The best and worst small cap performers today include Frontier Financial Corporation (FTBK), UCBH Holdings Inc. (UCBH), USEC Inc. (USU), Edge Petroleum Corp. (EPEX). The brisk trading activity merits a closer look at each one, as it may hint of bigger things to come... or not.
It looks as if the west coast is the specific region that a regional bank investor may want to look first. Two of the group's constituents hit it big today.
Frontier Financial Corporation (
FTBK) rallied 30.7% on Tuesday, but on no news....sort of.
The company will be hosting a Q2 conference call on Wednesday, and it's a reasonable assumption that either (1) earnings news leaked, and/or (2) speculators decided it's better to be in a position before the call rather than try and get into one after the call.
Frontier's been struggling of late, as all banks have. However, with Q1's results being better than Q4's numbers, perhaps investors see the trend as an improving one. It's doubtful that the company will swing back to a profit, unless the forecasted loss of 79 cents per share is just way off base. But remember, this earnings season isn't about profits - it's about topping expectations. A 'beat' is actually a victory.
Considering the stock was at $20 less than a year ago, and is priced less than $1 per share now, it's not necessary to jump on this one just yet... there's a lot more upside left to go, if that's what's in the cards.
UCBH Holdings Inc. (
UCBH) was the other big regional bank winner, up 16.0% on no news. Odds are that UCBH was riding Frontier's coat-tails.
Like Frontier, UCBH may have an ugly balance sheet, but that may also already be priced into the share price. And, with the bank's efforts to shore-up said balance sheet, perhaps investors are correctly seeing more upside than downside on a go-forward basis.
As with most regional and smaller banks, these two Pacific regionals may recovery better and faster than assumed. Both are worth a little more due diligence.
Two of the biggest small cap losers came from the basic materials sector. One's an energy name, and the other's classified as an 'industrial metals and minerals' stock....which is where one puts stocks when there is no 'nuclear' category.
USEC Inc. (
USU) sank 34.5% on Tuesday after the U.S. Department of Energy denied a loan guarantee for further development of USEC's uranium enrichment plant in Ohio. However, the government will be spending up to $200 million per year in an effort help clean up contamination at the site... which doesn't exactly help the company.
Does the denial actually make the company 35% less valuable? No, this is a case where the market's over-reaction may be an entry opportunity. The company's profitable, and is expected to be profitable going-forward. The loan setback isn't going to destroy the company.
Edge Petroleum Corp. (
EPEX) was the other big loser, off 10.4% on no company-specific news. Rather, crude oil's recent (albeit tepid) rally was stopped today, with prices falling back to $67 per barrel. That's not the only reason for the recent struggle here though.
While higher-priced oil is generally good for oil company margins, even when crude prices were through the roof Edge's results were shaky at best - the company was never profitable, even when oil was as high as $140. Assuming the economy takes a long time to return to its glory days (if it ever does), investors may have been right to shed EPEX - not just today, but for the last eight weeks. The stock does a lousy job of holding onto gains anyway.
Bottom line, EPEX was built more on hype and less on results, and its true colors are starting to shine through.
