a large portion of the Northern and Eastern U.S. and on signs that OPEC is serious about production cutbacks. In addition, the dollar pared earlier gains shortly after the Obama speech triggered the fresh selling wave in equities.

Individual small-caps on the slide were highlighted by AspenBio Pharma Inc. (Nasdaq:APPY), which gapped lower and collapsed some 84% on unusually heavy volume as investors did not embrace news of preliminary results on the firm’s pain drug test. VSE Corp. (Nasdaq:VSEC) tumbled 43% on news that the Army rejected a new contract bid from the firm. MercadoLibre Inc. (Nasdaq:MELI) fell 20% as the Latin American online commerce platform reported results.

The chart picture for small-caps turned sour today with the breach of support in the 453 zone. The next support area to watch is around 440-439; a push through that area could spark a quick slide toward 416.

Tom O’Halloran is a partner and director of Small Cap Growth Investments at Lord Abbett. He is responsible for managing the firm’s small-cap and micro-cap growth products, overseeing the investment teams, and directing the investment strategies.

O’Halloran has been in the investment business for 20 years. Prior to joining Lord Abbett, O’Halloran was an executive director and senior research analyst at Dillon Read/UBS Warburg from 1988 to 2001. Before beginning his career in the financial services industry, he was a trial lawyer from 1980 to 1986. O’Halloran earned an MBA from Columbia University, a JD from Boston College and an AB from Bowdoin College. He also is a holder of the Chartered Financial Analyst designation.

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

“There are 3,000 stocks that we look at that we could own. We try to screen out 80% of those through growth hurdles and size parameters in terms of market cap, and financial strength in terms of debt-to-asset ratios. Then we look at the 600 or so, or 20%, of the names. The first inquiry is a two step process after that. First we identify the best businesses then we pick stocks based purely on their growth, not on takeover potential, turnaround potential or valuations. Organic growth is the best kind of growth, but if there’s a strategy of acquisitions that is multi year and sensible to supplement their organic growth, then that’s fine. We require 12% minimum top-line growth, and we want earnings to be growing at least as fast. Our portfolio on average is growing closer to 25%. 

“In terms of what represents a good business, we’re looking at four things: the first two at the microeconomic level, or inside the doors of the company, and three and four are considering the environment in which they function.

1) “When we saw Morningstar at $750 million on the IPO, we said, ‘This is like Moody’s. Moody’s is $20 billion. This is a jewel of a business.”  We saw Mercadolibre, Inc. (Nasdaq:MELI) at $1 billion and we said, “This is the eBay of South America. This is a great business.’  

2) “Is it a good business? Does it have a strong management team? Is the management competent and credible? It’s very important at the small-cap level to have good management. [In terms of] competency, we look at Mickey Drexler at J. Crew. He worked magic at The Gap. He redefined casual clothing in America. He’s a genius of a retailing executive and an example of a highly competent . . .