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:

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 Small Cap Watch List (Track at Marketocracy) (to be measured against the S&P 600) follows.

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.

Summary: Durable goods orders are showing a significant slowdown in tech spending for June. The year/year change declined from 9% to less than 7% overall, with large drops in shipments and orders for communications equipment and in shipments of semiconductors.

GDP numbers show that the year/year change in equipment and software spending is stable to slowing. Combined with the durables data, we say the odds favor slowing.

Watch List news:

Dade Behring Holdings Inc. (DADE) said quarterly earnings more than doubled on higher sales of its clinical instruments.

Other news:

The North American rigid PCB (printed circuit board) book-to-bill ratio sat at parity in June at 1.00, while the flexible circuit book-to-bill ratio climbed back to the positive range at 1.01 after a three month dip below parity.

Tech Data (TECD) fell 3% after the computer-products distributor slashed its second-quarter estimates. The company expects to post break-even earnings, excluding items, and sales of $4.94 billion for the July quarter. Previously, Tech Data predicted earnings of 30 cents to 36 cents a share and revenue of $4.95 billion to $5.1 billion. Analysts, on average, had forecast earnings of 33 cents a share and revenue of $5.1 billion. The company said it was hurt by weakness in Europe, the Middle East and Asia.

Lenovo Group, the world’s No. 3 maker of personal computers, said its profit in its fiscal first quarter plunged nearly 90 percent compared with the year-earlier period as it restructured after its purchase of IBM’s PC business.

The Watch List returned 2.86 percent in its first week, which was better than the S&P 500 but not as good as the mid- or small-cap indices that are probably a better comparison. We have now indexed the Watch List to 100 effective at the June 30 close (it was billed as the Watch List for Q3, after all) and will monitor it on that basis going forward.

Here are a few news items that affected Watch List names and that we didn’t give a separate post.

Valassis Communications (VCI) cut its earnings outlook

Valassis decreased its second quarter earnings per share guidance to a range of 38 cents to 42 cents, versus earlier guidance of 49 cents to 55 cents. Full-year expectations were trimmed to a range of $1.60 to $1.80 from a previously range of $1.95 to $2.15.

Analysts polled by Thomson Financial were expecting earnings of 51 cents for the quarter and $1.99 for the full year.

The company cited a slowdown in sales and pricing pressure in both its free-standing insert business and neighborhood-specific advertising. The company also said a suspension of its stock buyback program would effect earnings per share.

Accredited Home Lenders Assumed Aames Financial’s Wholesale Operations Ahead of Merger

Accredited Home Lenders Holding Co. (LEND), a mortgage company specializing in non-prime residential mortgage loans, announced today that it would absorb the wholesale operations of Aames Investment Corporation (AIC) under an agreement dated June 23, 2006. This move is designed to reduce employee attrition and maximize the expected synergies from the combination of the Accredited and Aames wholesale operations that would otherwise occur as part of the merger of Accredited and Aames contemplated to occur in the third quarter of 2006.

Conoco Phillips (COP) is open to new deals. Among them – a stake in a natural gas pipeline.
Sierra Health (SIE) got some more credit. At a lower rate.

American International Pasta (PLB) still likes Sysco, but wants to see other distributors. But if they don’t file their 10K by the end of the year, they could be delisted.

Mario Gabelli’s Broken Legacy (GBL)

Birinyi thinks it may be time to look at the homebuilders again. (NVR, OHB, TOL)

Copper surplus? (FCX - Annual Report)

If Microsoft revolutionizes business communications, Plantronics (PLT) will be there to help.

Dade Behring (DADE) is changing auditors.

Brazil’s Gerdau (GGB) bought Peru’s Siderperu.

Luxury soup (CPB).

Gold bugs think the Fed is too soft on inflation. (GG, GLG)

Lakeland Industries (LAKE) announced a largely pointless stock dividend.

Par Pharmaceuticals (PRX) to manufacture generic version of high blood pressure treatment Norvasc starting in late 2007.

UT Starcom (UTSI) filed its previously delayed reports.

Libbey (LBY) sets table for Mexican dinner.

Heineken starts up Indian JV.

Helix (HELX) closed the buyout of Remington Oil and Gas.

Stifel Nicolaus likes the beer stocks.