Red Chip Review Rates Small Caps Portland-Based Newsletter Fills Niche Overlooked By Wall Street

Big profits can come from small companies if an investor has the time and expertise to do the research, but the information wasn’t readily available to the average person until the Red Chip Review came along.

Marc Robins started the Portland investor magazine to track “small-cap” stocks, which he generally defines as companies grossing less than $750 million. The definition varies widely in the financial industry.

“It’s really an arbitrary figure,” Robins said. “We cover companies that Wall Street usually doesn’t follow, and if we can’t add some incremental value for the investor, we don’t follow them.”

Like some of the companies he reviews, his magazine started out on a shoestring budget.

Late in 1992, the former financial analyst and Portland State University business professor hired some eager students who jammed the cold basement of his house collecting research and building crude office furniture.

“We packed them in there, but they stayed warm that way,” Robins said, laughing at the memory.

He since has moved to a downtown office and expanded his staff to 35, growing from a handful of subscriptions to about 5,000, but the biweekly Red Chip Review still has much the same format.

It resembles Value Line reports, but it concentrates on smaller regional companies, providing earnings ratios, trading volumes, sales histories, abbreviated balance sheets and executive summaries.

Brokers, economists and investors say the Red Chip Review filled a gap with information about promising smaller companies that stock brokers and Wall Street tended to ignore.

“They’re selling a market niche at Red Chip,” said Diane Del Guercio, a finance professor at the University of Oregon business school.

“If you look at firms followed by big brokerage houses, they’re typically large companies. It’s really difficult to find information on regional or smaller companies.”

But historically, Del Guercio said, smaller companies have outperformed larger companies in the stock market by a wide margin, even when adjusted for the higher risk typical of small companies.

To take advantage of that performance, the Oregon Investment Council in October 1996 placed $600 million in public employee pension money with three money management firms that invest in small-capitalization stocks.

“By no means are small caps as obscure and difficult to find as they were a decade ago,” said Jay Fewel, senior equity investment officer for the council. “Those that devote resources to that segment of the marketplace certainly can pursue it.”

Binkley Shorts, an analyst with Wellington Management Co. in Boston, said the reason big firms stick with big companies is partly due to simple economics: more trading means a bigger return on the investment in research.

Individual investors also tend to steer clear of smaller companies because of economics: Bigger companies mean less risk.

“We’re looking at larger companies that have been around for a while and have a track record,” said Bob O’Hara, spokesman for the National Association of Investors, based in Madison Heights, Mich.

People who invested in stock by themselves or joined clubs typically did their research at a kitchen table or at the library with more easily available material on big companies, O’Hara said.

But O’Hara said attitudes toward small-caps are changing, helped in part by better access to financial information through the Internet, where the Red Chip Review maintains a Web site.

“You’d be amazed how many more people are going to the Internet for first-call estimates and different sites,” said Joyce Clawson, who is in her fourth year as president of the association’s Portland council.

A former pharmacist who now manages a bookstore, Clawson has been involved in small businesses most of her life, making her especially aware of how hard it can be to find good financial information for smaller companies.

“Now that we can get more information, we feel a little more comfortable,” she said.