September's Worst-Performing Mid Caps

Some old favorites that bearish investors have been beating up on for years were on the list of the worst-performing mid cap stocks during September 2009. These include the homebuilders, and everyone's favorite whipping boy, the ratings agencies. Let's take a look at these stocks' fall from grace.
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Thumbs Down for Ratings Agencies
The ratings agencies came under renewed heat during the month, and both McGraw-Hill (NYSE:MHP) and Moody's (NYSE:MCO) saw their shares plunge 25%.

Moody's sold off after two former employees made allegations that the ratings firm failed to provide sufficient oversight of municipal securities ratings, and that Moody's inaccurately rated some securities. Both employees testified in front of a congressional committee that their complaints to senior Moody's management were ignored. McGraw-Hill, which owns Standard and Poor's, didn't have any whistle blowers come forward during the month but appeared to sell off in sympathy.

The industry is also fighting an effort by Congress to pass legislation that would increase regulation by authorizing the Securities and Exchange Commission (SEC) to write rules and procedures regarding the methodology of rating bonds. The bill would also address the conflict of interest inherent in a system where the companies whose bonds are being rated pay the ratings agencies for that review.

Homebuilders Collapse
The homebuilding industry also got slammed during September with DR Horton (NYSE:DHI) and Pulte Homes (NYSE:PHM) both down 14%.

This is despite the fact that the housing industry has seen lots of positive economic reports the last few months. New home sales rose by 0.7% in August 2009; it was a disappointing number for analysts, but it's a step in the right direction.

The Standard & Poor's/Case-Shiller Home Price Index rose in July 2009 by 1.2% over the previous month. This was the sixth straight month that home prices increased, although year-over-year, prices fell 13.3%.

Pending home sales also surged, and an index that measures this reached the highest level since March 2007. The index, which is maintained by the National Association of Realtors, increased from 97.6 in July to 103.8 in August.

Despite the tide of good news, homebuilding stocks took a breather as investors who had the courage to bottom fish at the trough booked profits on the group. The S&P Homebuilders SPDR (NYSE:XHB) hit a low of $8 back in March, and had doubled off that bottom in the last six months.

Investors also seem concerned about the number of foreclosed houses that will enter the market over the next few years and the impact this will have on pricing months of supply. Another concern centers on the billions of mortgages that will be reset at higher interest rate levels as initial teaser rates expire.

Conclusion
There were some familiar names among the worst-performing mid capitalization stocks in September 2009, as investors who benefited from the initial surge off the bottom for some of these stocks decided to take profits. (For more, see Why Housing Market Bubbles Pop.)

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