To get to this sleepy town of Moraga in Contra Costa County, Calif., one must drive a circuitous route through a long tunnel and a maze of narrow and wide freeways.
The trip, however, features no more twists than the chosen investment path of Moraga resident James Collins, whose OTC Insight model portfolio rose 149 percent in value last year. The newsletter editor, Mr. Collins, tracks the unpredictable over-the-counter stock market, and its lackluster performance this year has resulted in a meager 2 percent portfolio gain.
Some small-company stocks have taken price hits of 20 percent to 40 percent. But rather than be discouraged, Mr. Collins is enthusiastic about bargain opportunities.
"This is an excellent time to be buying OTC growth stocks, for we should see good growth in the last four or five months of the year," Mr. Collins said. "By September of 1993 we could see an OTC portfolio up 25 percent, and that's on the low side, with the high side anybody's guess."
During a recent visit to his office, Mr. Collins' eyes were constantly focused on several computer screens tracking small-company stocks that had taken price hits earlier that week. His new accounts were buying into those stocks. Despite the weak first quarter, he believes the second quarter will be a bit better and the third will bring real success.
"The problem is, with the tremendous run-up in OTC stocks last year, people are more willing to pull the trigger and sell even if a company's fundamentals are still in place," complained Mr. Collins, an active trader whose quantitative screening involves 2,000 NASDAQ stocks.
"But small companies should by a large measure outperform bigger companies, which will find that moderate inflation means slower earnings growth."
The market is a year into the typical seven-year OTC cycle and, while it might not last seven years this time, he believes the bias is upward. Despite his small-stock preference, he expects the Dow Jones industrial average could be at 3,400 to 3,500 by next December.
A native of Charlotte, N.C., Mr. Collins got interested in stocks reading financial columns in the local newspaper, then went to Georgia Tech and Harvard Business School. He did stock speculation on the side while in the Navy and working for a number of corporations and investment firms.
The OTC Insight letter was started with Louis Navellier in the mid-1980s, but Mr. Collins and Mr. Navellier had a falling out. Mr. Collins kept OTC Insight, while Mr. Navellier founded his own MPT Review.
Boosted by last year's market, OTC Insight circulation has more than doubled to 1,500 in recent months and is gaining at a pace of 10 new subscriptions a day. "Stocks are still vulnerable to program trading, but I believe a subscriber will do well by choosing and following one of my buy lists that best meets his goals," said Mr. Collins, who aims for a 23 percent annual return from the 100 stocks on his overall buy list. (A one-year subscription to OTC Insight costs $195. Address is P.O. Box 127, Moraga, Calif. 94556.)
He's willing to pay a hefty 20 times earnings or more for the right fast-growing company.
In the "attractive" category, Mr. Collins likes Cisco Systems, a company in multi-line networking of personal computers that has a 125 percent five-year growth rate. Magna International is an auto parts firm in a turnaround situation whose stock price is low. Cooker Restaurants, one of the best-run chains in his opinion, specializes in family-style dining. Novell Inc., the premier company in the computer connectivity business, should have an astonishing growth rate, he predicts.
In the "beaten up, but good" category, Mr. Collins favors several stocks that have taken major hits. These choices include Fifty Off Stores, which offers brand-name merchandise at half price
and is opening a lot of new stores.