Monday, May 14, 2007
The case for growth and a defensive 'Force'
Jim Oberweis, Jr. is a specialist in small cap growth stocks, uses a proprietary 8-pronged screening system -- known as the Octagon strategy -- to assess a variety of financial, fundamental and technical factors.
In his latest The Oberweis Report, he offers an intriguing forecast suggesting that the market's next move will be from value to growth stock -- and offers a "defensive" play in the defense sector - Force Protection (NASDAQ: FRPT).
“It seems the market has forgotten the last stock market bubble only seven years ago. Then it was value stocks that were unloved, while growth stocks were all the rage. Between 1995 and 1999, growth stocks returned twice as much as value stocks.
“The Russell 2000 Growth Index returned 181% versus 84% for the Russell 2000 Value Index in this period. Early 2000 would later be recognized as the peak of the growth stock bubble and the beginning of a boon for value investors.
“Today the tables are turned. Growth is undervalued and value stocks are dangerously expensive. I’d argue that the evidence is clear that we are nearing – and maybe even have passed — an inflection point once again.
“Those who believe in the law of mean reversion should buy growth stocks today; indeed, value leadership appears to be waning. In a notable change, small-cap growth returns are leading value by about 250 basis points so far in 2007.
“Frankly, that makes a lot of sense to us. The value creed is to buy asset-rich stocks on the cheap. But value stocks just aren’t cheap today, particularly not in relation to growth stocks. Due to the recent popularity of value investing, value stock prices have been driven up, and the ‘premium’ required to buy growth stocks is smaller than ever.
“Our message should be very clear: The time for growth is near. While it’s impossible to pick the exact inflection point in advance, we believe small-cap growth stocks are highly likely to outperform small-cap value stocks over the next three years.
“Meanwhile, one grwoth stock we favor is Force Protection. The company is the world’s leading manufacturer of ballistic- and ballistic-protected vehicles which have been used to support armed forces and security personnel in Iraq, Afghanistan, Kosovo and other hot spots around the globe.
“The company utilizes the world’s most advanced mine and ballistic protection technology to produce specialty vehicles that offer the most protection against landmines, hostile fire, and Improvised Explosive Devices (IED’s, commonly referred to as roadside bombs).
“In April, Force announced the award of a $490 million contract to produce 1000 vehicles for the U.S. Marine Corps’ Mine Resistant Ambush Protected (MRAP) vehicle program. In the company’s latest reported fourth quarter, sales increased approximately 288% to $62.9 million.
“The company reported earnings per share of $.32 in the latest reported fourth quarter versus a loss in the same quarter of last year. Clients of Oberweis Asset Management own approximately 85,000 shares. These shares may be appropriate for risk oriented investors.”
posted at 12:05 PM
