Small stock focus: Some heavy-duty small stocks face pressure
If interest rates keep rising, they will cut sharply into the performance of smallcapitalization industrial stocks in the months ahead, money managers and analysts say. But there will be sectors that prove resilient amid any overall declines, they believe.</br></br>"Small-cap industrials benefiting solely from a cyclical economic recovery are going to be hurt," as rising rates slow overall demand for capital goods, says Mary Lisanti, small-cap portfolio manager at Bankers Trust Co. in New York. Hardest hit, she says, will be companies "that built pricing increases into their business models."</br></br>A large number of small-cap manufacturing companies "basically figured that inflation would go up and that they would get a little piece of the action by pushing through price increases of up to 6%," she explains. "But what {Federal Reserve Chairman} Alan Greenspan is trying to do is take price increases out of the system."</br></br>The Bankers Trust money manager was quick to start paring her fund's holdings of {small-cap} manufacturers in the wake of the Fed's two moves to raise short-term rates in the first quarter.</br></br>Among the stocks dumped from the portfolio were a host of suppliers to the automotive industry: Stant Corp., Borg-Warner Automotive Inc. and Excel Industries.