6 Top Mid-Cap Losers Wednesday and What to Expect Now

by: Rash Menaria

Following is a list of six top mid-cap losers from yesterday (Mar. 2):

Company Name


% Gain

W&T Offshore, Inc.



Hudson City Bancorp, Inc.



CommonWealth REIT



Lincoln National Corporation



Globe Specialty Metals, Inc.



Joy Global Inc.



Here are some of the specifics about these stocks, and what to expect from them going forward:

W&T Offshore plummeted 14% after it reported its 4Q earnings. Although 4Q EPS of 40 cents was better than 36 cents consensus, 4Q production of 41 mboepd and 2011 initial production guidance of 38-44 mboepd significantly missed the consensus. Given the company’s significant operating leverage to higher crude prices, it has been amongst the top-performing E&Ps YTD (outperforming by 2700 bps prior to this week). However, lower production guidance is likely to weigh on the stock going forward, as it may underperform other stocks with exposure to crude oil prices.

Hudson City Bancorp filed its 10-K yesterday in which it disclosed increased regulatory scrutiny and likelihood that it would become subject to an informal regulatory enforcement action in the form of a memorandum of understanding (“MOU”) with the OTS. The MOU stems from regulators' concerns about interest rate risk and funding concentrations. Although the company indicated it has the “intention and ability” to comply with the MOU, some investors are concerned that there could be dividend cuts or a halt to share repurchases. Further, in the long term, profitability could be reduced if lower interest rate risk leads to higher funding costs and lower margins. Given the uncertainty on (i) the dividend; (ii) the size of the book value impairment arising from the MOU; and (iii) likely balance sheet restructuring, it's best to avoid the stock.

CommonWealth REIT lost 4% after analyst Stifel Nicolaus downgraded it to a sell. Office space fundamentals are challenging in most markets across the country. CWH has greatly improved its portfolio in the past 24 months, selling older suburban office buildings and acquiring new, larger office properties, many in CBDs. While this should translate overtime into better valuations, it has been dilutive to near-term cash flow, contributing to the negative FFO trends. Given the challenging macro backdrop, it’s prudent to remain on the sidelines on this one.

Lincoln National Corporation lost 2.87% yesterday. It is one of the most interest- and equity market-sensitive insurers. It could be an interesting beta trade on the markets and one can take a position in this stock depending on his/her view on where the broader equity markets are going.

Globe Specialty Metals lost 2.77% yesterday. Oppenheimer has released a research report on the company in which it mentioned that costs for the new Iceland plant (~ 40K MT) may be below its original estimates, which imply upside to his EBITDA estimates. GSM expects the Icelandic plant to be among one of its lowest cost plants, as it is located on a port and there are other cost advantages. At current silicon metal prices, the plant could easily generate annual EBITDA of over $50mm for GSM, allowing for a roughly three-year payback. To build the project, GSM expects to incur €78mm ($106mm) in debt and spend roughly €34mm ($46mm) of cash. However, with a net cash position of $109mm, GSM will be able to readily fund this project and can continue to look at other growth opportunities like M&A. The stock is expected to outperform going forward, with any M&A activity being catalyst-specific.

Joy Global lost 2.76% after it slightly missed consensus estimates. The miss can be attributed to flooding in Australia and a seasonally soft 1Q. However, the company saw strong order bookings at $1.2 bn, which indicates that trends continue to remain strong. Therefore it’s a good buy on a dip pick.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.