Bottom 50 companies outperform once again

  • Article by: NEAL ST. ANTHONY
  • Star Tribune
  • May 5, 2012 - 3:25 PM

And the last shall be first. Again.

For the second year in a row, the "Bottom 50" companies on the Star Tribune 100 ranking of the state's largest public firms outpaced the "Top 50" companies in sales, profits and market value.

Market strategists recognize that smaller companies, which also tend to be more volatile performers, crash faster during a recession and rebound faster early in economic recoveries. Mansco Perry, chief investment officer of the $650 million in endowment funds at Macalester College in St. Paul, said: "[They] come up faster on a percentage basis because it's a relatively smaller market-value base to start with."

That's exactly what happened. The market value of the Bottom 50 rose nearly 19 percent in the 52-week period ended April 13, while the overall Star Tribune 100 index was flat.

Forty-one Bottom 50 companies had revenue increases in 2011, but fewer than half showed at least a 1 percent gain in market value for the 52-week period ended April 13. That makes it tough to generalize because of widely varying profitability and ebbs and flows in market value among different companies.

For example, two of the biggest Bottom 50 companies account for 57 percent of the 2011 profit for the group. They have very different stories.

Techne Corp. (No. 52) develops and sells biotechnology products to the research and pharmaceutical industries. It is a traditional high-margin operator that booked $112.7 million in profit on sales of $306.6 million. Its market value slipped 11 percent.

"I think Techne is well-positioned,'' said Rick Moulton, portfolio manager for Riverbridge Partners. "It's one of those companies that isn't in part of the space that the market craves right now.''

Meanwhile, Two Harbors Investment, a real estate investment trust that went public less than a year ago, raised another $692 million in capital in the first quarter to invest in mortgage-backed securities, residential properties and related assets. It is one of several surging REITs nationally that started investing after the market tanked in 2009.

Two Harbors, which already boasts a market value of $2.2 billion, joins the Star Tribune 100 at No. 57.

Datalink Corp. jumped out of the Bottom 50 in 2011, moving from No. 53 to No. 49. Sales rose by 29 percent to $380 million last year at the Edina-based developer and manager of electronic data centers. And investors bid up the value of the company by 58 percent.

In April, CEO Paul Lidsky said second-quarter revenue should rise by at least 40 percent to $125 million or more in the current quarter. "Our overall sales pipeline continues to grow and, within that, demand for integrated data centers continues to grow,'' Lidsky told analysts.

Once-bumbling Caribou Coffee, continuing a four-year turnaround under CEO Mike Tattersfield, saw its market value rise by 69 percent in the year ended April 13. Caribou jumped from No. 54 to No. 51.

The company, which has shuttered underperforming shops, has seen healthy gains in same-store sales, thanks partly to food offerings, as well as commercial sales tied to Caribou-branded single servings that are made for the Keurig coffee machines of Green Mountain.

But, alas, not every cup is rich, as Caribou's stock price fell last week amid disappointing first-quarter results and a lowered 2012 sales forecast.

Proto Labs is Minnesota's newest public company through an initial public stock offering in February.

Proto Labs had 2011 sales of nearly $100 million, joining the list at No. 68.

The Internet-enabled manufacturer of molds and precision short-order parts saw its stock run from an offering price of $16 per share to a $37.80 close on Wednesday, well exceeding analysts' projections for all of 2012.

The euphoria ended Thursday when Proto Labs reported better-than-expected earnings for the first quarter but said that profit margins would narrow in 2012 thanks to higher R&D and expansion spending.

That could be good for long-term investors, but the stock lost 22 percent of its value on the news and closed at $29.48 Thursday. It edged up to $30.32 at Friday's close.

CEO Brad Cleveland said the investments will reap results in two to three years.

Neal St. Anthony • 612-673-7144 •

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