The following article is part of The Motley Fool's "Stock Madness 2005 ," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play . The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."
But, please, make no mistake -- "Stock Madness 2005" is a GAME!
Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.
American Superconductor
Westborough, Mass.
$10.19
52-week low-high: $9.01-$15.13
$290 million market cap
By W.D. Crotty
What a choice! In my corner is a small-cap stock ready to explode -- American Superconductor. I recently commented on the company's business prospects.
In the other corner is the iShares Russell 1000 Growth Index. Its top holding is Pfizer
While the smallest capitalization stock in the growth index is $534 million, American Superconductor tips the scale at a fighting trim of $339 million (which includes a recently completed offering of 4.6 million shares that added $45.5 million to the company's cash coffers). The company is small enough, and the opportunity is big enough, to make for explosive growth -- as opposed to the 14.25% growth forecast for the growth index.
American Superconductor is already the world's principal vendor of high-temperature superconducting (HTS) wire and large rotating superconducting machinery, and the world's leading supplier of dynamic reactive power grid stabilization products. Some of the company's products are sold by General Electric.
Business is booming. Revenue increased 144% in the latest quarter, allowing American Superconductor to reduce the net loss it expects for the coming year -- and it's clearly focused on becoming profitable. Partnership deals, such as this one with Siemens, and product introductions that use the HTS wire will help the company reach profitability. Oh, and the real kicker is that the next generation of HTS wire, which offers better performance at a lower price, is just around the corner.
American Superconductor is poised to top the performance of any index.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
iShares Russell 1000 Growth Index
Recent NAV: $48.06
Assets: $3 billion
By Shannon Zimmerman (TMF Zman)
Plain and simple, I like this exchange-traded fund (ETF) on valuation grounds: It provides quick and easy access to an area of the market that I think looks cheap now: large-cap growth. After investors famously got drunk on the stuff during the late 1990s, stocks that fit the large-growth profile have, on the whole, become the proverbial guy at a party with a lampshade on his head: Who invited him?
At least, that is, relatively speaking.
To be sure, the Russell 1000 Growth benchmark -- which, as you might expect, the iShares Russell 1000 Growth Index fund tracks -- has turned in decent enough absolute numbers of late. Over the last five years, however, large-cap growth funds have brought up the rear in a big way, posting an average annualized loss of roughly 8.5%. Only tech and telecom funds have fared worse. Meanwhile, small-cap value funds -- the opposite end of the "style" spectrum -- have delivered a gain in the neighborhood of 16%.
If like me you're a contrarian at heart, that dynamic alone practically screams buying opportunity. Where, after all, do you think the market's bargains likely lie? On some level, answering that question is just a matter of simple arithmetic, and it's not for nothing that many a fine small-cap fund has closed to new money.
Meanwhile...
This dirt-cheap ETF tracks a venerable benchmark that counts among its constituents the large-growth likes of Pfizer, Johnson & Johnson
With that kind of lineup, who cares whether IWF has suffered for its "style" -- i.e., where it falls out on the growth/value and market-cap spectrums? Indeed, so much the better: The cheaper it looks, the more I like it.
American Superconductor, on the other hand, is a speculative small-cap firm with five consecutive years of negative returns on both assets and equity. Revenues have been on the upswing lately, but over the long haul, the stock has been an industry and market laggard.
One could, I suppose, make a contrarian case for the company, but I'll leave that to my worthy opponent. For my part, I think this matchup is a mismatch: For long-term types, the case for the growth index is a slam dunk.
Shannon Zimmerman runs point on the Motley Fool's Champion Funds, the newsletter that cherry-picks the fund industry's best and brightest each and every month. Shannon doesn't own any of the companies mentioned, and you can test-drive his service for free by clicking right here.
Rebuttal
American Superconductor is an industry laggard? Let's get this straight. In superconducting, this company is making it happen. The company has the leading products in its target markets and is growing rapidly. More importantly, its next generation of superconducting wire will be the catalyst for rapidly expanding the superconducting market. For example, the world needs more efficient industrial motors, and the next generation of wire will bring these motors to market. -- W.D.C.
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