SMALL CAPS NEED NO BULL MARKET TO RALLY
ANCHOR (OFF-CAMERA) ENGLISH SAYING:
You know, it's interesting, the last couple of days, I was talking to some money managers who favor the big multinational stocks. I would love to hear the bull case for small caps in your perspective. You're funded well last year.
CRAIG HODGES, HODGES MUTUAL FUNDS, (ENGLISH) SAYING:
Yeah, we did have a nice year last year. The market, you know, being up barely double digits but our fund was up 20%. But small caps are a little bit unique in that it really doesn't take a bull market for the small caps to do well. They're kind of, you know, because of their nature of being small, they can almost have their own business cycle that's not that dependent on the economy. That's the first thing. The other thing is in a slow-growth environment, large companies need to find new avenues of growth. And so then, if they can go to the small cap world, make acquisitions to make their business grow, that makes a lot of sense. So there's always opportunities in small cap. I would agree that large caps, I think, are as cheap as I've seen them in the 27 years I've been in this business but that does not take away from the opportunities that are still there in the small cap. And the nice things also about the smaller companies, they're not as dependent on worldwide economics and you can have some, you know, just some situations internally here in the US that can really benefit the small caps. Yeah, they are fun to talk about because they have some interesting businesses like Briggs & Stratton, this is a stock you like. It makes gas engines.
ANCHOR (OFF-CAMERA) ENGLISH SAYING:
It just hit a 52-week high not long ago. So isn't it time to take money off the table in a case like that? What's the long-term story there with that one?
CRAIG HODGES, HODGES MUTUAL FUNDS, (ENGLISH) SAYING:
Well, it's a good example of being insulated from everything else that's going on out there. Briggs & Stratton, of course, they're kind of known for making these engines that go on lawn mowers, but it's really a housing play. Mattresses, lawn mowers, those kind of industries do extremely well when housing comes back. And we think we're in the early stages of a housing recovery. But Briggs & Stratton, because of the drought situation that's going on here in the United States, there's been a real lack of buying in that area. People have put off those purchases for a very long time. And they've got a lot of pent up demand that we feel is coming. The other part of Briggs & Stratton is they make portable generators. And of course, with what just happened with the hurricane up East, those generators are selling as fast as they can make them right now. So it's a company that is exposed to two areas that should grow, stock trades at a low multiple and should have a very, very good next four or five years and we think it's very undervalued.
ANCHOR (OFF-CAMERA) ENGLISH SAYING:
Alright. Let me ask you another one, Atwood Oceanics, this is in the offshore drilling space. Now, that's a bit of a crowded space, right? So what sets that company apart from some others?
CRAIG HODGES, HODGES MUTUAL FUNDS, (ENGLISH) SAYING:
Well, believe it or not, it's not that crowded of a space. Basically, the deepwater drillers has very high barriers of entry. It's tough to get in that business. And here's a small cap, Atwood, that has about 12 rigs that they're getting day rates for and you're seeing those day rates go up quite a bit. I believe it's an acquisition candidate but the main thing is that, the stock, it looks extremely cheap. They'll earn $5 a share, that we're in right now, stock's around 48. And we're thinking $7 to $7.50 next year. So it's trading at a very low price and we've just had the Transocean situation where they settled with the DOJ. That's going to take a cloud away from a lot of these drillers. And I think you're going to see a lot more opportunities for them especially they're under-owned in the investment world. And, you know, the offshore business, there are some big opportunities and we see a rig shortage in 2013. So there's opportunities in Atwood.
