Wednesday, July 15, 2009

Daily Wrapup For July 15th

It was another banner day for the averages - as well as an object lesson about the prevalence of the anchoring effect. For the second time in three trading sessions, all three averages have leapt up more than 2% on the day. And, for the second time, the general market action has been ascribed to favorable news on just one stock. On Monday, it was favorable analyst comments on Goldman Sachs; today, it was Intel's beating of the Street consensus. Favorable news and results on those two individual stocks do not change the valuations of any others; at most, it hints at better valuations for stocks in the same industry or allied fields. (It may hint at worse fortunes for direct competitors of the favored firms.) And yet, the entire market supposedly moves on the news for just one stock. The anchoring may be reflected in the market action itself, or it may merely be reflective of the played-into biases of us financial-news consumers. It may be both; I don't know. What I do know, though, is that anchoring lurks.

Once again, for the third session in a row, the cutoff for the lowest P/E quintile rose. As is also consistent with a market leap-up, the inferred dividend rate for S&P SPDRs fell. These first two screens for the Low P/E bin ended up at 10.19 and 2.67%, respectively. Once ETFs and stocks with market cap of less than 500M were also eliminated, ninety-two stocks were left in the Bin: an increase of three from yesterday. Here are today's changes, as dash-listed below:

- CenterPoint Energy, Inc.
- Compass Minerals International, Inc.
- Hugoton Royalty Trust
- The Chubb Corporation

- Baldor Electric Company

Two of the Arrivals, CenterPoint and Chubb, got in because the low-P/E cut-off expanded slightly more than their own P/Es today. Chubb is barely on the Bin edge of the lowest quintile cutoff; it was up 3.05% today. CenterPoint, on the other hand, was up only 0.80%. It's an electric and natural gas utility, with a beta of 0.71, so its relative lack of performance could be ascribed to it not being glamorous enough to rate serious buyer attention today. Even if it's based in Texas.

The other two Arrivals are interesting for different reasons. Compass Minerals is a relative newcomer to the Low P/E Bin; its industry classification is "Non-Metallic Mining." It's in the business of scooping out sulphate of potash from the earth, as well as rock salt. Compass had a good day today, closing up 1.37%, but its performance over the last month has compressed its P/E to the point of falling into the Bin. Hugoton got in for a happier reason: its market cap expanded to the point where it qualified for Bin membership again. For the trivia buffs: as of the close, Hugoton's market cap was exactly 500.00M.

Today's only Departure got out through P/E expansion: it's one of those stocks that exits and re-enters the Bin from time to time. Baldor closed up 5.15% today, and seemed to be a beneficiary of the general hope for an economic turnaround. It makes electric motors; like Polaris as of now, it took an extended trip out of the Bin last month.

This day marks the day when the first Low P/E Bin stock declared its earnings for this season. Corus Entertainment, a Canadian company, declared a net loss of C$1.81 per share for its third quarter, ending May 31st. Revenues were down 6.00% from 3Q '09. For the first three quarters of '09, Corus had a loss of C$0.45/share. Using today's closing C$ figure, Corus will have lost $1.63 this quarter and its trailing 12-months EPS will be $-0.56. Corus will be the second company, since the inception of the Low P/E Bin, to fall out due to lousy earnings. [Teekay was the first.] It closed down 0.08% during regular trading, and was down a further 3.52% in after-hours trading. Not the best of reports for the first of this earnings season.

That's all for today's Wrap-up. Thanks for reading, and watch where the anchors are landing.

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