As we continue to make our way through the first real shakedown of what I believe is a new bull market, the cream is starting to rise to the surface. In other words, the rising tide isn’t lifting all boats equally. (Two cliches in the first paragraph? Impressive.)

Where are they?

As most of you probably know by now, I’m a big proponent of looking for the leading and lagging industries among the small cap realm (S&P 600 stocks). According to Bill O’Neill, almost half of a stocks’ performance can be attributed to its industry. And, I think a fair amount of it can be attributed to its size as well, meaning there’s a frequent disparity between the large and small caps in a particular group.

I’m also just as interested in the technicals as I am the fundamentals, since stocks don’t always trade at “what they’re worth”.

With that idea in mind, I’m going to use the next several work days to cycle through what I feel are the best and worst groups within the small cap universe. And yes, I’ll also ‘drill down’ into individual stocks.

On with the show.

Today’s chosen small cap industry and opinion? I’m bullish on the insurance brokers.

In short, I have a theory behind last year’s 95% plummet for this group - they were thrown in with the insurance companies, like AIG. However, with just a little digging, it’s not all that hard to figure out that a broker and an underwriter aren’t quite the same thing.

Oh, there’s crossover to be sure. By and large though, brokers don’t take on payout risks - they’re just the middlemen. As for the true small caps in the group, we’re talking about Catalyst Health Solutions, Inc. (CHSI), eHealth, Inc (EHTH), CorVel Corp. (CRVL), and National Financial Partners Corp. (NFP). However, there are a handful of other small caps I think you could reasonable add to the list of compelling ideas.

Anyway, the S&P 600 Insurance Broker chart caught my eye. These stocks are up from than 500% since November’s bottom, yet still have a ton of room to go before even testing prior highs. Tons of upward momentum.

And what about the underlying fundamentals? Not that they’re worth a lot, but they’re at least worth a look. (In some cases, a ‘0′ just means data wasn’t available.)

Interesting, huh?

While I’m relatively unimpressed by analysts and their guesses, it’s not like they’re always wrong or usually off-base. In fact, I think they generally have the right idea, even if they don’t’ see everything. In this case, even being marginally on target bodes well for the brokers - the group as a whole seems undervalued.

I’d still pick and choose carefully within the group. eHealth’s numbers, for instance, don’t look all that attractive. But, it seems you’ll at least have the wind at your back with most of these picks.

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