Thursday, July 23, 2009

Daily Wrapup For July 23rd

[Note: Added one to Departures and corrected accordingly.]

Another day of earnings season, another jump for the three major averages. Headlines are already announcing that the Dow has passed the 9,000 mark, although this particular write-up does add a caution about the present trading volume. Not all stocks are benefiting from earnings season, but many are. The financials are still under somewhat of a cloud, but the ones in the Low P/E bin have seen the cloud lift somewhat. Ex-Bin stock Caterpillar was still on a tear today, although its 6.73% gain was partially whittled away in after-hours trading. Overall, the stock market is indicating the start of a recovery. Stocks seem to be going farther than what market watchers have gotten used to, and a lot of those rises are based upon better-than-expected earnings. Oil continues to rise: West Texas Internediate closed at $67.16. The crack spread has also leapt up, confounding the relevant inventory data.

In line with the major averages, the lowest-quintile P/E cutoff rose to 10.78. The S&P 500's dividend yield fell to 2.77%. After ETFs and stocks with market cap of less than 500M were eliminated, the Low P/E Bin was left with one less stock than yesterday for a total of ninety-two. Here are the changes in the Bin, as dash-listed below:

- Compass Minerals International, Inc.
- Delhaize Group
- General Dynamics Corporation
- Lockheed Martin Corporation
- Packaging Corporation of America
- Ship Finance International Limited

- Barnes Group Inc.
- FirstEnergy Corp.
- Hubbell Incorporated
- Merck & Co., Inc.
- Ryder System, Inc.
- The Laclede Group, Inc.
- United Bankshares, Inc.

Compass Minerals got back in the Bin because of P/E compression - a bland expression meaning, for Compass, that the stock got hammered today: it dropped 4.62%. Delhaize and General Dynamics also got back in because the stocks fell, but those drops made their yields rise to exceed the new yield cut-off.

Two of the Arrivals got in today because of corrected Google Stock screener inaccuracies. Lockheed Martin should have been in as of the Bin's inception, but it wasn't picked up. I would like to thank Mark of "Smart Money" for highlighting it in a recent post.

The other slip wasn't as serious. It was just a matter of a few day's delay before Stock Screener latched on to the improved earnings of Packaging Corporation of America. Packaging has roared up 32.4% since July 9th, in large part because its 2Q '09 earnings were 80 cents per share as compared with 2Q '08's 34 cents. Despite its two-week rally, the 46 cent boost in Packaging's 12-month trailing EPS was enough to lower its P/E ratio to put it in the lowest quintile. According to this report on its earnings, though, a lot of the EPS boost came from alternative-fuel tax credits. Had those credits not been there, EPS would have been 24 cents...or lower than 2Q '08's.

The final Arrival, Ship Finance International, dropped out of the Bin a long time ago because its yield had gone above 10%. It spent some time in that slot as it continued to sink: at its end-of day nadir, on July 10th, it yielded 12.5%. Evidently, there was a lot of worry about it passing its dividend; a glance at its recent financials will explain why...specifically, in its quarterly balance sheet and cash-flow statement. A very basic forecast-calculation suggests that Ship Finance will barely meet its 30 cent payment in the next quarter. As oil prices have gone up, though, there has been more optimism regarding this tanker stock. [Disclosure: I've had Ship Finance in my actively-managed Marketocracy mock fund since its inception.]

All of the seven Departures got out through P/E expansion. Three of them, Hubbell, Ryder Systems and United Bankshares, got out through a combination of rising stock price and lowered 12-month trailing P/Es. It's coincidence, but those three were also the two biggest gainers of the seven today: Hubbell was up 9.56%, Ryder was up 13.37%, and United Bankshares was up 8.90%.

That's all for today's Wrapup. Thanks for reading, and look upon the averages with wonder.

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