Small Caps To Stick A Feather In

Most investors either love or hate small-capitalization stocks. For Marcus Robins, editor-in-chief of the Red Chip Review, the quest is to find "solidly managed" small-cap companies that also have "outstanding growth potential." The review tracks 300 companies from among the 10,000 that have market caps of less than $750 million.

Robins believes there are lots of small companies that merit investors' attention. Three that top his list: Electro Scientific Industries (ESIO), whose precision gear is used in making microelectronic components; Excel Technology (XLTC), a laser systems developer; and Veterinary Centers of America (VCAI), operator of 170 pet hospitals.

Electro Scientific was a high-tech highflier--until the Asian flu dragged the stock from 63 last October to 29 on June 12. (Its biggest markets are Japan and Korea, making up 40% of revenues.) Now at 31 9/16, the stock is way oversold, says Robins. He figures earnings jumped to $2.75 a share in the year ended May 31, 1998, on revenues of $232 million, and will climb to $3.20 on sales of $276.1 million in fiscal 1999. The company earned $1.81 in fiscal 1997.

Excel Technology has a new laser marking system, designed for high-volume bottlers and drugmakers. This market had been out of reach for most laser systems because it requires such high speeds. But Excel's beam system is fast enough for such applications, says Matthew Desmond, an analyst at the Red Chip Review. Robins figures Excel will earn 80 cents a share this year and $1.06 in 1999.

Veterinary Centers "is the Wal-Mart" of the vet business--in terms of its wide reach, says Robins. The chain's rapid growth is also a result of providing improved care, particularly for aging pets. "It's the undisputed leader in animal hospitals, but its share of the $8 billion market is still infinitesimal," says Robins. Revenues for 1998 are estimated at $275 million. Robins sees earnings jumping to 75 cents a share in 1998 and to 90 cents in 1999, vs. 1997's 15 cents.

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