Despite a sputtering economy, BusinessWeek's Hot Growth Class of 2006 has fared relatively well. Weighted by market value, the companies have returned 4.7% over the past two years. That tops the small-cap Russell 2000 index, which dipped 3.9% during the same period, but lags behind the large-stock Standard & Poor's 500-stock index, up 9.8%.
The standouts shared one factor: avoiding the U.S. consumer. Consider the winner, Sarasota (Fla.)-based Sun Hydraulics (SNHY). Sun, which earned more than half its $167 million in 2007 sales outside the U.S., makes crucial components for machines such as cranes and oil-well drills that serve booming global industries. And foreign consumers have propelled growth at Guess? (GES), the Los Angeles-based purveyor of jeans, sunglasses, and sundresses. Of the 245 Guess? stores set to open in the next year, 185 are outside the U.S.
Investing in hot growth companies can be bumpy, but few stocks have bounced around like that of LCA-Vision (LCAV), the Cincinnati-based provider of laser eye surgery. Just before LCA hit No. 9 on our '06 list, CEO Stephen N. Joffe left after disclosing he'd invested millions in a rival company. By the fall, shares were down 42%. Joffe's son, Craig, took over, righted the ship, and shares rose 56% over the next nine months. Craig resigned as cash-strapped consumers put off the surgery, and shares plunged again. The upshot: Over the past two years, shares have lost 81%, and the outlook is blurry.
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