The Quant View: Same Song, Second Verse

By David Brown | September 09, 2008 | 12:26 PM | 0 Comments

Current Sector Performance

As expected, financials were the leader last week in sector rankings, with small-cap financials producing a 1% positive for the week, while home builders helped consumer discretionary to finish second with a small gain. Materials and energy did rather poorly, despite their outlook for increased income and current reasonable prices.

 

Best and Worst Performance in Sub-Industries

The star of the sub-industries was small homebuilders, with a return of nearly (Wow!) 16% for the week. Airlines, automotive retail, and apparel retailers all turned in nice one-week returns (maybe investors got stuck on the A’s!). Small-cap financials also did well, as mentioned earlier. The losers for the week --steel, coal and gold – offered up double-digit losses, regardless of cap size.

 

 

Forward-Looking Sector Rankings

Somewhat surprisingly, energy and materials continue to be favored by the Sabrient system, mostly due to continued earnings growth and reasonable valuations. Financials continue to improve their rank, having risen from last place just three months ago to virtually tying for fourth place in the current forward-looking rankings. The health care and technology sectors bring up the bottom.

 

 

Wrapping Up

The government takeover of Freddie Mac and Fannie Mae this weekend will hopefully bring that sordid affair to a conclusion. The takeover definitely improves stability for the short term, but there is still concern about how the subprime mortgage issues will eventually impact the economy. But I think an important step has been taken in a positive direction. (My condolences to the shareholders who took it on the chin.)

We continue to favor small financial institutions, which were helped by the weekend action by the Treasury.

The homebuilders and most anything real estate related got a nice boost on Monday, so here is a REIT to consider from a Qmaxx search:

Diamondrock Hospitality (NYSE: DRH) – Financial, small-cap

Because Materials and Energy continue to look good on a forward-looking basis, here are two small-cap value stocks to consider from the Qmaxx search:

Kapstone Paper & Packaging (NSDQ: KPPC) – Materials, small-cap
Warren Resources (NSDQ: WRES) – Energy – small-cap

 

Content excerpted from the 09/09/08 Trader's Talk newsletter.

Be sure to read David's recurring excerpts here on greenfaucet. Soon you will be able to get the entire Trader's Talk newsletter sent to your inbox every week. Free!

Click to learn more about David's ideas and view the latest breakthroughs at Sabrient Systems. View David's bio here.