November 1, 2004
Small Caps, Big Value
Henry O. Jackson’s minority-owned firm, Banneker Capital Management, is right where he wants it to be. The newly minted asset management firm in Owings Mills, Maryland, opened its doors in early 2003 and invests in small and mid-cap growth companies with a stock market value between $100 million and $4 billion. From March 20 to the end of 2003, the Russell 2500 Growth Index of small company shares, the benchmark for small publicly traded firms, was up 35.21% in 2003. During the same time period, Banneker’s portfolio was up 41.11%, which was better than the 28.7% gained by the Standard & Poor’s 500 Index in 2003.
After getting off to a fast start, Banneker’s results in 2004 have cooled somewhat, as is typically the case with hot sectors of the market. Still, Jackson thought his portfolio’s focus was right on track. He says Banneker’s small and mid-level companies (what he calls “smids”) are reasonably priced and that their price drop on the heels of high interest rates was “artificial”. “Large companies are affected by interest rates and energy prices much more than our stocks,” Jackson says.
Jackson, chairman of Banneker, has worked in the securities industry since the early ’90s. He has managed money for high net worth clients but decided in 2001 to launch Banneker with partner Robert Goldman, now Banneker’s CIO and portfolio manager.
The firm’s primary focus is growth. Jackson focuses on companies with annual earnings growth of 15% to 17%, provided its shares aren’t too expensive. The company also uses its Banneker Quad Score, or BQS, a trademarked stock evaluation method, to review holdings whenever they have moved 20% upward or 10% to 12% downward. “Smid managers tend to be active, and we adhere to strict sell guidelines,” Jackson says. “The old saying is ‘You never go broke by taking a profit’, and we look to make sure fundamentals in our stocks have not broken down. If [we find that they have], we’re likely going to sell.”
One stock in the Banneker portfolio is Mueller Industries Inc. (NYSE: MLI), which makes copper, brass, aluminum, and plastic fittings for plumbing, heating, air conditioning, and refrigeration units. Jackson says the company’s 15% to 17% growth as a result of the housing boom should raise the stock to around $45 a share within a year. Another plus: Investing superstar Warren Buffet’s Berkshire Hathaway is the company’s largest investor.
Integra LifeSciences Holdings Corp. (Nasdaq: IART) is one of Jackson’s favorites. The company develops biotech products such as artificial skin to help surgical patients recover more quickly. Jackson says 20% annual earnings growth should propel the stock to around $35.
An interesting play in the financial area is Global Payments Inc. (NYSE: GPN), a leader in electronic payment transaction processing. Jackson thinks the firm is on its way to $50 a share in the next year due to growth of 15% or more.
Another Jackson pick, Orbotech Ltd. (Nasdaq: ORBK), makes equipment that aids in the manufacture of circuit boards and flat panel displays. Jackson says a