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I'm Looking at Small and Mid-Cap Names Lost in the Shuffle This Year

At the LD Micro Conference this week, I'll know which companies are real and really investable, and which ones are not.
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By the time we got to Woodstock! Some investors might apply Crosby, Stills, Nash and Young's classic lyrics to the Berkshire Hathaway (BRK.A) (BRK.B)  annual circus in Omaha, but, sorry, Warren, I believe in the purest form of capitalism.

Sucking up dividends from Apple (AAPL) and the like and never returning them to shareholders (Berkshire has never paid a common dividend) just isn't my idea of capitalism. So, my Woodstock is run by Chris Lahiji, not Warren Buffett, and is the LD Micro conference in Los Angeles, which happens this week. 

In the financial markets those stocks occupy a subgroup known as as "SMID," small and mid-caps, which is inclusive of microcaps. There is a bit of a definitional issue with which category ends where, but according to FTSE Russell, the median market cap in the Russell microcap index ^RUMIC  is $201 million and for the broader market Russell 3000 (the Russell 2000 small-caps plus the Russell 1000, which is composed of the largest-cap US stocks) the median market cap is $1.89 billion. In a year in which the Russell 3000 has declined 22.0%, the RUMIC has fallen 25%. It's tough out there. 

In addition to four companies with which I have C-level relationships and have written about in my Real Money column -Newtek Business Services (NEWT) , Exro Technologies (EXROF) , Vicinity Motor (VEV) , Meta Materials (MMAT)  - I casually mentioned to Chris that he should feel free to schedule me for as many meetings with new (to me) stories as possible. 

Well, I ended up with 29 meetings, and, unfortunately, space constraints restrict my ability to list them here. The full presentation schedule is located at www.ldmicro.com.

These companies are living, breathing organisms that have been lost in the shuffle this year. Almost without exception, they need capital to grow, and capital, whether it be in the form of equity, debt or a hybrid of both, is more expensive than it was at this time last year. That does not mean that these companies have ceased to exist or to innovate, nor does it mean that I will run out of each meeting with my gigantic cellphone Gordon Gekko-style and place large buy orders at the conclusion of each meeting. 

The macro rules the micro. The macro is tough for SMID right now, specifically the continuing increase in interest rates, as shown by the yield on the benchmark 10-year UST note. But research is its own reward, and when there is a move to be made here, to the extent I have not completely water-logged my brain with the Bataan Death March meeting schedule Chris has arranged for me, I will know which companies are real and really investable, and which ones are not. 

Most of these companies are new to me, and there is certainly no implicit purchase recommendation involved in my taking a meeting. But there will come a time to pull the trigger, and when it arrives... this research will have been its own reward. 

Stay tuned for more from me this week on the highlights from my meetings, and, as always, www.excelsiorcapitalpartners.com is home to all my content.

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At the time of publication, Jim Collins had no position in the securities mentioned.