Last year was a great one for big-stock investors. Not necessarily, however, if you only owned a basket of big Minnesota firms.
"Minnesota companies have a history of participating, but lagging hot markets," said Mark Henneman, chief executive of Mairs and Power, the St. Paul-based investment manager.
Mairs and Power's Minnesota-heavy growth fund returned 16 percent last year and a strong 9 percent annually over the last decade. However, last year's double-digit return lagged the performance of the Standard & Poor's 500 index of the nation's largest companies and its tech-heavy superstars of the last few years.
"Unfortunately, Apple, Alphabet [Google], Microsoft, Facebook and Amazon are all west of Moorhead," quipped Henneman. "I think it is a reasonable bet that when the markets correct," the Minnesota index will hold up better.
The big national technology, health care and financial complexes drove the huge one- and three-year returns of the S&P 500 and the Dow Jones industrials, including Minnesota-based 3M Co. and UnitedHealth Group.
The S&P 500 returned 19.4 percent in price appreciation and dividends in 2017 and 29.9 percent over the last three years, compared to 8.6 percent and 3.9 percent for the Piper Jaffray Minnesota's index of 52 stocks worth more than $100 million. The i-dex also includes Delta Air Lines, Thomson Reuters, Wells Fargo and Honeywell, which have large Minnesota operations and employment.
The Piper Minnesota index of public companies tends to skew smaller in size than the S&P 500 and other huge-company national indexes.
That said, the Russell 2000 index of mid-capitalization companies of up to about $2 billion in market value also trounced the Piper Minnesota index. The Russell 2000 was up 13.1 percent last year and 27.5 percent over the last three years.
Jim Paulsen, chief investment strategist at Leuthold Group, pointed out Friday that the Bloomberg Financial comprehensive list of 91 Minnesota public companies, including some small-capitalization winners, may have saved the year for the state's public firms. The Bloomberg list of Minnesota firms was up 20.8 percent in 2017 and 19.4 percent in 2016.
"There are many Minnesota companies that did well in 2017," said Beth Lilly, the veteran small-company portfolio manager and owner of Crocus Hill Partners in St. Paul. She ticked off a list winners such as Mocon, MGC Diagnostics, Intricon, Electromed and Northern Technologies.
"My guess is that the small-to-microcap companies have outpaced the Russell 2000," Lilly said.
Indeed, Minnesota had winners last year. And the best performers tended to boast market values well below $2 billion.
Intricon was a dazzler
For example, Arden Hills-based Intricon, which zoomed from $6 to nearly $20 per share last year, returned 187 percent to shareholders in 2017 and 191 percent over the last three years, after being a disappointing stock, following 30 years of so-so performance. Its market cap is about $140 million.
Chief Executive Mark Gorder, 70, an electrical engineer who joined the company in 1977, has made huge gains with an innovative line of low-cost hearing aids, as well as good performance from the manufacture of other tiny body-worn electronic devices made for Medtronic.
The second-best Minnesota company also is small. WSI Industries, the Monticello-based contract manufacturer, nearly doubled in value last year. Its market cap is about $20 million.
Meanwhile, the much-larger Proto Labs, which went public at less than $30 per share in 2012, broke through $100 per share in December. Proto Labs, with a valuation of $2.8 billion, returned 100 percent in total return to shareholders last year. The Maple Plain-based and Internet-enabled manufacturer provides custom parts and assemblies for customers around the globe in a hurry. It's among Minnesota's most innovative and fastest-growing young employers.
Tactile Systems Technology of northeast Minneapolis, rose 29 percent last year. Its market cap is about $500 million.
The company had to lower its stock-offering price in 2016 to go public at $10 per share in order to raise nearly $50 million in expansion capital. The company closed on Dec. 31, at $29.08 per share. Since its IPO, the developer of the Flexitouch System that treats chronic limb swelling at home has soared as one of Minnesota's best public companies to own.
Three Minnesota-based companies completed IPOs in 2017; the highest single year total in a decade. Fewer companies have gone public in recent years and there are fewer Minnesota public companies thanks to the brisk mergers-and-acquisition business that has benefited from low-interest rates and cheap capital.
Plymouth-based Celcuity, Grand Rapids-based ASV Holdings, and New Brighton-based Calyxt raised equity capital last year.
Calyxt, which raised $56 million, went public in July at $9.50 per share. The stock was up nearly 100 percent during the second half of 2017, making it the best performer among the Minnesota companies that completed IPOs.
Recreational vehicle manufacturer Winnebago Industries, whose executive team is now based in Eden Prairie, had a robust 2017. It rose 56 percent in value and 168 percent over the last three years. CEO Michael Happe, a former Toro executive, elected to run the show from the Twin Cities. The company's operations-and-manufacturing hub remains in Forest City, Iowa.
The stock market hit record highs in the first week of 2018, amid mixed feelings among analysts.
Predictions for 2018
Paulsen predicts the S&P 500 will back off moderately this year. Today's prices bake in good fundamentals optimism that may be threatened by a bump in interest rates or a geopolitical incident that could snap the long run of the bull market since 2009.
Lisa Erickson, senior vice president at U.S. Bank Wealth Management, forecast last month that the S&P 500 will rise again, finishing 2018 at 3,000; the high end of the veteran analysts polled in December by the Star Tribune.
Henneman isn't looking for much of a run, but he's not counting out his favorite stocks. "There's plenty of value in Minnesota," said the native Minnesotan. "Our favorites are: Donaldson, Ecolab, Hormel, Medtronic and Tennant."