Friday, July 31, 2009

Daily Wrapup For July 31st

[Note: Corrected oil price and associated commentary.]

July is one of those months whose end coincides with the end of a week. It was a good month for the stock market, and the past five months have been great ones. Reuters put out an item entitled "S&P 500 sees best 5-month streak since 1938." Today didn't make for very much of a capper for what was a good month, though. Two of the three major averages barely eked out a gain, and the NASDAQ was down 0.29%. It wasn't a bad day, however: except for a brief blip around 10 AM ET, the Dow and the S&P 500 both were in upside territory. So was the NASDAQ except for the last twenty minutes or so. Oil was well up on the day, breaking the short-term correlation between it and the major averages. Gold also gained: at about 11:45 AM, in a matter of minutes, it leaped up more than $15. Evidently, word has spread about the healing economy; so have speculations about what will follow.

The lowest-quintile cut-off for the Low P/E Bin barely budged today, but it did move upwards from yesterday's 10.92 to today's 10.93. The S&P dividend yield dropped marginally to 2.73%. After ETFs and stocks with less than 500M market cap were dropped out, as well as those with yields of 10% or greater, the Bin was left with ninety-one stocks for a gain of two. Here are today's changes in the Bin, as dash-listed below:

- Financial Federal Corporation
- The Laclede Group, Inc.
- PartnerRe Ltd.
- Pitney Bowes Inc.


- Tenaris S.A.
- Norfolk Southern Corp.

Financial Federal got back in the Bin through plain old P/E compression: it dropped 0.64% today. PartnerRe is a newcomer to the Bin, which got in because its yield became slightly higher than the Bin's cut-off. Laclede came back in because its latest quarterly earnings didn't impress; it dropped 1.81%.

The last Arrival, Pitney Bowes, got in the bin through a "slight disappointment." Although the company declared its regular dividend, and reported quarterly earnings that were 9.5% below the same quarter's from a year earlier, it lowered its full-year '09 guidance to well below the Street consensus. That consensus was for $2.46; the guidance was for $2.09 to $2.29. Consequently, the stock got hammered today. It opened down 10% from yesterday's close, and sunk further to close at $20.65 for a decline of 12.13%. Given the guidance and the plummet, it looks like Pitney will be in the Bin for a long time.

The two Arrivals both got out through P/E expansion. Norfolk Southern left because its 12-month trailing earnings dropped to the point where its P/E went above the cut-off. Tenaris got out for a more unambiguously cheery reason: it gained 3.48%, which put its P/E above the Bin's cut-off. There was no news to explain Tenaris' rise.

Another gainer, though, did have some news to explain why. Fairfax Financial rose 5.01% today on the strength of earnings that were both better than expected and way above the same quarter's last year. The stock was stuck in a range since early June, spanning from about $243 to $260, but broke that range almost two weeks ago. Today's it closed at $304.63. Fairfax's P/E is actually quite low, evidently because the market thinks its recent good fortune will not be sustained. (Also, Fairfax's earnings are quite volatile. It's reported two annual losses in the last ten years, for 2001 and 2005, which were both marked by a major disaster.) So far, however, an EPS downtrend in Fairfax has not made itself evident.

That's all for today's Wrapup. Thanks for reading, and enjoy the first weekend of August.

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