Keep Your (Small) Caps On

If you're waiting for the small-cap market to explode, grab a chair, get a good book, send out for pizza.

For the rest of 1998, the market should continue to favor the big guys - large-cap stocks - says Rao Chalasani, chief strategist for Everen Securities Inc., Chicago.

Large cap, in Wall Street jargon, describes a company's market capitalization, its value, or size, in the stock market. In "Real Street" terms, that means multiplying the stock price by the number of shares owned by investors. If that number exceeds $1 billion, it's a large cap. Less than $250 million - small cap.

Even though small caps have shown spunk of late, few show any signs of a midyear rally, Mr. Chalasani says.

Investors want the larger firms for their safety in uncertain times, says analyst Stephen Dalton, managing director at First Capital Group, Philadelphia.

The big-company stocks dominate even within the technology sector, traditional home of small companies. The Nasdaq Composite Index, with its thousands of small technology companies, is up some 28 percent this year. But the Nasdaq 100 Index - which covers the largest 100 firms in the Nasdaq - is up a whopping 47 percent.

Experts say you should own more than just large-company shares because they could suffer with a market downturn. "Diversification is very important," says Scott Cooley, who follows small-cap mutual funds at Morningstar Inc., Chicago.

Small-caps stocks performed well in mid-1997 but never recovered from the Asian financial crisis, Mr. Cooley notes. If Asian problems subside, investors may feel less compelled to buy the "quality" of large-cap stocks.

Even so, some small-cap investors have already done well. New York investment firm Ladenburg Thalmann's Focus List of some 70 small- and mid-cap stocks significantly outperformed the overall market over the past year.

But stay selective, urges Barry Sahgal, director of research and equity for Ladenburg Thalmann.

His recommendations include: TMP Worldwide (TMPW), a Yellow Pages and recruitment advertising firm that is moving operations to the Internet; Evergreen Resources (EVER), a natural-gas company in Colorado; and Bluegrass (BXG), a time-share firm ready to tap baby-boomers' vacation plans.

The bottom line: Yes, there is money to be made in small-cap stocks says Mr. Sahgal. But you have to do your homework to find them.