The pond for small companies is growing more crowded as former whales fall in.
A total of 59 companies on a major U.S. stock market exchange were among the elite with large market values of $3 billion or more at the end of 2007, but now are small-capitalization stocks worth $1 billion or less, according to a USA TODAY analysis of data from Standard & Poor's Capital IQ.
The list includes well-known companies such as mortgage giants Fannie Mae fnm and Freddie Mac, fre retailer Office Depot odp and rubber clog maker Crocs.crox
Companies falling from the major leagues to the minors is unusual. Only two fell from being large-cap to small in 2007, and none did in 2006, 2005 and 2004, the Capital IQ data show. The falling fortunes are another sign of how badly the market's been damaged. "That things have traded down this far — it really is an incredible kind of situation," says Scott Barbee, portfolio manager of the Aegis Value fund.
Factors causing the shrinkage:
•Re-evaluations. Companies that needed help from the federal government have either vanished or suffered dramatic blows to their market value.
Fannie Mae and Freddie Mac commanded megavaluations of more than $39 billion and $22 billion, respectively, at the end of 2007. But since the government placed them into conservatorship last year, the two have seen their values plummet to roughly $550 million and $330 million, respectively.
•Changing trends. China's JA Solar became a large-cap company, valued at $3.5 billion, when oil prices soared in 2008. Investors loved solar companies as policymakers talked about the compelling need to find alternative, renewable energy sources. But as oil prices fell, so did investor enthusiasm. JA Solar is now worth $460 million.
And the stunning growth in sales of its trademark rubber clogs, boosted by a few celebrities spotted wearing them, turned Crocs into a $3 billion company. But slowing growth has cut the value of Crocs to $100 million.
•Weakening economy. Office Depot suffered as it —and other retailers — had to close stores. Investors also have shunned real estate businesses, including those with offices and malls. Real estate investment trusts such as CB Richard Ellis, which owns and operates commercial property, have been hurt.
But some say that investors are being overly bearish, as they were overly bullish earlier in the decade. "At some point, this is just overdone," says Jack Ablin of Harris Private Bank.