With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Mid Cap Watch List (Track at Marketocracy).

As with the Small Cap Watch List (Track at Marketocracy), we were surprised at the amount of turnover in our screens. Only 7 of the original 29 names made the cut for the new list (which comes in at only 24 names.) Part of the reason for the turnover was to reduce the overlap between the Small Cap and Mid Cap Watch List (Track at Marketocracy)s. Now there is only one-third overlapping names rather than two thirds. Furthermore, given the level of outperformance we saw in the first quarter (actually just two months) and the fact that much of those gains were achieved early, perhaps the turnover is warranted.

So without further ado, the names on the chopping block from the previous list are:

Silgan Holdings (SLGN - Annual Report); Middleby (MIDD); Olin (OLN); Vector Group (VGR); Sanderson Farms (SAFM); Tesoro (TSO); Downey Financial (DSL); Waddell & Reed (WDR); Gamco (GBL); Apria Healthcare (AHG); Quest Diagnostics (DGX); ITT Educational Services (ESI); Equifax (EFX); Delhaize Group (DEG); Papa John’s (PZZA); Rent-a-Center (RCII); Cato Corp (CTR); Dassault Systemes (DASTY); Ingram Micro (IM); Energy East (EAS); South Jersey Industries (SJI - Annual Report); and American States Water (AWR).

The new list is:

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Small Cap Watch List (Track at Marketocracy).

Frankly, we were surprised at the amount of turnover in our screens. Only 9 of the original 29 names made the cut for the new list (which comes in at only 24 names.) Still, given the level of outperformance we saw in the first quarter (actually just two months) and the fact that much of those gains were achieved early, perhaps the turnover is warranted.

So without further ado, the names on the chopping block from the previous list are:

Silgan Holdings (SLGN - Annual Report); Steel Dynamics (STLD - Annual Report); NVR (NVR - Annual report); Middleby (MIDD); Vector Group (VCG); Sanderson Farms (SAFM); Downey Financial (DSL); Waddell & Reed (WDR); Wilshire Bancorp (WIBC); Harrington West (HWFG); Gamco Investors (GBL); Apria Healthcare (AHG); Papa John’s (PZZA); Cato Corporation (CTR); Meredith Corporation (MDP); CSG Systems (CSGS); Energy East (EAS); Dynamics Research (DRCO); Ingram Micro (IM); and Dade Behring (DADE).

The new watch list will be:

Small Cap Watch List (Track at Marketocracy) and Mid Cap Watch List (Track at Marketocracy) member Sanderson Farms SAFM) Released disappointing earnings (compared with analyst estimates of a ($0.07) loss on $277 million in sales):

Net sales for the first quarter of fiscal 2007 were $292.7 million compared with $236.2 million for the same period a year ago. For the quarter, the net loss was $2.8 million, or $0.14 per diluted share, compared with the net loss of $8.6 million, or $0.43 per diluted share, for the first quarter of fiscal 2006. Operating income for the first quarter of fiscal 2006 was reduced by incurred but unrecognized lost profits and expenses of approximately $3.0 million related to losses sustained as a result of Hurricane Katrina.

While fading bird flu fears helped stabilize poultry prices, demand for corn-based ethanol has caused feed prices to soar.

“While all of these factors, along with the favorable trends in chicken prices, are positive indicators for our business going forward in fiscal 2007, we expect our feed costs will continue to rise,” [CEO Joe] Sanderson continued. “The demand for corn from ethanol producers is affecting market prices for corn and soybeans. However, we remain confident that the chicken and grain markets will strike a favorable balance over time.”

Accounts receivable and accounts payable both rose far faster than sales. Sanderson Farms also released its 10Q yesterday, so we turned to that for more information. While the company did not address the receivables and payables directly, they did note that:

The additional pounds of poultry products sold can be attributed to the new complex in South Georgia, which began operations during the fourth quarter of fiscal 2005 and was ramping up production during the first quarter of fiscal 2006, and increased pounds of products sold at the Collins, Mississippi processing plant, which was down for one week during the first quarter of fiscal 2006 to allow for the conversion to serve the big bird market from the chill pack market. The Company also sold fewer pounds during the first quarter of fiscal 2006 due to the destruction of inventories during Hurricane Katrina that would have been available for sale during the first quarter of fiscal 2006. In addition, the disruption of shipping caused by Hurricane Katrina and sluggish demand resulting from the appearance of H5N1 in certain countries in Asia and Europe during the first quarter of fiscal 2006 postponed the sale of certain export products until later in fiscal 2006.

It is possible that the delays caused an overall operational slowdown in Q1 2006 that caused both receivables (no sales to collect on) and payables (no new orders to pay suppliers for) to be artificially low. However, turning to the 2006 10Q doesn’t bear that out. Both were down, but only slightly. The reason for concern is that cash is relatively low, and if the company is having problems collecting on its sales it may be pushing out its own payments. As any credit card holder knows, that can be a costly decision.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Mid Cap Watch List (Track at Marketocracy) (to be measured against the S&P 400) follows.

Astute observers will notice a significant overlap between the names in the Small Cap Watch List and this one. In fact, of the 29 names on the Small Cap Watch List (Track at Marketocracy), 19 are included among the 29 names in the Mid Cap Watch List (Track at Marketocracy). The main reason is that we ran our screens against the criteria in the relevant indices rather than the names in the indices. Since the largest market cap in the S&P Small Cap is $3.5 billion and the smallest market cap in the S&P Mid Cap is $600 million, there is room for a good deal of overlap if one is willing to accept it.

In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.