Morningstar small cap picks for summer 2008

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UCBH Holdings (UCBH


Sponsored by:
UCBH)
UCBH is just one of three banks dominating an attractive niche that
serves the ethnic Chinese population in the United States. Senior
stock analyst Michael Kon likes UCBH's customer-focused strategy. The
bank presents products and services in various Chinese dialects,
develops relationships in the community, and customizes offerings to
meet the unique demands of its target demographic. Kon also notes that
the Chinese American community grows much faster than the total U.S.
population, generates higher average income, and tends to saves more
of that income. In addition, Chinese Americans are more loyal clients.
These differences translate into solid growth in deposits, superior
credit quality, and a very sticky deposit base. Risks to the stock
include heavy exposure to California's real estate market and a
sizable construction loan book, which seems to be performing worse
than its peers.

Pinnacle Entertainment (PNK


Sponsored by:
PNK)
Senior stock analyst Sumit Desai believes that Pinnacle Entertainment
could join the major leagues of casino operators. The company owns
eight properties in regional gaming markets such as Louisiana and
Indiana, as well as smaller properties in Argentina and the Bahamas.
Pinnacle demonstrated its casino development capabilities with
L'Auberge du Lac, which was completed in May 2005. The casino is now
the top property in Louisiana, and expansion is already under way. The
company also has ambitious plans for St. Louis, with Lumiere Place,
which opened in late 2007, and with a second property slated for a
mid-2009 opening. Desai believes these two casinos will become the
premier properties in that market. Headwinds for the company include
the challenging consumer environment and poor credit market
conditions, which could make future developments more dicey.

Performance of Previous Small-Cap Superstars' Picks
Overall, we've been very pleased with the initial results from our
picks last fall. Several of our favorite fund managers, along with
Morningstar senior stock analyst Justin Perucki, deserve credit for
our two best performers, Whiting Petroleum (WLL


Sponsored by:
WLL) and Cimarex (XEC

Sponsored by:
XEC). We also give kudos to a handful of our superstar managers and
senior stock analyst Brett Horn for the nice runup in Navigant
Consulting's (NCI

Sponsored by:
NCI) stock. The only pick that has not outperformed the Russell 2000
is Carter's (CRI

Sponsored by:
CRI). We'd note that Morningstar analyst Michelle Chang cut her fair
value estimate on the stock in February to account for a weaker
outlook for the current year. Still, several of our fund managers have
held on to the shares, and Chang believes the stock remains
undervalued. We also continue to be bullish on American Reprographics
(ARP

Sponsored by:
ARP) and International Speedway (ISCA

Sponsored by:
ISCA).