Improved Earnings and Revenue Offer Growth Prospects in Small-Cap Investing: a Wall Street Transcript Interview with Nancy B. Prial, Portfolio Manager and Managing Principal of Essex Investment Management Company

Wall Street Transcript

67 WALL STREET, New York - November 8, 2012 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review for serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Small Cap Investing - ESG Investing - SRI Investing - Long Term Investing - Focus on Fundamentals

Companies include: LeapFrog Enterprises Inc. (LF), Jamba, Inc. (JMBA), Healthstream Inc. (HSTM), Market Leader, Inc. (LEDR), Stewart Information Services C (STC), PROS Holdings, Inc. (PRO), Titan International Inc. (TWI), Lindsay Corporation (LNN), Westport Innovations Inc. (WPRT), Cummins Inc. (CMI), FedEx Corporation (FDX), Canadian National Railway Comp (CNI), Chart Industries Inc. (GTLS), Ulta Salon, Cosmetics & Fragra (ULTA) and many others.

In the following excerpt from the most recent Investing Strategies Report, an expert small cap portfolio manager discusses her outlook for the sector for investors:

TWST: Would you give us some examples of your top investment picks and ideas right now?

Ms. Prial: Sure. In the area of consumer, a name that we think has great potential, particularly in the short term as we look at the upcoming holiday season, is LeapFrog (LF). LeapFrog, as I'm sure you know, is a company that plays in the children's toy space. They make electronic toys focused on educational products for children.

About a year ago, they came out with a LeapPad for children, so think of it as an iPad for kids. They have just come out with the second generation of this product. It is flying off the shelves, both in terms of the physical locations that they distribute through as well as the Internet locations, and we think it is a company with the right product at the right time and the right place. And even though the consumer spending is going to be fairly moderate over the holiday season, we do think that people will continue to spend on their children, particularly with a product that purports to be educational as well as entertaining.

Another name that we like in the consumer space is a company called Jamba Juice (JMBA). It's a very small-cap company, and they sell juice drinks. It is a play on the increasing demand for organic and fresh foods within the country. We know how successful Whole Foods and other companies like that have been, and this is a small cap, much-less-discovered way to play that same theme.

They are growing their store base, their comparable store sales are improving, and the stock is really just starting to get noticed again this year. Its market cap currently is about $150 million, so it's broken into a size where other small-cap managers can start to look at it. They've gone through a period of turnaround, but we think that this turnaround is taking root with improvements in restaurant operating margins, and the new management is really starting to drive growth there.

On the health care side, I mentioned we particularly like companies that are helping to increase the productivity within the health care providers, and a company that benefits from that is a little company called HealthStream (HSTM) based in Nashville, Tenn. You can think of them as a talent-management company in the health care space. They provide software tools that allow hospitals to deliver best practices, training and metrics in order to measure how their personnel within the hospitals are delivering the services to their patients.

This is a company that's growing its top line between 24% and 28% in a very wide open marketplace, where productivity gains are just starting to take hold. It's about $650 million market cap, so really in a sweet spot of the small-cap space with what we think is very open-ended growth as they both develop their own products with the talent-management side as well as bringing in third-party products that they can then distribute through their strong distribution base.

In the housing area, we own stock in two types of plays there. One is a software company that is helping to automate the lead development for real estate professionals. It's a company called Market Leader (LEDR). It's about $175 million market-cap company that actually came public when housing was hot a number of years ago and has fallen on some hard times. But it's an information technology play that, again, is focused on productivity improvement...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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