On this date in 1996, Herb Greenberg, financial writer for the San Francisco Chronicle, talked about how to find potentially undervalued small-cap stocks in an overvalued stock market. Greenberg advised investors to review 13-D filings of small-cap stocks where an investor has recently accumulated a position greater than 5%. This increase in ownership implies that the shares are undervalued. Naturally, a review of the company fundamentals is necessary before any action can be taken.
The one and only company mentioned by Greenberg in regards to a 13-D filing of 5% or more was Merit Medical Systems (MMSI). Merit, a maker of disposable products for heart catheterization procedures, has not disappointed since mid-May 1996. As seen in the chart below, MMSI has outpaced the S&P 500 by 3 times. It is no small feat to beat the S&P 500 when you consider that MMSI also exceeded Berkshire Hathaway, Intel and IBM in the same period of time.
Of course, this is an example that only confirms survivor bias & single sample data, not the most robust assessment. However, the point remains, in a market that appears overvalued there are still ways to sort small-cap stocks for those who must be in the game.