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Chip wrote:
> I agree that your "Gut explanation" (great term!) is based more on
> stock price than on capitalization. Is it true that average price of
> a small cap stock is less that the average price of a large cap? This
> seems like it is probably true, but I don't have a way to confirm that
> it is.
Not exactly. If you have a large cap stock selling at a low price, it is still
much more likely to be followed by an army of analysts than any small cap.
[Zack's calls this the neglect ratio.] Consequently the likelyhood of a range
of earnings estimates being wider is more in a small cap stock than a large
capitilization stock. This contributes to the amount of uncertainty being not
as great on a large cap stock even if the actual price of the stock is the same
as a small cap stock. If you have a "surprise" in a small cap stock the impact
is likely to be much worse than in a large cap stock.
ADCT and ANAD are two examples this week where "surprise" impacted the stocks
way out of proportion to the actual news. Both of these stocks were trading
above $40 in the past 6 months only to be cut below $20 now. The likelyhood of
that happening to something like Qualcomm, Ericcson or Nokia is not as great
within a single month although they are all impacted by the decrease in wireless
equipment sales to Asia.
I can't seem to find the Harvey Eisen information for you. I thought he worker
for Prudential, but that isn't correct. Harvey Eisen is a portfolio manager at
Travelers Group. I don't have the relevant web site, but Eisen is one of the
few Wall Street Week panelists that consistantly select small cap stocks for the
year end selection and has talked about the January effect on the show when he
is a panelist.
----
Dave
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