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Today’s Worst Small Caps Could Be Tomorrow’s as Well - CHSI, UFPI, SKYW

Don’t hear me wrong - all sectors, sizes, and industries stunk today. A few small caps, however, really got whacked. In some cases, I think today’s pounding is parts of a longer-term punishment that’s best left untouched unless you’re looking to short some of these tickers. Here’s today’s bottwom dwellers… the five worst small cap (from the S&P 600) groups.

5/27/09 - Worst Small Cap Industries

5/27/09 - Worst Small Cap Industries

The distributors I’m not concerned about. Tey’ve had a good week, and a  good year to boot, so I’ll give ‘em a break. I’ll also give the office REITs a break too, since the intermediate-term results are decent.

The rest of these small cap industries though…. well, from a technical standpoint, it looks like they’re poised to sink some more before rebounding

Each take is labeled, so if there’s a certain group you’re curious about, feel free to go straight there.

Life & Health Insurance

05/27/09 - Small Cap Life & Health

05/27/09 - Small Cap Life & Health

The S&P Small Cap Life & Health Index peaked a few weeks ago after a solid March/May rally. I don’t see any hints on this chart that we’re going to make a rebound in the near future.

The stocks that make up the index include AmeriGroup Corp. (AGP), Catalyst Health Solutions Inc. (CHSI), Healthspring Inc., (HS), just to name a few. All their charts look the same though - overextended, and now entering a corrective period.

Could solid fundamental results stop this technical pullback before it gets started?

You could make a decent case for a couple of exceptions, but I don’t see results improvement that would actually matter… the stocks are cheap at current levels, and forward-looking P/Es look even cheaper. What’s left to improve? And, that’s the problem.

Perhaps nobody trusts the estimates. Or, maybe investors are just sick of one-time charges that appear to not just be one-time charges. It doesn’t matter either way… the stocks are falling despite decent valuations.

05/27/09 - Life and Health Insurance Stats

05/27/09 - Life and Health Insurance Stats

That said, I’ve still got insurance names on my list of long-term (very long term) undervalued picks

Forestry and Wood

05/27/09 - Small Cap Forestry

05/27/09 - Small Cap Forestry

Owning small cap forestry and timber stocks like Deltic Timber Corp. (DEL) and Universal Forest Products Inc. (UFPI) hasn’t been easy in May. The S&P Small Cap Forest Products Index is down 21.4% so far, and the month doesn’t end for two more days.

Like the life and health insurance group pullback, there’s not much technical evidence a rebound is in the works. This was one of those tortoise-like humps that usually put things into motion for weeks.

As far as valuations go, honestly, I’m surprised any of these stocks managed to rise at all. Analyst estimates - if they’re right - show these stocks are ridiculously expensive. And, I think the estimates are closer to being right than not.

05/27/09 - Small Cap Forestry Stats

05/27/09 - Small Cap Forestry Stats

Point being, Deltic and Universal Forest could be trouble for a while.

Airlines

05/27/09 - Small Cap Airlines Stats

05/27/09 - Small Cap Airlines

Another bad month for airlines - what a surprise.

The S&P Small Cap Airline Index is off by more than 14% for May so far - and is one of the biggest losers year to date as well. As you can see on the chart, the index is also trapped in a bearish trading range  (and recently retreated from the upper edge of that range).

Nope, it’s not looking too good here in terms of the technicals.

It’s sad, too. Many of these airlines are very well run, and a few have remained profitable. Also, with oil hovering at palatable prices, I’d like to believe these companies and their stocks would get some love at last. That’s what I get for thinking.

SkyWest is the only true airline that’s an S&P 600 constituent, so to make the industry analysis meaningful, I’ve dissected all the small caps tagged as airlines.

The numbers tell the harsh tale.

05/27/09 - Small Cap Airlines Stats

05/27/09 - Small Cap Airlines Stats

Could the economy be the problem? Maybe, but some airlines managed to turn a profit, so I don’t want to generalize too much. Like I said earlier, some of these companies are well run, while others aren’t. It looks like the well-run airlines are being dragged down by the poorly-run airlines. Seeing as how they usually move as a group, I can’t be optimistic about any of these airlines until the majority of them start to improve… and that’s an economic function.

If you still want to jump into an airline stock though, Allegiant Travel Co. (ALGT), SkyWest, and Atlas Air Group Inc. (AAWW) have the right fundamentals, though two of them fall short in the technical category. Atlas Air Group looks like it’s rising more than falling though.

Hawaiian Holdings Inc. (HA) is also on the rise, but there’s only a minimal amount of information regarding the company. That can make it tough to keep tabs on.

Read the original blog entry...

More Stories By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.

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