Mr. Ursaner: CJS Securities is a sell side research oriented brokerage firm that I founded 13 years ago. We focus on small and mid-cap companies which we believe we can add significant value for our institutional clients and where they have an excellent opportunity to outperform their benchmark index, typically the Russell 2000. Our analysts are generalists; we try to find companies that may be small but clear market leaders in attractive niches, perhaps spun out of another company, may have merged into a SPAC (Special Purpose Acquisition Corp), complex companies with multiple divisions, or for any number of reasons brokerage firms are not doing a good job providing research on a particular company.
TWST: Tell us about the past year, because when we talked to you this time last year, 2008 had been very disappointing and a challenging year for you. How has it been in 2009?
Mr. Ursaner: 2009 was marked by a major shift in investor sentiment and credit markets that occurred in the middle of the year. In September/October of 2008, at the time when Lehman was shutting down, and other financial institutions were under severe pressure, we went through a period of illiquidity, difficulty in selling commercial paper even for investment grade companies, fear of a global collapse, and political uncertainty. Companies and managements were reading the headlines, watching the news and we had a near panic reaction. We saw a hoarding of corporate cash, aggressive inventory reductions, a complete halt of capital spending including some maintenance, a dramatic reduction in headcount wherever possible, and salary reductions of the employees that were retained. It wasn't unique to the United States, but was happening around the world, and that continued into 2009. Companies that were operationally and financially leveraged were sold aggressively with no regard to valuation. This was true for larger cap financial and industrial companies where irrational fear of an Armageddon scenario overwhelmed investors. At one point you could buy a share of Citibank for less than the cost of a Big Mac hamburger. Another factor putting pressure on stocks at the end of 2008 was that a number of hedge funds were shutting down and they were forced to sell due to redemptions.
Around March or April, those trends stabilized and started to reverse. While the economy was still contracting rapidly, the perception changed to a view that we had gotten through the worst, the banks through TARP and other government-oriented programs would survive and that eventually we would recover from the severe and rapid downturn we had just gone through
Since then, aided by the stimulus program, we have seen a modest pickup in economic activity, but much more importantly, a dramatic opening up of capital markets, both debt and equity. While that impacted nearly our entire universe of stocks in 2009, it's interesting to note that the best performing of our coverage list, many of which were up five, six, seven-fold were companies that had fairly high levels of debt, were operationally leveraged; they tended to be the smaller market capitalization names on our list. What we've seen in the last few months of the year was that the higher quality, larger names among our coverage universe has actually been the worst performing stocks as investors have sought greater alpha and risk.
Tickers included in this excerpt: CPY, KWIC, NP, QUIX, STAN, VMI
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