Tag - Lrn

The Russell 2000 (NYSE:IWM) failed to eke out a gain at Tuesday’s close, staying focused instead on the global recession, slumping homebuilder confidence and money flow into credit instruments. Some of today’s small-cap gainers were IDM Pharma (Nasdaq:IDMI), Chiquita Brands (NYSE:CQB) and K12 Inc. (NYSE:LRN).

Other Market Watch highlights today included:

• The PPI report headline figure came in at minus 2.8%, which was a much bigger decline than the forecast of 1.8%.
• Money appeared to moving into credit markets today, with the yield on benchmark 10-year notes down 2.94%.
• Energy stocks still outperformed the market for the day but commodities remain sensitive to demand concerns amid a slumping global economy.
• Analysts at JP Morgan said that commodity prices – especially agriculture products – should outperform energy and industrial raw material products in 2009.
• For the year, the Russell is now down 42%, while the Dow is down 36% and the S&P 500 is down 41%.

Small Cap Gainers:

• IDM Pharma Inc. (Nasdaq:IDMI) shot higher, soaring 64% on unusually heavy volume as the firm’s bone cancer treatment received a positive opinion from European medical authorities.
• Chiquita Brands International Inc. (NYSE:CQB) jumped nearly 20% at closing after the bananas distributor was upgraded by analysts, climbing out of 52-week lows set last week.
• K12 Inc. (NYSE:LRN) closed up 16%, paring some of the losses seen . . .

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 . . .

LoJack Corp. (Nasdaq:LOJN), VCG Holding Corp. (Nasdaq:VCGH) and PFF Bancorp, Inc. (NYSE:PFB) are among the biggest percentage losers in Wednesday's trading among companies with market capitalizations under $750 million.

WGNB Corp. (Nasdaq:WGNB), Village Bank and Trust Financial Corp. (Nasdaq:VBFC) and K12 Inc. (NYSE:LRN) are also among the top small-cap percentage losers.

Here are Wednesday's biggest percentage losers:

ChinaEdu
www.chinaedu.com
(Nasdaq: CEDU)
Scheduled for Dec. 10
$52.4 million estimated proceeds
$214.3 million post-money valuation

Education companies have made popular IPOs in recent months and so have Chinese companies. ChinaEdu is the logical extension — an education company based in China. Talk about the bankers being on top of trends. ChinaEdu provides online programs to supplement the offerings at several Chinese universities, operates its own private online K-12 tutoring company and private elementary schools, and offers online English courses to Chinese speakers no matter where they are.

China has a high rate of basic literacy, and many Chinese people know that they need even more education to compete in a rapidly industrializing nation and a global economy. Hence, they are willing to pay extra to educate themselves and their children. ChinaEdu was formed in 1999 to provide online services at Renmin University of China. The core business contracts with campuses rather than directly with students, but acquisitions into the tutoring, elementary and vocational educational markets have brought ChinaEdu face to face with the students who use its services.

The proceeds of the deal will be split between general corporate use and capital spending, including opening a network of learning centers and construction at a private elementary school and at a language school. Some of the venture capital firms are reducing their ownership, but not all are. After the IPO is priced, the officers and directors will own about a quarter of the company and three venture investors, Tiger Global, Qing Li and The McGraw-Hill Companies, will own about another quarter. (McGraw Hill, of course, has a huge interest in education through its textbook divisions.)