It’s a Small Cap World (for Now) – Russell 2000 Index Up nearly 18 Percent for Year

Graphic courtesy of Russell Investments

 

The stock market finally “took a breather” on Monday of this week, as the Wall Street Journal characterized it. The resilient bull market of 2013 has seen only four sessions in May that had a decline in the Standard & Poor’s 500-stock index and Monday was one of them. This year’s bull market rally has recently been across the board–Asian markets have been up, European markets turned up, and market watchers are anxiously waiting for tomorrow, Wednesday, May 22, when Federal Reserve Chairman Ben Bernanke is scheduled to testify to Congress and the Fed releases the minutes from its last public policy-setting meeting. Will Bernanke offer up any clues about his next steps?

Most importantly for Smallcap World, the Russell 2000 index, which tracks the performance of smallcap U.S. equities, climbed above the 1,000 level for the first time Monday, a metric that MarketWatch considers “psychologically important” for smallcap stocks. As of Monday morning, May 20, the Russell 2000 was up 17.9 percent for the year-to-date, according to FactSet (The Associated Press reported the Russell 2000 up 17.5 percent for the year).

The conventional wisdom is that small caps stock are doing well because they are more U.S. focused than the large caps, which tend to be multi-national. And the U.S. economy is recovering as opposed to other economies around the world. But many large caps are doing well, too,

You don’t have to look far to find small cap stocks at 52-week highs, even “all time highs.” Of course the question always is, how much higher can these stocks go? Buy now or wait for the correction that so many experts have been predicting is right around the corner for months now?

We’ve selected a few stocks we know are at all-time or 52-week highs, and others we’ve covered lately that seem to be on the upswing.

Calabasas, CA-based National Technical Systems * (Nasdaq: NTSC, http://www.nts.com/) is a relatively unknown smallcap stock but also the world’s largest independent engineering services and testing company. It’s biggest markets include aerospace and defense, but also works in the automotive and telecommunications markets, among others. NTSC closed at an all-time high of $13.09, up 94 cents on May 21, with a market cap now of about $150 million. NTSC is lightly traded, only about 7,500 shares a day, although that is trending up. 

Northville, MI-based Gentherm * Incorporated (Nasdaq: THRM, http://www.gentherm.com/) is a global developer and marketer of thermal management technologies for a broad range of heating and cooling and temperature control technologies. Best known for its Climate Control Seat systems that actively heat and cool seats in more than 50 vehicles made by the world’s leading automobile manufacturers, Gentherm (formerly called Amerigon) has branched out into heated and cooled bedding systems, cupholders, storage bins and office chairs. THRM also reached a 52-week high of more than $18 this week, then closed May 20 at $17.78, down 33 cents for the day. Its market cap is now $594 million. As recently as last July THRM was trading at just above $10.

We recently featured Cincinnati-based LSI Industries (Nasdaq: LYTS, http://www.lsi-industries.com/) , a company that offers a different take on an LED lighting company. LYTS creates LED video screens and LED specialty lighting for sports stadiums and arenas, digital billboards and entertainment companies. It closed April 29 at $7.09 with a market cap of $170 million. LYTS closed May 21 at $8, up 1 cent for the day, with a market cap now of $192 million.

Analysts at CRT Capital recently upgraded Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/), a company that builds and sells single-family and multiple-family homes in 16 states in the U.S., to a “Buy” with a $29 price target. BZH also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. As recently as last Sept. 14 BZH was trading for $3.77. It closed March 20 at $16.86 with a market cap of $410 million. BZH closed May 21 at $21.75, down 98 cents for the day. Its market cap is now $538 million.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR, http://www.sunpowercorp.com/), like many solar stocks, have been on the upswing lately. SPWR closed May 8 at $15.36, down 6 cents for the day, with a market cap of $1.8 billion. It closed May 21 at $21, down $1.70 for the day but got up to $23.76 just last week. Its 52-week trading range is now $3.71-$23.76.

Fremont, CA-based Procera Networks (Nasdaq: PKT, http://www.proceranetworks.com/) works with mobile and broadband network operators providing intelligent policy enforcement solutions for managing private networks. PKT’s products are sold under the PacketLogic brand name to more than 600 customers in North America, Europe and Asia. PKT’s 52-week trading range is $10.12-$25.99. At mid-day May 2 it was trading at $11.22, with a market cap of $229 million. At market close May 21 PKT was trading at $13.89, down 3 cents for the day, with a market cap of $282 million.

