Monday, July 6, 2009

Daily Wrapup For July 6th

This day was one for the Murphy's Law crowd. After the long weekend ended in a way that made for a worry weekend, the averages put on an encore shortly after trading opened. Thankfully, the morning drop was mostly or completely reversed by the end of the trading day. The cutoff for the lowest P/E quintile sunk a little today, from 9.82 to 9.8, but the dividend cutoff didn't budge; it stayed at 2.94%.

The number of stocks in the Low P/E Bin shrunk by five. After ETFs and those with less than 500M market cap were banished, the number of stocks fitting the above criteria was eighty-six. Today's changes in the Bin are dash-listed below:

- Lincoln Electric Holdings, Inc.
- Ryder System, Inc.
- Textainer Group Holdings Limited
- The Travelers Companies, Inc.

- CenterPoint Energy, Inc.
- Embarq Corporation
- FirstEnergy Corp.
- Merck & Co., Inc.
- Polaris Industries Inc.
- SK Telecom Co., Ltd.
- Telecom Corp of New Zealand
- Tsakos Energy Navigation Ltd.
- UGI Corporation

Of the Arrivals, the first two got there by P/E compression. Textainer, on the other hand, had a good day: it got in the Bin through its market cap expanding to above 500M. I have to admit to being confounded by Travelers, as its stats indicate it should have been there last Thursday. I have to ascribe its inclusion in the Arrival list to a glitch in Google Finance's stock screener.

All but two of the Departures got on the list because of P/E expansion - good news for their shareholders. Embarq got dropped because it's now part of CenturyTel, and its symbol has been vacated. The other Departure got there for a not-so-happy reason. Thanks to a one-two blow of a dropping Baltic Dry Goods Index and an oil-price plummet, the tanker-and-drygoods shipping companies got pummelled today. Tsakos was one of them. It got out of the Low P/E Bin by dropping enough to make its dividend greater than 10%. It isn't the only company in the Water Transporation industry to meet this fate: Ship Finance International Ltd. did so some time ago. These stocks are basically risky dividend plays: if their dividends hold up next quarter, they should rally. Such was the case during the last quarter, although the general rebound helped them too. Regardless, they no longer rate being in the Low P/E bin as of now; ironically, they would if they chopped their dividends by no more than about 70 or 75% respectively.

Of the Departures that got there for less scary reasons, Merck was one of the more counterintuitive ones. Its pipeline's drying up; it couldn't find anything to do with its cash; its long-term EPS growth was lousy; etc. And yet, it had a huge rally today; its closing gain was 3.26%, which was pretty huge for a down-to-middling day like today. A technical analyst would actually thumbs-up Merck, and an especially astute one would have done so as of late June. Its takeoff is one example of how strange things can be in the Low P/E Bin.

That's all for today's Daily Wrapup. Thanks for reading, and the next time the oil bulls talk like nothing much happened in late '08, watch out.

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