A New Pick from Our Small-Cap Superstars
We highlight a new 5-star stock held by leading small-cap fund managers.
As we discussed in previous articles, one of the best and easiest ways to screen for new investment ideas is by monitoring the activity and holdings of successful fund managers. The aim of Morningstar's Small-Cap Superstars is to combine some of the best ideas from our favorite small-cap fund managers with our fellow analysts here at Morningstar.
Deciding which stocks to highlight is simple: First, the stock must have a Morningstar Rating of 5 stars, and second, it must be held by at least a handful of the 25 small-cap fund managers on our watch list (see below). We also consider the size of the holding in the respective funds as a way to further refine our selection process. After running our screens and analyzing the respective merits of the Superstars' holdings, we'd like to highlight Administaff (ASF) as our latest pick.
Administaff is the largest stand-alone professional employer organization, providing human resource services for small businesses. The narrow-moat company handles common HR functions, like employee benefits, payroll, and workers' compensation, allowing its clients to focus more on their core competencies. By aggregating workforces of multiple clients into a single bargaining entity, Administaff also keeps its insurance and benefit costs below what individual clients could obtain on their own. Hence, the company provides an excellent value proposition for its clients, while still generating very favorable returns on invested capital. Senior stock analyst Joel Bloomer believes Administaff has excellent long-term growth prospects in this underpenetrated market. Risks include adverse regulatory changes, a prolonged downturn in small-business employment, and unanticipated increases in health insurance premiums, workers' compensation costs, and/or unemployment taxes. For Bloomer's full take on Administaff, click here to read his Analyst Report.
Several of our favorite fund managers hold a position in Administaff, including Robert Mohn of Columbia Acorn USA (LAUAX), John Laporte of T. Rowe Price New Horizons (PRNHX), Scott Brayman of Champlain Small Company (CIPSX), Charles Royce of Royce Pennsylvania Mutual (PENNX), and Arnold Schneider of Schneider Small Cap Value (SCMVX). We'd note that the latter three managers recently added to their position in Administaff, according to the latest available holdings data. The 5-star stock also currently trades at about a 31% discount to Bloomer's fair value estimate of the company.
Our New Small-Cap Superstars' Blog
If you'd like to learn more about Small-Cap Superstars, we encourage you to check out our new blog, which features more discussion on our stock picks. The blog also provides you with a forum to share your thoughts on these stocks as well as to ask questions. Click here for more.
Performance of Previous Small-Cap Superstars' Picks
Overall, we continue to be pleased with the performance of our past picks. Four of our stocks have delivered outstanding returns and handily outperformed the Russell 2000, while the remaining stocks just modestly trailed the benchmark. We remain very bullish on Cimarex (XEC), Markel (MKL), Carters (CRI), American Repographics (ARP), and International Speedway (ISCA), all of which are rated 5 stars and continue to be held by several of our favorite fund managers. Navigant Consulting (NCI) is also rated 5 stars, but isn't as widely held by our Small-Cap Superstars. Our Morningstar analysts aren't as bullish on UCBH (UCBH), Whiting Petroleum (WLL), and Pinnacle Entertainment (PNK). Many of our favorite fund managers continue to hold positions in these three stocks, however.
|Small-Cap Superstar Picks|
Return (%) **
|UCBH Holdings (UCBH)||0.74||130.7||123.5|
|Whiting Petroleum (WLL)||0.82||99.1||109.4|
|Cimarex Energy (XEC)||0.65||42.4||52.7|
|Navigant Consulting (NCI)||0.70||22.6||32.9|
|Pinnacle Entertainment (PNK)||0.78||3.6||(3.5)|
|American Reprographics (ARP)||0.55||(13.8)||(3.5)|
|Int'l Speedway (ISCA)||0.70||(14.2)||(5.6)|
|* As of 8-22-2008.|
** Total return from evening of article publication date first highlighting the stock pick (10-2-2007 for WLL, XEC, NCI, ARP, and CRI; 10-30-2007 for ISCA; 6-30-2008 for UCBH and PNK; 7-29-2008 for MKL) to 8/22/2008.
|Baron Growth (BGRFX)||Ronald Baron|
|Baron Small Cap (BSCFX)||Clifford Greenberg|
|Century Small Cap Select Inv (CSMVX)||Alexander L. Thorndike|
|Champlain Small Company Adv (CIPSX)||Scott T. Brayman|
|Columbia Acorn USA A (LAUAX)||Robert A. Mohn|
|Diamond Hill Small Cap A (DHSCX)||Thomas P. Schindler|
|FBR Small Cap (FBRVX)||Charles T. Akre Jr.|
|FPA Capital (FPPTX)||Robert L. Rodriguez|
|Gabelli Small Cap Growth A (GCASX)||Mario J. Gabelli|
|ICM Small Company (ICSCX)||Robert D. McDorman Jr.|
|Janus Venture (JAVTX)||William H. Bales|
|Keeley Small Cap Value (KSCVX)||John L. Keeley Jr.|
|Longleaf Partners Small-Cap (LLSCX)||G. Staley Cates, O. Mason Hawkins|
|Pennsylvania Mutual Inv (PENNX)||Charles M. Royce|
|Presidio (PRSDX)||Kevin C. O'Boyle|
|� Royce Select I Inv (RYSFX)||Charles M. Royce, Lauren Romeo|
|Royce Special Equity Inv (RYSEX)||Charles R. Dreifus|
|Royce Value Service (RYVFX)||W. Whitney George, Jay S. Kaplan|
|Schneider Small Cap Value (SCMVX)||Arnie Schneider III|
|T. Rowe Price New Horizons (PRNHX)||John H. Laporte|
|T. Rowe Price Small-Cap Value (PRSVX)||Preston G. Athey|
|Third Avenue Small-Cap Value (TASCX)||Curtis R. Jensen|
|Wasatch Small Cap Growth (WAAEX)||Jeff Cardon|
|Wasatch Small Cap Value (WMCVX)||Jim Larkins|
|William Blair Small Cap Growth N (WBSNX)||Karl W. Brewer|
John Owens does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.