E Small Cap Best & Worst Report - December 4, 2014

Since 2010, the average return for our weekly best scoring small caps has outpaced the R2K by a median 759 bps over the following year. The best performers from one year ago are HA up 132%, CNC up 65%, UEIC up 63%, and ODFL up 58%.

  •  The best small cap sector is utilities.
  • The top small cap industry is home healthcare.

The average small cap score is 53.38, below the four week moving average score of 54.27. The average small cap stock is trading -27.85% below its 52 week high, -1.44% below its 200 dma, and has 7.90 days to cover held short.

The best small cap sector is utilities. Industrial goods and technology also score above average. Services, consumer goods, and financials score in line with the average small cap universe score. Healthcare (trade up in market cap) and basics score below average.

The following table breaks out major market seasonality for the three month period ending February 28th. The Russell 2000 (IWM) has gained in 7 of the past 10 years, returning a median 5.98% in the period.

The top scoring small cap industry is home healthcare (AFAM, CHE, ADUS, AMED). Consolidation and ageing boomers offset government reimbursement risks. Rising occupancy is supporting room rates and boosting RevPAR at resorts and casinos (PENN, MCRI). According to STR, U.S. hotel occupancy grew 5.3% to 68% in October (the 7th month this year above 65%), lifting RevPAR by 10.1% to $80.81 (best growth on record for an October). Specialized semi (MPWR, QLGC) demand is supported by increasing electrification of industrial goods. Staffing (CCRN, KFRC, CDI) demand historically peaks into year end, supporting related stocks. The ASA weekly staffing index hit a record high of 105.84 last week, up 3.17% year-over-year. Management services (HURN, CRAI) also score highly.

No small cap basics baskets score above average. In consumer goods, buy home furnishings (ETH), auto parts (MTOR, SRI, SMP), and processed & packaged goods (DMND). P&C insurers (MIG, GLRE) and investment brokers (GFIG, KCG) are best in financials. The best healthcare groups are home healthcare and medical instruments (CMN, ANGO, MMSI, VASC, HBIO, ICUI). In industrial goods, concentrate on aerospace/defense (TASR, ORB) and industrial electrical equipment (BGC).  Resorts/casinos, staffing, and management services are best in services.  Specialized semi, computer peripherals (ALOT, PLNR), and information technology services (SYKE, MNDO, RDWR, NCIT) should be in focus across technology.

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Disclosure: None.

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