John Nyaradi: Hi there; I’m John Nyaradi, publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds and global markets. Today, I’m really pleased to welcome our special guest, Hilary Kramer.
Hilary, welcome to Wall Street Sector Selector.
Hilary Kramer: John, thank you.
John Nyaradi: Great to have you here.
Hilary received her MBA from the Wharton School of Finance and has 25 years of investing experience. She’s managed more than $5 billion in global private equity funds in the past. She’s been very successful through all these ventures and is a regular commentator on Nightly Business Report, contributes to MarketWatch.com and also Forbes.com She’s Editor of three investing services for individual investors, Game Changers, Breakout Stocks Under $5 and High Octane Stocks, all offered through Investor Place Media. She’s a well-known author and now has written, The Little Book of Big Profits from Small Stocks: Why You’ll Never Buy a Stock for Over $10 Again, just out from John Wiley and Sons, and that’s what we’re going to talk about today, her book.
Let’s start off with the title, The Little Book of Big Profits from Small Stocks. Hilary, could you talk about your goal for the book, why you wrote it, what you want people to get out of it?
Hilary Kramer: I want investors to be able to really make significant returns from their equity investments. There’s always risk and reward in equities that you’re not going to have in other asset classes and, so, the key with stocks is to find the ones that will perform the best and to find the ones that haven’t already been driven up to higher highs. That in and of itself is a great way to invest and after the 2000 and 2009 financial meltdown, and our July 2011 meltdown, there are much bigger opportunities in those smaller stocks to get a double when we finally do come out of this recession.
John Nyaradi: You talk in your book about three things you look for in a breakout stock. Could you go into those elements for us?
Hilary Kramer: There are three different categories for me. One would be the fallen angels. Those are the stocks that were once high flyers, that did exceptionally well or that had a large institutional following and were widely held. Companies like Bank of America, for example, (BAC) would be a very good example of a Fallen Angel. Companies like Ford which hit bad times, and others like it that hit bad times because of either the sector itself, or, in the case of Ford, a recessionary environment that brought down the consumer and thus all of the car companies.
Then, my second category is the value stocks. These are the companies that actually present great value when you compare them to other companies within the same sector, or even outside the sector, companies that make money, that have growth and that are going to make any private equity company that buys them a lot of money, and that would be a company like Ruth’s Hospitality Group. Ruth’s Steakhouse, for instance. And Ruth’s makes money; its valuation is significantly lower than most of the companies in the fine-dining, publicly-traded sector. And if you just compare it to, for example, California Pizza Co. which was acquired earlier in the year, you see that Ruth’s is a value play.
And then, I have companies that offer interesting technologies that are just gaining some momentum, companies like Glu Mobile, (GLUU) And it’s only a $3 stock, but they provide the high-definition semiconductor capability for mobile phones, or a company like CECO Environmental, (CECE) which makes pollution control systems for large institutional and commercial, industrial companies that now have regulatory requirements on them. Another company I really like is Magic Software, (MGIC) which integrates data bases and different platforms into one app which can then be put in the cloud so, you don’t need a server. And that’s really the direction that we’re going in.
So, those are my three areas, but you’d be surprised how many great stocks there are. Before we started the interview, we were talking about Denver. Take a company like Janus Capital Group, (JNS) which is based in Denver. This was our mutual fund company from – do you remember – the high flying internet days that did very well, grew assets because they had telecom and internet mutual funds, but with a $180 billion market cap — I mean, $180 of assets under management, it’s incredible Janus only has a $1.1 billion market cap. The company has a nice over 3% dividend yield, a diversified asset base, excellent institutional investors; that’s really sticky money for them. So, they’re in fixed income; they’re in other kinds of instruments besides growth equity, and yet the company continues to just languish. The stock is at $6 right now; it’s been higher than $14, close to $15, just in the last 52 weeks. So, you can see the impact that the 2011 summer meltdown has had on companies like Janus.
John Nyaradi: Let’s talk a little about your three newsletters, what they do and what they focus on.
Hilary Kramer: Sure. Game Changers are the companies that have technologies or they have therapies or services that are really innovative and revolutionary, and what I look for there is a real growth profile. Some might be growth companies that no one has recognised as growth and innovative opportunities – they might be thought of as sleepy industrial companies right now – and then, others are truly innovative companies that still are ahead of their time that others haven’t found yet.
So, I have a company GeoEye, (GEOY) which is a satellite delivery system that uses satellite imaging and their most important driver is with Homeland Security and defence which is the way wars are being fought today, with satellite imaging rather than with tanks and mortar.
I think that you want to look for the new ways that businesses and companies and countries and individuals are doing whatever it is they do, whether it’s protecting our borders or what they’re doing during leisure time or how they’re healing themselves. So, that’s Game Changer stocks.
And then, Breakout Stocks are the stocks that have fallen down below $5; I’ll also include opportunity stocks that are above that. But there, that’s where I put stocks like Zales where we had a double recently; stocks like Sirius XM, we had our double and we sold it. These are the companies where there’s opportunity and there’s value. And we don’t stay long, long term in these stocks; we look for the opportunity and then the opportunity to exit. And that encompasses everything from stocks like Office Depot, which many people don’t even realise is doing well but is a less-than-$3 stock, as well as companies like Fortress Investment Group that was once a high-flying, $40 hedge fund stock that’s now trading in the $3 range.
Finally, High Octane Stocks is a lot of fun; that’s our trading service. Right now, we’ve put on a put on Chipotle, CMG, on November 11th; I’m looking at a 52% gain there. I’m looking at a JC Penny put from the 15th with a 10% gain. We’re in and out of companies and investments very, very quickly, but it’s mainly puts and calls and working to make money in any market.
John Nyaradi: You know, I always like to end these conversations, Hilary, with sort of an open-ended question: Is there anything else you’d like to add, the one thing that’s really on your mind these days, maybe, wakes you up in the middle of the night, that retail investors should be thinking about or watching out for as we approach the end of the year?
Hilary Kramer: Yes. Our market is undervalued by every metric that you could ever imagine. We are in an incredibly bearish environment right now and due a real bull run in stocks. And it’s a very distressing time in this trading range because every time it seems like we’re out of it, we fall backwards. But investors should really keep in mind that, ultimately, the market’s going to go back up. And it’s the bond market, it’s the Treasury bills and the Treasury bonds that are in an incredible, unbelievable bubble and the bursting impact of that is going to create a flight into equities. And right now, there’ve just been so many disappointments, but investors should realise that bull markets come when you least expect them.
John Nyaradi: Folks, we’ve talking with Hilary Kramer, author of The Little Book of Big Profits from Small Stocks: Why You’ll Never Buy a Stock for Over $10 Again. The book’s been receiving terrific reviews from people like Steve Forbes, Editor-in-Chief of Forbes Magazine, Randall Forsyth, Editor-in-Chief of Barron’s, and Richard Wilner, the Business Editor of the New York Post. It’s well up on the Amazon Best Seller list and deservedly so.
I’d like to add my humble endorsement and say it’s a great way to learn about the really fast-moving and potentially highly-profitable world of small-stock investing. To learn more about Hilary’s book and her work, you can just follow the link at the end of this interview; that will take you to her page in Amazon.com.
Hilary, it has been wonderful chatting with you today; I really appreciate your time and I know we’re all looking forward to talking with you again soon.
Hilary Kramer: All right, thanks so much, John.
(recorded interview, edited for length and clarity)