street sense
Stocks Staged Comeback in 2003
After three years of horrendous losses, stocks rebounded.

How bad was the stock market collapse that lasted from the spring of 2000 until the fall of 2002? So bad that a venerable American company, Corning, saw its stock drop from a high of about $120 a share at the height of the late 1990s bull market to a low of a little more than a dollar in 2002.

That's more than a drop. That's a catastrophe for investors who believed that Corning was about as solid a name as there is in American industry. What got Corning in trouble was over-capacity in fiber optic cable production. The company's stock soared when the fiber optic boom arrived, but it soured badly a few years later when there was so much fiber optic cable around that you couldn't even give it away.

But the 2000 to 2002 period is now behind us. In 2003, most stocks recovered, including Corning, which has poked its head above $10 a share as I write this.

In this article, I'll review the market recovery of 2003, pointing out the areas of greatest strength, and also those sectors of the market that remain weak.

Tech stocks showed life

Anyone who has retirement money in an "aggressive growth" mutual fund knows that no group of stocks fell harder during the market collapse than those that dwell in the high technology sector. Forget the dot-coms. They were always just a pure speculation. But even such stalwarts as semiconductor giant Intel, semiconductor equipment leader Applied Materials and computer maker Unisys saw their share prices suffer terribly during the collapse.

The good news is that almost all of the big technology company names recovered nicely in 2003, with many of these stocks doubling from their 2002 lows. They didn't come close to equaling their previous bull market highs, but they advanced smartly enough to allow technology investors to breathe a sigh of relief.

One sign of the extent of the recovery: The NASDAQ Index, which basically reflects the action of technology and growth stocks, was showing a 40% gain for the year by early November.

Small stocks brought smiles

But if technology stocks recovered in 2003, it was the stocks of smaller companies that truly impressed the general population. The Russell 2000, which currently includes U.S. stocks that have a market capitalization of from about $120 million to about $1 billion, had a banner year in 2003. Many stocks representing diverse industries doubled and tripled as investors finally discovered that smaller companies in supposedly mundane businesses could move quickly and intelligently to create profitable niches for themselves.

For example, SFBC Corporation, a Miami-based company that helps pharmaceutical companies conduct clinical trials, saw its shares go from a low of about $11 in 2002 to a high of $37 in recent months. Expanding through both acquisition and internal initiative, SFBC has been able to offer a wider array of services to its pharmaceutical company clients, bringing increased profits to the bottom line.

In the eyecare industry, favorable demographic trends, spurred by the aging of the baby boomer generation have helped the shares of Alcon, Bausch & Lomb and Advanced Medical Optics all soar in 2003. Banks, some retailers and energy stocks also showed strength this year.

Not a bad year

Not all sectors of the market have performed as well, though. Weak spots remain in many areas of manufacturing, and the major drug stocks have languished all of 2003.

In sum, 2003 has been much better than the past three years, but you still had to be in the right stocks.

Mr. Helzner has written more than 50 articles on stock investing for Barron's.  He's been a regular stock market columnist for other business publications and was a member of the equity research department of a major regional brokerage firm.