* Denotes client of Allen & Caron Inc., publisher of this blog.

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Turnaround in Housing Market, Low Inventory Causing ‘Bubblelike Price Jumps’

Photo courtesy ownthedollar.com

Photo courtesy ownthedollar.com

Home construction was an important topic this week, with the release of data showing construction on new U.S. homes in February showed “gains for single family residences and apartments as longer-term trends signaled a housing market that continued to strengthen,” according to the Wall Street Jounal’s Market Watch.

In fact, the turnaround in the housing market, after so many months of lagging demand, has caught home builders off guard, according to the New York Times (http://www.nytimes.com/2013/03/21/business/economy/in-us-surprise-housing-demand-catches-industry-off-guard.html?ref=business&_r=0). “After six years of waiting on the sidelines, newly eager home buyers across the country are discovering that there are not enough houses for sale to accommodate the recent flush of demand,” noted the Times report.

That’s leading a rush for the new but still limited inventory and “bubblelike price jumps” in areas that have been hit hard in recent years. Standard & Poor’s Case-Shiller index shows that prices nationwide rose 7.3 percent throughout 2012 but in places like Sacramento, CA and Phoenix, the prices have risen 35 percent and 26 percent, respectively. Part of what’s driving the market is the improved economy, but the low interest rates are also playing an important role, noted experts in the Times story.

Certainly this is great news for investors in small cap housing stocks, who have already enjoyed a great return if they invested last Fall. Their only issue now is whether to sell and take some profits or continue to enjoy the rise.

Here are six small cap home builders we last covered Sept. 14:

Red Bank, NJ-based Hovnanian Enterprises (NYSE: HOV, http://www.khov.com/) specializes in single-family detached homes, condominiums and town homes and operates in two segments: homebuilding and financial services.  In October 2011 HOV was trading for $0.89. By Sept. 14, 2012 it had jumped to $3.89, with a market cap of $515 million. HOV closed March 20 at $6.32, up 13 cents for the day. HOV’s market cap is now $879 million and 52-week trading range is $1.52-$7.43.

Los Angeles-based KB Home (NYSE: KBH, http://www.kbhome.com/) is a home building and financial services company catering in large part to first time buyers. KB is an old Southern California home builder, founded in 1957 and formerly called Kaufman and Broad. Back on Aug. 31 KBH closed at $11.04 with a market cap of $851 million. It closed Sept. 14 at $13.65, pushing its market cap up to $1.05 billion. KBH closed March 20 at $21.57, up 54 cents with a market cap of $1.67 billion. Its 52-week trading range is $6.46-$21.79.

Columbus, OH-based M/I Homes Inc. (NYSE: MHO, http://www.mihomes.com/) builds single family homes primarily in the Midwest, Mid-Atlantic and southern parts of the U.S. The  company was founded in 1973 and, like most of the other builders, has homebuilding and financial services divisions. It closed Sept. 14 at $20.77, with a market cap of $379 million. MHO closed March 20 at $26.03, up 86 cents on the day, and now has a market cap of $584 million. Its 52-week trading range is $11.25-$29.07.

Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/) builds and sells single-family and multiple-family homes in 16 states in the U.S. It also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. At the close on Sept. 14 BZH was trading for $3.77. It closed March 20 at $16.86, up 19 cents for the day, with a market cap of $410 million. Its 52-week trading range is $10-90-$20.15.

Irvine, CA-based Standard Pacific (NYSE: SPF, http://www.standardpacifichomes.com/) builds single family and detached homes and targets a wide range of homebuyers. It also provides mortage financing services through its mortage finance subsidiary, Standard Pacific Mortgage. SPF closed Sept. 14 at $7.46, up 19 cents for the day and setting a new 52-week high, with a market cap of $1.49 billion. It closed March 20 at $9.07, up 35 cents for the day, with a market cap of $1.9 billion. Its 52-week range is $4.12-$9.18.

Westlake Village, CA-based The Ryland Group (NYSE: RYL, http://www.ryland.com/) is a homebuilder and mortage finance company. RYL covers many aspects of the home buying process including design, construction, title insurance and escrow. It closed Sept. 14 at $31.52, also setting a new 52-week high, with a market cap of $1.41 billion. RYL closed March 20 at $42.16, up $1.61 for the day, with a market cap of $1.9 billion. Its 52-week trading range is $17.18-$43.