Every portfolio needs a strong foundation of stable and
dependable investments. Solid income producers and tried and true
equities are the hallmark of a prudent retirement plan.
But is that enough?
Those of us heading into retirement may have to do more with our
portfolios if we expect them to support us in our golden years. And
that's not that easy, especially when you consider that
the S&P 500 lost -9.1% from 2000 to 2009
But not all stocks had a lackluster performance.
2000 Market Cap
|Green Mountain Coffee (Nasdaq:
|XTO Energy (NYSE:
|Hansen Natural (Nasdaq:
|Bally Technologies (NYSE:
|Southwestern Energy (NYSE:
|Terra Nitrogen (NYSE:
|Contango Oil & Gas (AMEX:
|Clean Harbors (NYSE:
Notice something about these top performers? They all started as
small caps. That unto itself should come as no surprise.
Historically, small cap stocks outperform their larger,
slower-moving, peers. In fact, the Russell 2000, the benchmark
index for small-cap stocks, returned +41.6% from 2000 to 2009.
But with small caps' bigger returns come bigger risks. Plenty of
small companies fail to slay the Goliaths of their industry.
Despite the challenges, the decade's top performers overcame the
odds -- and thrived. Why? Each had a unique driver to propel it.
: Green Mountain Coffee Roasters (Nasdaq:
started as a small cafe in Vermont in 1981. Over the years, it grew
into a solid specialty gourmet coffee distributor. But in 2006, the
company revolutionized its business by acquiring Keurig, a
manufacturer of single-cup brewing systems.
People have been drinking coffee since the thirteenth century. But
by delivering a unique delivery system, Green Mountain changed the
industry's paradigm. They saw an opportunity that the big guys
was another David that slew Goliath by changing the industry
and Hollywood Video were huge companies with locations all over the
country. But the little upstart Netflix started delivering videos
and DVDs by mail -- and now directly to your TV via the Internet.
People loved not driving to the store, settling for whatever was
left on the shelves and not paying late fees.
Industry Wave Riders
: Bally Manufacturing Company (NYSE:
was founded in 1932, selling small cast-iron slot machines. The
company first started trading on the New York Stock Exchange in
1975 with the ticker symbol "BLY." But believe me, you wouldn't
have wanted to own it for all those years.
For decades, the casino gaming machine market was limited. But in
2000, the market began to explode. Las Vegas went through a
decade-long expansion, while additional states legalized gambling
as well. It seemed like every American Indian nation established a
casino business. As the industry expanded, so did Bally's customer
Industries expand and contract for a myriad of reasons. But when a
specific industry is on the upswing, it can turbo-charge the small
caps within it.
Macroeconomic Money Makers
Global trade and a falling U.S. dollar set the stage for the ascent
of fertilizer company
Terra Nitrogen (NYSE:
. As the economies in China and India grew at breakneck speed, so
did the size of their middle classes. With more disposable income,
the demand for more food -- and specifically meat -- grew. It takes
about 4.7 pounds of corn to yield 1.0 pound of edible beef. This
shift, initially driven by increased global trade, increased the
demand for grain.
Commodities are priced in U.S. dollars. If the dollar loses its
relative value to other world currencies, the prices of commodities
tend to compensate by rising. Between 2002 and the spring of 2008,
the U.S. dollar lost -40% of its value, while
and fertilizer prices soared.
Sometimes small macroeconomic shifts can cause big shifts in the
investment landscape. Knowing the effects of those shifts can help
investors harness a small-cap winner.
Action to Take-->
It wouldn't be prudent to devote a retirement portfolio to small
caps. But just a few small gems can go a long way.
I currently have two small caps on my watch list.
Deer Consumer Products (Nasdaq:
is small Chinese kitchen appliance producer. As the Chinese middle
class grows and the Chinese Yuan appreciates, this could be a
KMG Chemicals (Nasdaq:
is a small Houston-based chemical company. It specializes in the
chemicals used to produce semi-conductors -- a sector that's
rebounding with a vengeance.
Lead Investment Analyst: Stock of the Month, The Daily Paycheck
Disclosure: Neither StreetAuthority, LLC nor the Amy Calistri
hold positions in any securities mentioned in this report.