To the relief of investors across the country, 2003 was a bang-up year for the stock market. It was hard to go wrong, really, as long as you weren't short. The S&P 500 was up 26%, the Dow 25%, and the Nasdaq soared 50%.
Dividend-paying stocks also did well, as Mathew Emmert pointed out last week. Even numerologists had fun, with the Nasdaq closing out 2003 at 2,003 and the S&P at 1,111. (Well, 1,111.92, but why spoil the fun?)
The rally was even more broad-based than these numbers suggest. Standard & Poor's and Barra, which together break down the S&P indexes into growth and value subsets, recorded 2003 this way:
| Index | 2003 Return |
|---|---|
| S&P 500 | 26.1% |
| S&P 500/Barra Growth | 23.4% |
| S&P 500/Barra Value | 28.9% |
| S&P MidCap 400 | 31.6% |
| S&P MidCap 400/Barra Growth | 27.9% |
| S&P MidCap 400/Barra Value | 35.3% |
| S&P SmallCap 600 | 34.3% |
| S&P SmallCap 600/Barra Growth | 33.0% |
| S&P SmallCap 600/Barra Value | 35.4% |
So, while it was good to be invested in almost any sector, small-cap equities performed a bit better than their mid- and large-cap cousins. (But they all come from good "stock." Yuk, yuk.)
Motley Fool co-founder Tom Gardner has shown how to profit from small caps as well: His Hidden Gems newsletter recorded total average returns of 74% since the publication kicked off last July.
AAII
I've referred to the American Association of Individual Investors' (AAII) stock screens a few times in recent months. This not-for-profit organization has developed a wide variety of screens that attempt to capture the flavor of different investing philosophies. (Yes, even Warren Buffett's and Peter Lynch's. Read more about it here.)
AAII recently published 2003 performance results for all 53 of its screens, and most of the top finishers were of the small-cap variety. So, while heavy-hitters such as Atmel
The Motley Fool's very own Foolish 8 had an outstanding year, finishing in third place overall with a 108% return. The top screen in 2003 -- with a 142% gain -- is based on the low price-to-book strategy developed by University of Chicago professor Joseph Piotroski. A screen that searches for stock characteristics found in William O'Neil's "The Greatest Stock Market Winners: 1970-1983" finished second with a return of 127%.
Before we go any farther, it bears repeating that these screens are not designed to produce "automatic buy" lists. The goal is to select a group of stocks for further research.
The Foolish 8
Are you feeling like you want to run out and tear into some small-cap companies now? Well, good, because I have a little gift for you: the Foolish 8 list as of Jan. 20. It's a gift because it's normally only found in each issue of Hidden Gems.
Here's a rundown of the passing stocks, along with some short comments about each company.
ASV
(NASDAQ:ASVI)
Short for "all-season vehicles," ASV makes loaders (those bulldozer-looking things) with rubber-tracked undercarriages for construction and agricultural uses. The stock was up 350% over the past year to $40.55, until Caterpillar(NYSE:CAT) announced it was exercising its warrant for the purchase of over 1 million shares of ASV stock at $21.00 per share. Since then, it's plummeted 30%.Ceradyne
(NASDAQ:CRDN)
Makes ceramic products for the defense, industrial, automotive, and consumer markets.Closure Medical Corp.
(NASDAQ:CLSR)
Makes medical tissue products that help close and seal topical skin wounds and incisions.Commercial Capital Bancorp
(NASDAQ:CCBI)
A bank and financial services company serving Orange County, Calif.Evolving Systems
(NASDAQ:EVOL)
A software and consulting service for the telecommunications industry.KCS Energy
(NYSE:KCS)
A Houston-based oil and gas company.Kyphon
(NASDAQ:KYPH)
Makes balloon products for minimally invasive surgeries; specializes in restoring spinal function.NovAtel
(NASDAQ:NGPS)
Makes electronic products based on the Global Positioning System (GPS).Palomar Medical Technologies
(NASDAQ:PMTI)
Makes a variety of laser medical devices for vascular treatments and removal of hair, tattoos, and other fun things.SM&A
(NASDAQ:WINS)
A consulting firm for the aerospace, defense, information technology, commercial services, electronics, and utilities industries.SupportSoft
(NASDAQ:SPRT)
Develops software that helps businesses automate and personalize their service and support divisions. The company has posted six consecutive quarters of positive earnings, eight consecutive quarters of positive operating cash flow, and 10 consecutive quarters of both top- and bottom-line growth.Technology Research Corp.
(NASDAQ:TRCI)
Makes electrical safety products. Sort of boring, but oftentimes boring companies make good investments.TradeStation Group
(NASDAQ:TRAD)
Caters to day traders and frequent stock traders with a "fully programmable direct access" trading platform for your PC.USANA Health Sciences
(NASDAQ:USNA)
A longtime holdout on the F8 list, this multilevel marketing firm distributes nutritional and personal-care items, as well as meal-replacement products.
This seems to be one of the largest Foolish 8 lists in quite some time, which isn't surprising as the economy picks up and more companies are able to pass the eight criteria. There's a little something here for just about everyone: from financial services to software to oil and gas to construction equipment. So, get to digging and report your findings on our Foolish 8 discussion board!
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Rex Moore salutes another of his former schools, Verdigris Elementary in Verdigris, Okla. Go Cardinals! At press time, he owned no companies mentioned in this column. His current holdings are listed on his profile page . The Motley Fool is investors writing for investors .
