Is China the Only One Growing?
Stocks continued their drop from the opening on a pullback in energy prices and on rumors that small-cap General Motors (NYSE:GM) may file bankruptcy.
At 11:30, the Russell 2000 (NYSE:IWM) was down 16.96, or 4.57%, at 354.34, while the Dow is down 3.16% to 6,658.88, and the S&P 500 is down 3.69% to 686.60.
The bad news out this morning weighed on stocks, and included a survey release that showed nearly 12% of mortgage holders are behind on payments or are in foreclosure.
GM auditors have said they have “substantial doubt” as to whether the battered automaker has the ability to continue, and GM said they may have to seek bankruptcy protection if its huge restructuring plan falls through. GM shares slid over 16% and are now under $2 per share.
Small caps bucking the downward trend today include Weight Watchers International (NYSE:WTW), up 18 on heavier-than-average volume. Cornell Companies (NYSE:CRN) is up over 10% after reporting a rise in Q4 profit, and also reporting positive Q4 profit results was Genesco, Inc. (NYSE:GCO), up 10% on the news.
*****Wednesday's rally could have been stronger, though you can't really be surprised that investors aren't jumping head first back in the stock market. Volume appears to have been solid, but not outstanding.
The most encouraging aspect to Wednesday's rally was leadership. We got leadership from technology and oil. If investors are buying in anticipation of an economic recovery, then oil necessarily must trade higher. Because any uptick in economic activity means increased demand for oil. And with OPEC production cuts taking hold and recent reserve draw-downs, the oil market has to be tight.
*****Jason Cimpl, analyst for TradeMaster Daily Stock Alerts, made 10% on the US Oil Trust ETF (USO) last week. And the USO position he recommended on Monday is up about 11% as of Wednesday's close. Jason recommended two other trading positions Monday. One is flat and the other is up 7%.
*****I'm also encouraged that steel stocks were strong. Same theory here as with oil, except there's a valuation angle here. Any uptick in economic activity will help steel companies. And when you're trading with a trailing P/E of 1.05, like U.S. Steel (NYSE:X), or 5.81 in the case of Nucor (NYSE:NUE), even a small improvement in business can make for a nice move higher. These stocks jumped 9.9% and 8.1% on the day.
Some of the smaller steel companies like Steel Dynamics (Nasdaq:STLD) and AK Steel Holdings (NYSE:AKS) made 15% jumps. When it comes to steel stocks, Nucor is the pick of the litter.
*****Another catalyst for the solid moves in oil and steel stocks is China's stimulus plan. If we can believe China's numbers, it's the only country in the world that's growing. And China wants to keep it that way. It plans to spend $585 billion in 2009 and 2010 on a host of projects, including highways, railroads, and the power grid.
It's reported that 20 million migrant Chinese workers have lost their jobs. Current growth of 6.7% is below the 8% China needs to protect jobs.
*****By the time you read this, earnings will be out at SXC Health Solutions (Nasdaq:SXCI). SXC Health Solutions was the featured recommendation at SmallCapInvestor PRO on Feb. 19. Click here for more about SmallCapInvestor PRO and how you can get my new report on SXCI and winning health-care sector stocks.
Given President Obama's push for medical records top go digital, we really like the prospects for SXC Health Solutions. The company's pharmacy benefit management solutions assisted in nearly 1 out of 4 of the 3.5 billion prescriptions processed in the U.S last year.
That's a strong market share, and earnings should reflect it. If Wednesday's 10% rise is any indication, earnings should be good.
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As always, I like hearing from you. Did you pick up any shares of SXCI, NUE, X, STLD, or AKS? Are there other stocks in the steel or health-care sector you like better? What's your take on which sectors will lead the recovery? My inbox is always open: drop me a line at editorial@smallcapinvestor.com.
