After a down 2011,
small cap stocks
rallied in a big way in 2012.
index, which gauges the performance of U.S. small caps, returned
16% last year - a marked improvement from the 5.7% drop-off the
index suffered in 2011. It was the index's best performance since
As always, some small caps stood out more than others. Here
were three of the best performing small cap stocks of 2012 - two
of which share a common thread:
Arena Pharmaceuticals (
With a mind-boggling 382% gains, Arena was the king of all
small caps in 2012. Producers of a weight-control management
drug, this California-based biotech company is cashing on
America's growing obesity epidemic. The company reported record
revenue in the second quarter, but has struggled to turn a
profit. However, the promise of its obesity drug attracted
scores of investors. Until the company proves it can turn a
profit, though, it will be difficult for Arena to repeat its
epic 2012 run this year.
Infinity Pharmaceuticals (
Noticing a trend yet? Infinity was another biotech
pharmaceutical company with better than 350% gains last year.
Unlike Arena, however, Infinity turned a profit in the third
quarter, and could have a tad more staying power.
Hovnarian Enterprises (
Up 350% last year, Hovnarian Enterprises is a homebuilder that
rode the wave of last year's housing recovery. Like with Arena,
however, Hovnarian's rise had more to do with overly optimistic
investor sentiment than true value. As of October 31, Hovnarian
had a negative shareholder equity of $485 million, wasn't
profitable last quarter, and has future earnings estimates of
only about 47 cents a share. Hovnarian's 2012 performance was
impressive. But housing recovery or no housing recovery, don't
expect an encore in 2013.