Thursday, July 30, 2009

Daily Wrapup For July 30th

The three major averages got off to a quick start after opening only with a slight gain. By 10 AM ET, all three were up well above a 1%; shortly afterwards, the S&P 500 made it above 2%. Unlike in recent days, there was no last-minute push upwards; instead, the averages fell until their gains for the day straddled 1%. Reports ascribed the leap-up to continuing good news on the earnings front; this one suggests that a string of Street-beating reports shows an economy on the mend. It also points to an unexpected drop in continuing unemployment claims. Another factor was a surprise leap in oil prices: light sweet crude closed up $3.66, or 5.7% on the day. That gain more than reversed yesterday's loss.

The lowest-quintile P/E cut-off also rose today, to 10.92. As a consequence of the S&P's 1.19% rise, the yield on the index dropped to 2.74%. Once ETFs were gotten rid of, along with stocks with market caps of less than 500M or yields of greater than 10%, the Low P/E Bin was left with eighty-nine stocks: one fewer than yesterday. Here are the changes in the Bin, as dash-listed below:

- Anglo American plc
- Hugoton Royalty Trust

- BP plc
- Cal-Maine Foods, Inc.
- CVB Financial Corp.

Both Arrivals are Bin veterans that have returned from a short exile. Anglo-American is back in because its own yield rose above the S&P yield cut-off. Hugoton's back because its market cap rose to more than 500M.

The Departures used to be Bin mainstays too. BP got out because an earnings drop pushed its P/E to well above the lowest-quintile cut-off. Cal-Maine was pushed out for a different reason: its yield fell well below the S&P cut-off. CVB could be said to have graduated from the Bin, if its Departure proves not to be temporary. Its run-up continued today, to the tune of 6.31% in regular trading; its P/E got pushed well above the respective cut-off. What a difference an earnings report can make: the last time CVB was cut out, it was because the company's market cap fell below 500M. During that time, it made a 52-week low. Only Sunoco managed to do so too in the time the Bin's been in existence, and the latter stayed in the Bin while doing so.

Speaking of earnings, Bin stock Carpenter Technology Corporation announced an awful quarter. Its 2Q '09 EPS was -34 cents/share, and its loss from continuing operations was 48 cents per share. Both were much worse than the expected loss of 28 cents per share. Revenues fell 58% year-over-year. Management made some positive comments about the rest of the year and 2010, which brought some relief. These earnings were released before the bell: as of market's open, Carpenter stock was down 67 cents from yesterday's close.

Then, something funny happened on the way to damnation. Within minutes of the open, Carpenter shot right up. By 10 AM ET, it was riding a gain of $1.47, or 8.50%. Although the stock drifted downwards through the late morning and afternoon, to close with a gain of 4.40% in regular trading, the stock's reversal right after the open was stunning. It could have been caused by the mollifying guidance, it could have been the declaration of a regular dividend in spite of the loss. Given recent market action, the latter explanation is the more likely one. Nevertheless, Carpenter's reversal today stands as a mute example when Mr. Market's erratic gyrations call for the word "overdiscounted" to be used.

That's all for today's Wrapup. Thanks for reading, and may your surprises all be understandable ones.

Disclosure: The actively-managed Marketocracy mock fund I run has CVB in it; it does not have Carpenter Technologies.

1 comment: