Fledgling growth companies were the stars of the stock market in the first half of 1991.
In the view of top officials at some key markets and investment firms that have benefited, the revival of this long-depressed group could continue for some time to come."It was a very good first half. Small growth is coming back in style," said Gordon Macklin, chairman of Hambrecht & Quist Inc., a San Francisco-based investment firm known for research and investment banking work with "emerging growth" companies.
"There's plenty of room for further improvement" in the stocks, Macklin declared.
As the midpoint of the year approached late last week, the NASDAQ composite index for the over-the-counter market, where many small growth stocks trade, sported a gain of about 26 percent since New Year's.
That was roughly double the increase posted by indexes that give the most weight to big, long-established blue chips.
"I still think the relative values favor the growth and emerging growth companies," said Joseph Hardiman, president of the OTC market's overseer organization, the National Association of Securities Dealers.
Neither Macklin nor Hardiman, who spoke in interviews last week, can be called absolutely impartial. But their enthusiasm is easy to understand when one looks back over the mid- to late-1980s, when emerging growth stocks got left behind a booming bull market in bigger issues.
"All the major trends in the '80s pretty much ignored the world we were in," Macklin acknowledged.
The small-growth group started to rally last fall. By this spring, many participants in this corner of the financial world seemed bent on making up for lost time.
Fans of small medical and biotechnology stocks, in particular, bid stock prices in that industry rapidly higher.
The tempo of stock offerings by companies going public, which had been mostly sluggish ever since the 1987 crash, picked up dramatically by this spring.
In that rush, some observers see warning signals that exuberance might be running quickly to excess. But Hardiman argues that there is no cause for alarm.
"There's been a pent-up demand for access to equity capital," he said.
"I don't think we're seeing the kind of frenzied pace we had in, say, 1983 or 1986. The market is being discerning in terms of the quality of the offerings."
Adds Macklin: "There's an overcrowded pipeline, or logjam effect. We think there's going to be a lot of equity financing as far into the future as we can see."
In the waning weeks of the first half, prices of small growth stocks pulled back a bit along with other issues, in what many analysts described as a "correction," or temporary retrenchment.
Even the junior growth stocks' faithful followers acknowledged the possibility that the decline might run considerably deeper and longer before it runs its course.
In addition, even a period of prosperity hasn't spared small-growth investors from the high risks that traditionally go with this breed of stock.
Early in his career, Macklin said, "I used to just agonize over all the volatility in the market. But I really believe the best way to create wealth is to identify situations of emerging growth early and stick with them."