Biggest Change In US Markets: “Small Ball” Companies Rise To The Top

Over in the world of baseball where steroid-built great apes hit 60 home runs a season, there is still a place for what is known as "small ball". That approach to the game is based on hitting singles, bunting, stealing bases, and playing superior defense.

In the US stock market this year, "small ball" beat steroids at almost every turn, and that is likely to continue going into 2008. GM (GM) was a great home run hitter in 2007. It cut $9 billion in operating expenses and got as good a UAW contract as anyone could imagine. But, it sells a product which costs $25,000. In a tough economy most consumers can’t handle that.

In the financial sector, stock market success has been based on the ability to lend billions of dollars to consumers, LBO companies, and funds that hold risky financial instruments. It is another industry that deals in huge sums and it had a bad year.

In the capital goods area, the market saw some of the same. Cisco (CSCO) sells routers that can go for six and seven figures. Its customers are finding that a little rich and its stock will end the year near a low. Boeing (BA) relies on huge orders. A slight product delay, like the one it hit with its 787, will tank the shares every time. One of those planes costs about $250 million. 

Yahoo! (YHOO) has a problem that is not dissimilar. Most of the display advertising campaigns it runs cost hundreds of thousands of dollars. Car and financial service companies spend a lot of that money advertising on the Internet.

In the world of "small ball", Google (GOOG) did well. Most of the customers for its revenue driver, Adsense, are small and medium-sized companies. Many are only investing a few thousand dollars a year buying the Google text ads. But, the firm has hundreds of thousand of those little customers.

McDonald’s (MCD) is the quintessential "small ball" player. It ends the year near a 52-week high. The company still has Dollar Meals. A consumer can feed a family of four at the fast food place for $25. Procter & Gamble (PG) ends the year near its high. Razors and soap will always sell, and they are cheap.

Pepsi (PEP) and Coke (KO) leave 2007 near their 52-week tops. A soft drink still costs $1 most places. BUD will close the year near its high.

The lesson of stock prices in 2007 will probably carry well into 2008. Companies that sell expensive things to consumers and businesses are having trouble doing well. People in the US feel poor now. So do many companies. Fear closes the pocketbook.

The hero of the broken economy is a heavy set man who has just had a shave. He holds a beer in one hand and a hamburger in the other. He just spent $15, and he does not feel that he has to spend another dime.

Douglas A. McIntyre