Out of the doldrums of early summer with the Dow Jones Industrials hovering around 1,100 like a bee in clover, the INC. Index took a long-awaited and perhaps surprising turn for the better. Indeed, the chart of the magazine's proprietary market average has traced a broad double bottom, promising an upside performance in months to come.
As even casual observers are aware, small public companies -- particularly technology enterprises (34 of the 89 companies on the INC. Index alone are involved with computers and data processing) -- have been faring abysmally, and INC.'s fast-growers have been among the leading losers. Shaken by highly cyclical issues in which, Wall Street seems suddenly to have realized, the cycle may consist of only one upwave, such as occurred in Pizza Time Theatre ($17 on 1984's INC. 100 list of the fastest-growing public companies in America, and ignominiously down from a high of 32 1/4 during the year preceding its Chapter 11 filing and subsequent NASDAQ delisting this spring) professionals have largely been ignoring unseasoned companies. In a lackluster market, as has been seen over the past few months, why take a chance that the stock of some upstart company may get slapped down by a quarterly loss when, with virtual certainty, an investor could earn double-digit yields in bonds?
In some measure, the small-capitalization stocks fell of their own weight. Even free of specific selling pressure, without institutional sponsorship, prices of lightly capitalized equities tend to fall simply from the "background noise" of desultory cashers-in, who may simply need some pocket money. That helps explain the dimensions of such decrements on the INC. list as the dive of Data Switch ($34 on the INC. 100) from a 12-month high of 36 1/2 to a recent low near 12, Kaypro ($42) from 10 1/2 to 3 1/2, Tandon ($20) from 35 to 6 1/4, and other dramatically deflated INC. high-fliers.
Now, however a study of some of the individual situations makes the double bottom, rough and tentative as it is, all the more intriguing. A number of INC. Index entries stopped falling months ago and have begun the long process of base repair. For example, Altos Computer ($28), which dropped from 16 3/4 to 7 1/4 over 12 months, has been in a trading range from about 9 to 12 for the better part of a year. That likely means that, at last, some investor is interested in Altos's future and is in there accumulating stock. Repeat this kind of holding pattern with maybe a couple dozen more INC. stocks, and you have the basis for modest, if not great, expectations.