October’s Poor Performers

One month does not make or break a major trend. On the other hand, all big trends start out with one small step, so investors have to be wondering if October was an omen for a few rotten industries. Here's a run-down of October's worst of the worst. IN PICTURES: 10 Reasons To Add ETFs To Your Portfolio

Tires and Rubber
The best of the worst were the tires and rubber stocks, losing 5% in October. It should be noted, however, that Goodyear Tire & Rubber (NYSE:GT) mostly carried the whole group into the hole. Competitors Carlisle Companies (NYSE:CSL) and Cooper Tire (NYSE:CTB) actually finished the month in the black, while GT's drubbing over the last two days of October ruined an otherwise decent month.

That being said, investors of any of these companies may want to note the underlying reason Goodyear lost $20 million last quarter: the stock's sell-off. On an operating basis, the company would have earned 13 cents per share, but that still falls short of last year's 30 cents. What happened? After all, revenue was up, as was the number of tires sold.

Raw materials costs soared - that's what happened. Natural rubber prices have tripled since early 2009, taking an extra $381 million out of the $5 billion in revenue Goodyear generated in Q3. With no end of high prices in sight, this same snake could end up biting Cooper and Carlisle and may even bite Goodyear again.

Homebuilding
Though not an earth-shattering letdown, considering the market did so well in October, the average 6.6% dip in homebuilder stocks had to be aggravating.

While it's an old excuse, the core reason this group struggles is that residential construction - and demand for it - are stuck at multi-decade-low levels. The industry's still dealing with overcapacity, and investors were factoring that this October.

Leisure Facilities
As consumers remain strapped for cash, corporations in the leisure industry are also feeling the pinch of a tight budget. The group includes gyms like Life Time Fitness (NYSE:LTM), but is heavy on motor sports venues like Speedway Motorsports Inc. (NYSE:TRK).

It's not as though these companies aren't feeling some pain relief, it's just that the recovery still feels a little too shaky. International Speedway Corporation (NASDAQ:ISCA), for example, is still seeing year-over-year revenue and earnings shrink. Year-to-date, shares are down 20%. International Speedway could probably be considered an extreme case, but it's not likely to be a statistical anomaly either.

Education Services
And bringing up the rear for October are for-profit education stocks. The S&P 1500 Education Services Index lost 18.4% last month.

If the group rings a bell, it may be because these unpredictable stocks were among September's best performers, despite being some of August's worst performers. August's loss was rooted on concerns that new regulations from the Department of Education would crimp federal aid for students at these schools. September's bounce stemmed from the realization that the new regulation wouldn't destroy these schools, even though stocks had been priced as if it would. October's weakness was the result of the DOE's final decision on how to justify continued financial aid for these students. The Department laid out the outline, with one of the key priorities being to disallow recruiter compensation based on the number of enrolled students. A clearer definition of a classroom "hour" was included in the overhaul as well. (Professional maintenance can be a chore. Learn how to streamline the process. See Keeping Up With Your Continuing Education.)

The Bottom Line
These industries certainly took a hit in October, but history repeatedly shows that it takes more than one bad month to set a downward trend. Depending on your risk tolerance, and if these industries can bounce back, there's possible value in October's losers.

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