E Small Cap Best & Worst - February 5, 2015

The best scoring small caps from our weekly reports have outpaced the IWM by a median 682 bps in the following year.

·       The best scoring small cap sector is utilities.

·       The top scoring small cap industry is specialized semiconductor.

The average small cap score is 52.11, which is below the four week moving average score of 54.41. The average small cap stock is trading -27.89% below its 52 week high, -1.03% below its 200 dma, and has 7.27 days to cover held short.

The best small cap sectors are utilities, technology, consumer goods, and healthcare. Services score in line with the average score. Financials and industrial goods score below average.

Over the past 10 years, the Russell 2000 index (IWM) has gained ground 9 times between January and the end of April, returning a median 4.38% during the period.

The top small cap industry is specialized semiconductor (QLGC, MPWR). Semiconductor ICs (TQNT, PLXT, RFMD, OPLK) are also top scoring. Semiconductors benefit from solid seasonality at this time of year. Since its inception, the XSD has finished April higher than it begins February 7 out of 8 times, posting a median 7.7% return. The following chart shows the historical seasonality of the book-to-bill chart over the past decade. Typically, the semiconductor industry follows a similar path.

Restaurants (RRGB, BJRI, DAVE, SONC) offer upside thanks to rising foot traffic and average ticket growth. The Nat'l Restaurant Association's Restaurant Performance Index remains bullish with readings above 100. Home furnishings (SCSS, STLY) and scientific and technical instruments (AFFX, FLDM, IIVI, ALOG) round out the small cap best industries list this week.

There continue to be no above average scoring basic materials baskets.  In consumer, buy home furnishings and textiles (PERY, BEBE). In financials, investment brokers (GFIG) and P&C insurers (MIG, GLRE) are best. Medical appliances (CNMD, BABY, CUTR, ABMD, NXTM, HRT, CYNO), specialized health services (BEAT), and home healthcare (AFAM) are top scoring across healthcare. In industrials, concentrate on general building materials (HW, USLM) and aerospace/defense (LMIA). Restaurants, resorts & casinos (PENN, BYD), and business services (FURX, ARC, EXAM) should be your focus across services.  In technology, the best scoring groups are specialized semi, semi ICs, and scientific & technical instruments.

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