Positive Trends, Positive Growth

By cherry-picking industries, SBK-Brooks' Eric Small beat the markets

For Eric Small, investment success is about establishing a competitive edge.

His philosophy of investing in companies that beat the competition with new and innovative products, services, or processes helped him pick stocks that rallied far past major indices over the last year.

Small, president and CEO of SBK-Brooks Investment Corp., a BE 100S firm, selects “companies with above-average, long-term growth and earnings.” As a result, the portfolio of five stocks he recommended to BLACK ENTERPRISE scored a 33.6% gain over the 52-week period from March 7, 2005, to March 6, 2006. By contrast the Dow Jones industrial average and the S&P 500 produced returns of 0.2% and 4.66%, respectively, during the same period.

Aetna Inc. (NYSE: AET), which provides healthcare, dental, pharmacy, group life, disability, and long-term care benefits, had a 2-for-1 stock split during the period. Its value increased 27.27% from a split-adjusted $38.47 to $48.96 per share. “The baby boomers are aging, and that represents a market opportunity for the company,” says Small. “This stock did very well because of the healthcare demographic, and we still think that there’s room for growth at Aetna.”

Valero Energy Corp. (NYSE: VLO), an independent refining and marketing company that owns and operates 15 oil refineries, also had a 2-for-1 stock split during the year. At the time of recommendation, the company’s stock was valued at a split-adjusted $36.22, but jumped 51.24% to $54.78 per share. “Valero has benefited from the increasing demand and price increases associated with energy,” Small says. “As nations such as China and India demand more oil, we think Valero will continue to do well.”

Coach Inc. (NYSE: COH), which designs, manufactures, and markets leather goods, accessories, and furniture, also had a 2-for-1 stock split. Although the stock rode a resilient consumer buying market to boost its value 19.82% from a split-adjusted $29.71 to $35.60 per share, Small cautions that it may lose some steam. “With hikes in interest rates and energy prices, we are concerned that consumer purchasing of Coach’s products may be dampened a bit,” Small says.

In technology, Cognizant Technology Solution Corp. (NASDAQ: CTSH), a provider of IT design, development, integration, and maintenance services, saw its stock move from $48.49 to $56.51 per share, a 16.54% boost. “Because there is a demand for their products, we think Cognizant will continue to do well,” Small says.

Small’s final winning selection was Apple Computer Inc. (NASDAQ: AAPL), which designs, manufactures, and markets personal computers and related software, peripherals, and communications solutions. Over the year, the company’s stock increased from $42.75 to $65.48. According to Small, a major factor in Apple Computer’s 53.17% increase was its ability to use its iPod product line to increase demand for its products. It has also been adept at marketing products successfully to a wider market segment. “They have benefited from brand loyalty,” Small says. “But in addition, they have created products that have captured the imagination of a wide cross section of buyers.”

ACROSS THE WEB