Wednesday, July 22, 2009

Daily Wrapup For July 22nd

[Note: Corrected number of Bin stocks.]

This day, it was the turn of the NASDAQ to have a gain well above the two other major averages. Given the anchoring effect that surfaces around earnings season, Apple's Street-beating report had an influence. It was the only one of the three major averages to close with a gain on the day. The financials are continuing to have a hard time, which is understandable given that they're the sector that benefitted the most from the initial March rally. Sectors that are scraping the edge of the graveyard often do.

Unlike the NASDAQ, the cut-off for the lowest P/E quintile dropped today to 10.56. The S&P's dividend yield remained unchanged at 2.88%. After ETFs and stocks with market caps of less that 500M were eliminated, along with too-good-to-be-true cases, the Low P/E Bin was left with ninety-two stocks: an increase of three from yesterday. Here are the changes in the Low P/E Bin, as dash-listed below:

- American Electric Power Company, Inc.
- FirstEnergy Corp.
- Merck & Co., Inc.
- Titanium Metals Corporation

- Financial Federal Corporation

The first Arrival, American Electric Power, got back in the Bin because of P/E compression. It had a good run in mid-late June, and another one in mid-July. Now, it's beginning to fall back. It's one of the companies lobbying to have the cap-and-trade bill changed; said bill is explanation enough for its rally fizzling. mentions it as one of the biggest coal consumers in the country along with Southern Co., but mentions no other utilities. That could be because American Electric, along with Southern, is carrying the lobbying ball on this one. The second Arrival, FirstEnergy, is also an electric utility that's come back to the Bin after a long absence. As an industry, though, electric utilities closed down 0.42% on the day. That drop was only marginally less than the Dow's -0.39%, but somewhat worse than the S&P's -0.05%.

Merck & Co. also returned to the Bin, after a much shorter time away than American Electric's or FirstEnergy's. It dropped 0.57% today, a slight one when compared to its 6.12% rise yesterday, but that drop was just enough to push it back in the Bin.

Titanium Metals also got in through P/E compression - a lot of it. The stock dropped 7.97% today, although there was no earnings or other news to explain why. As the name indicates, it makes titanium products. After a nice rally from April 21st to June 11th, in which the stock was up 88.2%, Titanium Metals has been falling quite a bit: in regular trading, it closed today at $7.85. It's had a checkered 10-year earnings history, although the overall trend has been from losses to earnings to increased earnings until last year. That earnings retrenchment continued in the first quarter of this year, when diluted EPS dropped 50% from 1Q '08's. Cash from operating activities dropped even more in the same timeframe, by 57.8%, but slashing capital expenditures kept Titanium Metals's free cash flow dropping only 28.2%. It has passed its 8 cent dividend for the last two quarters, even though current free cash flow would have barely covered it in both of those quarters. I note that the company didn't have much of a dividend record to begin with: its 8 cent dividend was only paid for five consecutive quarters out of the last ten years. Prior to Dec. 13, 2007, the last dividend the company paid was 1 cent per share on August 30th, 1999. Its current book value is $6.06, well below its closing price of $7.85.

The only Departure, Financial Federal, was somewhat of a Bin oddity. Its market cap was small enough to make it almost at the 500M cut-off when it first entered the Bin yesterday. Today, thanks to a mere 0.92% drop, Federal sunk below the cut-off and got ejected.

That's all for today's Wrapup. Thanks for reading, and enjoy the trading ranges while they last.

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