ROEDER: Bypassing mid-cap stocks can cost you
BY DAVID ROEDER email@example.com June 1, 2012 4:54PM
Three people on the floor of the New York Stock Exchange display their Blackberry smartphones, Wednesday, May 30, 2012. Research In Motion Ltd., the maker of the BlackBerry, is in steep decline. The company, once the crown jewel of the Canadian technology industry, is now worth 1 percent of Apples market capitalization. (AP Photo/Richard Drew)
David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday
Updated: June 3, 2012 6:48PM
Mid-cap stocks suffer from a sort of “middle child” syndrome. They tend to get short shrift, and everybody from average investors to the managers of their money is complicit in that neglect.
Defined usually as stocks with a market value of from $2 billion to $10 billion, mid caps are too large for some investment tastes, too small for others. Investors gravitate to large cap stocks for their earnings power, market dominance and perceived stability, while small caps get attention as engines of growth and innovation.
Wall Street reflects this by assigning a smaller number of analysts to mid caps than to other categories, according to a report by William Blair & Co. analyst Patrick Quinn. Yet, mid-cap returns have been superior to those of the larger or smaller brethren over every major period during the last 30 years, Quinn found by analyzing returns of the applicable Russell indexes.
He wrote that large-cap firms, by comparison, have often maxed out their market penetration. Compared to small caps, the mid caps usually offer “enhanced depth of management, breadth of products and services and geographic diversification,” Quinn wrote. By definition, he said, they “have proved their ability to survive the small-cap stage of their corporate life cycle.”
Blair has a big business in this segment, with its William Blair Mid Cap Value Fund (WMVNX) and the William Blair Mid Cap Growth Fund (WCGNX). Of the two, the latter has a longer and better track record.
Need some specific stock picks? Here are a few of the Blair team’s favorite mid caps: Dick’s Sporting Goods (DKS), Harley-Davidson (HOG), Discover Financial Services (DFS) and H.J. Heinz (HNZ).
RIMM SHOTS: The analysts’ comments came fast and furious last week when Research In Motion (RIMM) updated its earnings forecast to warn of a first-quarter loss when profits were widely assumed. Hell hath no fury like analysts made to look bad.
William Blair & Co.’s Anil Doradla and Brian Nugent said RIMM’s “downslide saga continues,” although they did not change their neutral “market perform” rating on the shares.
Robert W. Baird & Co.’s team lowered their price target on the shares to $8 from $10. RIMM closed Friday at $10.26. The Baird report looked earnestly for potential buyers and said Facebook (FB) might be interested. At least the subscriber base for the BlackBerry product is up slightly, the report noted.
But the last word on that topic may have come from the analyst team at Canaccord Genuity, which looked at its own colleagues’ smartphones and said only two people still have a BlackBerry, with one being a student and the other being “the oldest.” Call the age discrimination lawyers.
AT THE EXCHANGES: Wouldn’t you know it? I skip a Curious column for a week, and a lot of news breaks out involving the Chicago exchanges. Here’s a recap for traders and investors who might have missed the developments because of Memorial Day distractions:
† The board of CME Group (CME) finally got religion and approved a five-for-one stock split. It will be payable July 20 to shareholders of record July 10. CME shares closed Friday at $257.01.
Splits lower the price without theoretically changing the value of each investor’s holdings. But the five-for-one trade, which would make each new share equal to 20 percent of an old share, will result in a stock that’s affordable to more investors. This should push up the value and make more individuals buy CME. Currently, it is heavy with institutional ownership.
† CME, which owns the Chicago Mercantile Exchange and the Chicago Board of Trade, responded to traders’ concerns that it was creating an unlevel playing field in grain contracts when it expanded electronic trading hours. Electronic trading is now available early in the morning when the Agriculture Department issues reports that are grist for speculation. The pits, however, don’t open until a couple hours after the reports are out.
On major report days starting June 12, the pits now will open at 7:20 a.m., 10 minutes ahead of the USDA releases. Otherwise, the open-outcry markets will open at their traditional 9:30 a.m. and in all cases will close at 1:15 p.m. It’s a concession to options traders who tend to prefer the pits to electronic markets.
† The Chicago Board Options Exchange celebrated a ruling by the Illinois Appellate Court that upheld CBOE’s contractual right to an exclusive listing for options based on the Standard & Poor’s 500 or the Dow Jones industrial average. The S&P complex is the heart of the CBOE business.
The court upheld an injunction preventing the International Securities Exchange from competitively listing the options. The dispute stretches back six years but the legal principle shouldn’t have taken that long to decide. A contract is a contract.
CLOSING QUOTE: “I am still looking for about 2-1/4 percent growth this year. That was considered conservative just a few weeks ago; it could soon be considered optimistic.” — Diane Swonk, chief economist, Mesirow Financial