Monday, July 20, 2009

Daily Wrapup For July 20th

[Note: Corrected Bin number and Departures list for an additional Departure.]

It was another up day for the averages, and explanations were once again easy to find. The company-watchers settled upon an impending private bailout of CIT Group, even if the latest rise in the leading economic indicators makes for a more logical reason. Goldman Sachs released a prediction that forecasts the S&P 500 will rise the most this year since 1982. Essentially, it said that the S&P will keep its current gains and rally another 100 points by Dec. 31st. It's an audacious forecast in a sense, as another 100-point rise means about a 10.5% gain in the next 23 & 3/5 weeks. On the other hand, given the almost 200 point rise in the S & P since the March low, it could be said to be 'conservative' in the sense that it implies most of the '09 rally is over. Whatever the appropriate characterization, its release before markets closed could have given a boost to the averages. We all know that forecasts of this sort are the patter of Wall Street.

Before getting to today's changes in the main cutoffs for the Low P/E Bin, I'd like to announce a slight change in policy. Thanks to the owner of the blog "Can Turtles Fly ?", I've gotten a Webpage that gives the S&P dividend rate directly. So, from now on, I'm dropping the inferred-SPDR rate and using the S&P yield as the minimum yield cut-off. (Just a reminder: I also use a maximum cut-off of 10%, because that level screens out the too-good-to-be-true GE before it slashed its dividend.)

The cut-off for the lowest-quintile P/E rose along with the market today, to 10.46. The minimum yield, as adjusted to the S&P's, changed to 2.88%. After also discarding ETFs and any stock with market cap of less than 500M, the Low P/E Bin was left with eighty-nine stocks: a drop of five from Friday. Here are today's changes in the Bin, as dash-listed below:

- The Laclede Group, Inc.

- BB&T Corporation
- Compass Minerals International, Inc.
- Eaton Corporation
- General Dynamics Corporation
- Telkom SA Limited
- Weight Watchers International, Inc.

The only Arrival, the Laclede Group, is a natural gas utility that got in the Bin because of P/E compression. It's near its 52-week low, which was made last May 27th.

Of the five Departures, two of them got out of the Bin because of earnings drops. BB&T's second-quarter report dropped its 12-month trailing earnings from $2.42 to $1.84, which jacked up its P/E to 11.42 once the 0.19% change in price was factored in too. Eaton's P/E also ramped up because its 12-month trailing earnings declined, from $4.59 to $2.73. It also lowered its 3Q guidance to a range of 80 to 90 cents. Given this double blow, it would seem that Eaton wouldn't have done all that well today. In fact, though, it leapt up by 8.88%. These other items explain why: Eaton also declared a regular dividend, which some expected to be cut, and its acquisition-charge-adjusted EPS beat the Street by six cents.

Three other Departures got out because they were squeezed out. Compass Minerals, General Dynamics and Telkom had dividends that would have made the old cut-off, but not the new. Weight Watchers got out through a more unambiguously happy reason: P/E expansion. Its 2.43% gain on the day put its P/E slightly above the lowest quintile.

That's all for today's Wrapup. Thanks for reading, and may your dividends stay the course.

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