The Second 100 Are Tops In The Market

INC.'s Second 100 left other investments in the dust by returning 115% in the past year.

Tweet

clipped

Connect with Evernote:

Please Login to Connect Your Account with Evernote

For the past three months, INC. has been analyzing the performance of "INC. 100" companies in the stock market. By any measure, their gains were exceptional, sometimes dramatic. This month INC. editors have pitted the INC. Second 100 -- the country's 101 to 200 fastest-growing publicly held corporations (see INC., June, page 37) -- against four popular market averages for a recent 12-month period. The results, as the accompanying graph shows, were equally distinguished.

Indeed, considering that a person who owned $100 worth of each of these stocks would have more than doubled the $10,000 investment without having to bother with buy-sell decisions, and that 14 of the companies weren't even trading for the whole year, the increment is no less than sensational. And, on the face of it, surprising as well: Since the members of this group were runners-up in the sales-growth race, they might also have been expected to trail in the stock-market arena.

Instead, the Second 100 resoundingly shattered the 100% stock market profit level for the 12 months ending June 1, 1981. In so doing, it more than quintupled the Dow and the Standard & Poor's 400, more than tripled the Amex, and nearly doubled the hot industrials of NASDAQ. Further, it utterly squashed gold bugs (gold fell more than 10%), obscured money-market returns, and buried collectibles from postage stamps to California condos. This blowout should put to rest the still-prevalent assumption that common stocks haven't provided an adequate inflation hedge. It simply depends on which stocks are being referred to.

Statistically speaking, there were only a few high-end anomalies, chief among them Data Architects' 1,900% surge from 75c to $14.25. All in all, the individual performances were solidly middle-of-the-road. Even the price/earnings ratios, which of course rose on balance (to an average multiple of 26), did not reach the extremes seen in earlier INC. market studies.

Nonetheless, the fact that these slower-growing companies (their five-year revenue change was +364% on average, compared to the first 100's +1,188%) outpaced their faster brethren in a comparable market period by a sizzling 39 percentage points (see INC., May, page 161), bears reflection. Why did slower growth, both in sales and in earnings, inspire more investor confidence?

Among the reasons is that the second rank comprises companies with longer histories than the first 100. As INC.'s "Second 100" report concluded, the companies tended to be older. Their growth rates may be winding down (24 of the Second 100 are graduates of an earlier First 100), but their proven stability in earnings and profitability makes them less volatile and hence less chancy in the market. Only 12 of the present gathering showed stock market losses, and only a handful reported deficits in the latest available statements.

But they're no top-heavy IBMs, either. The Second 100 is a seasoned bunch whose growth stands every chance of spurting anew and shows little sign of shrinking suddenly to insignificance or being overwhelmed by stock dilution.

An investment in one of these companies stands less of a risk of diminishing precipitously. That, plus a still-more-than-adequate earnings growth rate -- the Second 100 sported a collective 48% increase in profits from 1979 to 1980 -- would seem primarily to be what spurred this maturing group to new INC. heights.

1981 INC. SECOND 100: RELATIVE MARKET PERFORMANCE

THE 1981 INC. SECOND 100: TRACKING THE 12-MONTH STOCK PERFORMANCE

Note: This table may be divided, and additional information on a particular entry may appear on more than one screen.

Stock splits/dividends, Bid/close

Rank Company status change 6/2/80 6/1/81

101 Worldwide Energy 4:3 split, 1/26/81 12 3/16 10 7/8

n(2)

102 First Artists 3 1/8 4 7/8

Productions

103 Control Laser 3:2 split, 12/15/80 11.17 20

104 Microdyne 50% stk div, 12/22/80 15.17 33 3/4

105 Autodynamics Common reclassified into n(3) 4 5/8 21

A and B, 5/30/81; basis:

one of each per share

106 Cullinane 2:1 split, 11/10/80 16 1/2 68 3/4

Database

Systems

107 North American n(3) 11 n(3) 30

Watch

108 Heritage 50% stk div, 1/23/81 8.08 17

Communications

109 Staff Builders 15 11 5/8

110 Oxoco 8 1/2 15 7/8

111 Comshare 13 1/2 14 1/4

112 Mediscience n(3) 3/4 1/8

113 Ramtek 12 1/2 15 3/8

114 Emons Industries 3% stk div, 2/10/81 8 1/4 5 1/2

115 General Devices 4 5/8 5 1/2

116 Anacomp 12 1/2 23

117 AM Cable TV 3:2 split, 5/15/81 6.67 19 3/4

Industries n(4)

118 CPT 18 61 3/4

 1 | 2 | 3 | 4  NEXT