Searching for a Winner — Nothin’ But Net

It is that time of year again. No, not tax season. The NCAA basketball tournament begins today and the 64 teams involved represent almost every nook of the country. Heck, even North Dakota State has a team. President Obama, in the spirit of increased government transparency made his picks available online (http://www.whitehouse.gov/assets/images/brackets2009c.jpg).

Treasury Secretary Geithner plans to introduce his bracket picks next week . . . or the week after (rim shot not included).

The Top Seeds for this tournament are Louisville, Pittsburgh, The University of North Carolina and The University of Connecticut.

Included here is a brief look at one small cap each from the Final Four cities.  We tried to pick industries that are representative of that city’s business heritage.

Louisville is a haven for freight forwarding and transport logistics due to being the most accessible city in the U.S. But it is known for thoroughbreds and Churchill Downs (Nasdaq: CHDN, http://www.churchilldownsincorporated.com/) is more than just a track. The Company owns several other tracks and is involved in equine data services, television production, OTB operations, and video poker. Gambling has proven to be as susceptible to the economy as any other business and this stock, at $28, trades closer to its low, $20.71, than its high of near $53. One can assume warmer weather and “finding action” closer to home holds some upside.

Pittsburgh is the Steel City, but is also home to aluminum, copper and zinc and numerous other metal plants. But the Metal City just doesn’t have the same ring to it. Horsehead Holdings (Nasdaq: ZINC, http://www.horsehead.net/) is a zinc producer. You gotta love simple company stories. The company has a net cash position of more than $120 million against a market cap of $138 million. The Street.com recently listed it as a potential “multi bagger” (http://www.thestreet.com/story/10470653/2/find-tomorrows-multi-baggers-today.html). The article points out that all commodity stocks are trading as if we are never going to need its products again. Can’t happen. Zinc is in everything to plastics, paints and pharmaceuticals and rubber. It trades at $5.20; High/Low is $15.45/$2.26

For those expecting a small cap tobacco company to represent North Carolina, that is so last century. Carolina is home to hundreds of biotech and drug development firms. Chapel Hill-based Pozen (Nasdaq: POZN, http://www.pozen.com/) develops drugs for acute anc chronic pain and its migraine drug, Treximet, is licensed by GlaxoSmithKline. It is partnered with AstraZeneca to develop a non-steroid drug to treat osteoarthritis and gastric ulcers and a NDA (new drug application) is expected by mid 2009. Its 4th quarter showed promise. Revenue more than doubled to $14 million from $6.2 million. Analysts polled by Thomson Reuters expected a loss of 32 cents per share (actual was $0.14, flat with the previous year) on revenue of $10.5 million. It trades at $5.70, off its $14.85 high, slightly above its $4.70 low.

Stamford CT-based Independence Holding (NYSE: IHC, http://www.independenceholding.com) is rare small-cap player in the insurance business, an industry known for its behemoths. Though most large independent US insurers are based in New York and Bermuda, Connecticut is still known for its insurance industry and we had to stick with our theme. The Company writes and manages health and life insurance through a number of subsidiaries. The stock showed some grit, losing near 20% this past Monday and gaining it back over the following days to settle near that day’s high of $4.95. Its 52 week high is $15. The stock barely trades so one might take a watch-and-follow approach and consider it a potential acqusition play for when insurers get growth hungry again.  We guess there is a reason small cap insurers are hard to find after all.

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