Small Caps In Our Portfolio – An Update

Below is a summary of the small capitalization stocks (Market Capitalization less than $1 Billion):

























BusinessInvested %Date Of InvestmentReturn %Dividend Yield
Click Software (CKSW)1.6611/09/2007(33.19)None
iRobot Corporation (IRBT)2.8512/18/2007 & 04/18/2008(24.23)None
MCG Capital (MCGC)3.3412/21/2007 & 04/01/2008(46.22)16.4
Anthracite Capital (AHR)4.3611/09/200718.4414.60
Patni Computer Systems (PTI)3.4008/10/2007(36.79)1.0
Totals15.61Various(20.70)7.81


Overall, the stocks returned roughly –17% in a little less than six months under-performing the Russell 2000 Small-Cap Stock Index ETF (IWM) by a wide margin. This underperformance is significant considering our entire portfolio outperformed the Wilshire 5000 overall US stock market index by a significant margin over the same period.

Click Software had a string of outstanding quarters last year, which were followed by a couple of tepid ones and the stock price reflected the ups and downs. As the business prospects remain solid, the valuation looks very attractive. iRobot had a decent quarter, but pared down expectations for the coming year. One of their key retail customers (Linen N’ Things) ended up in bankruptcy and that has affected the stock. However, the prospects and valuation continues to be attractive. For MCG Capital, the real concern is liquidity. The combination of tight credit environment along with pay-in-kind transactions has made it especially hard for the company to find cash to fund its capital needs. This situation could decline in an extended downturn in the economy. Anthracite Capital has been fairly static although it saw a low of $5.20 in early March at the peak of the liquidity crisis. The company’s prospects are directly tied to the commercial mortgage market and its concern parallels the residential market concerns on the number of bad loans in the portfolio. For Patni Computer Systems (PTI), the stock has always trailed its peers such as Cognizant (CTSH) and Infosys (INFY). As competition picks up pace in the outsourcing business, Patni’s margins will continue to stay pressured. Even so, the valuation looks attractive and our expectation is that the company will get acquired.

We will look at adding to some of these positions while staying within our target of roughly 20% commitment to small-cap portion in our portfolio.

Related Posts:

1. Click Software (CKSW) - Stock Analysis.
2. iRobot Corporation (IRBT) - Stock Analysis.
3. MCG Capital (MCGC) - Stock Analysis.
4. Anthracite Capital (AHR) - Stock Analysis.
5. Patni Computer Systems (PTI) - Stock Analysis.

Last Updated: 10/2008.

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