Adrian Day: A Look at Lenders

08/29/2003 12:00 am EST

Focus:

Adrian Day

Chairman and CEO, Adrian Day Asset Management

Adrian Day is best known as an expert in natural resources; his focus is most often on sectors such as energy and metals. But he is also a leading authority on currencies and capital--including the lending market. In fact, two of his top recommendations are small-business lenders.

"American Capital (ACAS NASDAQ) provides financing to middle-market companies in need of capital. The stock has dropped in recent trading on concern about its earnings outlook. ACAS reported a decline in net operating income on a per share basis. After raising equity twice in the first quarter, it turned cautious ahead of the Iraq war, so the capital was not put to work. Despite this, the company strongly reiterated its full year guidance, suggesting the second half might be very strong. ACAS has a good record at working with its troubled companies. We feel comfortable and would buy for the attractive dividend, now yielding 11.5%. For those who do not own the s tock, now is a good entry point.

"Gladstone Capital (GLAD NASDAQ) is a specialty finance company that makes loans to companies that are substantially owned by leveraged buyout or venture capital funds. The stock has moved up considerably in recent months. Gladstone recently took on a $100 million line of credit saying it ‘will seek to make loans totaling $230 million.’ Gladstone has always been cautious, and we certainly would not expect to see all this money put to work in a short period of time, but any pick up in investment activity would probably be well received by the market. Indeed, the stock is already up over 30% from March, and still yields almost 6%. We suspect that both income and the dividend will grow in coming years, making Gladstone a very safe yield bet."

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