E Small Cap Best & Worst Report - August 21, 2014

Since 2010, the average return for our weekly best scoring small caps has outpaced the R2K by an average 736 bps in the following year. The top performers from our report one year ago include DYAX up 129%, JAZZ up 77%, and UEIC up 66%.

  • The best small cap sector is utilities.
  • The top scoring small cap industry is computer peripherals.

The average small cap score is 52.43 this week, above the four week moving average score of 50.99. The average small cap is trading -25.41% below its 52 week high, -2.14% below its 200 dma, and has 8.37 days to cover held short.

The highest scoring small cap sector is utilities. Financials, industrial goods, and technology also score above average. Consumer goods and healthcare score in line. Services and basics score below average -- stay stock specific or trade up in market cap; particularly in basic materials.

 

The top small cap industry is computer peripherals (PLNR, ALOT). Railroads (GBX, ARII) score highly. Rail volume growth continues to support demand for railcars. Management services (CRAI, NCI) offer upside. Semi IC's (RFMD, TQNT, OPLK, OVTI) and semi equipment & materials (OSIS, KLIC) are high scoring; however, managers should tread cautiously given the basket typically fades until the book-to-bill begins to re-exert into year end.

None of the small cap basic materials baskets score above average this week. That's a contrast to large and mid cap, where basics score highly. Trade up in market cap where possible. In consumer goods, buy processed & packaged goods (DMND, BDBD). In financials, P&C insurers (HMN, UFCS), savings & loans (BRKL, OCFC, COLB), and regional banks (CFNL, SNBC) are best. The top scoring healthcare industries include home healthcare (CHE, GTIV, AMED), medical appliances (BABY, SPNC, RTIX, CRY), and specialized health services (AHS, USPH, PRSC).  No industrial goods groups score above average this week. The top services industries are railroads, management services, and restaurants (SONC, BJRI). Use seasonal weakness to slowly increase exposure to retailers ahead of the return of seasonal support in the fourth quarter.  The strongest scoring technology industry is computer peripherals. Semi ICs and semi equipment & materials score above average too.

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