E Mid Cap Report

 

The best scoring mid caps from one year ago (1/10/2013) averaged 551 bps of excess over the S&P 400, with 0% turnover.  The top performers included NFLX up 270%, ILMN up 102%, ACXM up 96%, HBI up 94%, MAN up 92%, and GMCR up 91%.

 

 

• Consumer goods is the top scoring mid cap sector.
• Restaurants are the top scoring mid cap industry.

The average mid cap score is 68.63 this week, below the four week moving average score of 70.84.  The average mid cap is trading 5.87% above its 200 dma, has 6.9 days to cover short and is expected to see EPS growth of 14.5% next year.
 
The best scoring mid cap sector is consumer goods.  Industrial goods and healthcare also score above average.  Services score in line.  Technology, basics, financials, and utilities score below average.
  
 

 

 

 

Commentary:

Restaurants (CAKE, WEN, EAT) are the top scoring industry across mid cap.   The Nat’l Restaurant Association’s Restaurant Performance Index hit a 5-month high in November.  Same store sales grew at 57% of respondents, up from 54% in October.  47% reported foot-traffic growth, up from 43% in October.  The ability to expand labels across indications and the industry focus on high margin orphan drugs support drug makers (ALXN, VRX, UTHR).  Look for commercial construction to increase in 2014, supporting profits for related machinery (TEX, MTW).  Small tool (SNA, SSD) demand benefits from industrial production growth.  Winter weather supports Toro (TTC).  The industry seasonal inventory build supports electronics wholesalers (AVT, ARW, WCC).

Steel & iron (CRS, CMC, STLD, HSC), major chemicals (ASH, FMC), and drillers (HP, PTEN, OII) score best in basic materials.  Watch industrial production in Europe as improvement is likely under-modeled.  Lower cotton prices and solid apparel retail sales support textiles (PVH, SKX, WWW, HBI, COLM, DECK, UA) plays.  The U.S. auto recovery has driven auto suppliers (FDML, BWA, TEN, GNTX) so far; however Europe may take the baton in 2014.  In financials, buy investment brokers (SF, LM, GHL) and asset managers (AMG, LAZ).  Drug makers, hospitals (UHS, LPNT), and medical instruments (NUVA, PKI, HRC) score highest in healthcare.  The top industrials baskets are farm & construction machinery, small tools, and residential construction (NVR, LEN, TOL, DHI).  Residential construction has been weighed down over worries rising rates would derail recovery.  However managers are beginning to re-evaluate based on job growth and consumers ability to adjust to rates in the face of a predictable taper.  Price to book has become more attractive as plays have consolidated moves.  In services, focus on restaurants, wholesale electronics, and trucking (HTLD, KNX).  The top technology groups are semi IC (IRF, TQNT, SWKS), broadline semi (ATML, CAVM) and Internet software (VRSN, OTEX, SINA).