Wednesday, July 8, 2009

Daily Wrapup For July 8th

There was yet another dive in the market until the late afternoon. Hope may again spring up, because today's drop was reversed in the three major averages. Alcoa reported another loss, and the stock has enjoyed a after-announcement leap-up as of the time of this post. The given rationale should be a familiar one, suggesting that the Earnings Management Two-Step is yet again underway. Oil took another dive, and distillates took a worse one - making life hard yet again for some of the stocks in the Low P/E Bin. Like the last several trading days in these issues, today was a day to make one realize that "out of favour" isn't quantified. A day when patience requres a dollop of detachment from the price action.

Despite the Dow and Nasdaq averages closing up on the day, the lowest-quintile P/E cutoff for the Low P/E Bin shrunk a little. So did the number of stocks in the Bin: they dropped by two issues to eighty-six. The dividend cutoff stayed the same, making for a 9.58 P/E and 3% yield for any non-ETF with market cap of 500M or more to qualify. Today's changes in the Bin are dash-listed below:

- Baldor Electric Company
- Bancolombia SA
- CenterPoint Energy, Inc.

- Compania Cervecerias Unidas SA
- Harvest Energy Trust
- Hugoton Royalty Trust
- Polaris Industries Inc.
- The Chubb Corporation

All three Arrivals got there through P/E compression. Baldor was in the Low P/E Bin about a month ago, but got out through P/E expansion. The last four trading sessions have been sufficiently hard on Baldor to bring it back to the Bin. In that regard, it resembes one of the Departures: Polaris Industries, which has tended to be shunted to the Bin when its stock has had a hard time. Centerpoint got in the Bin because of the current frowning on electric utilities. The implications of setting Cap'n Trade loose on the land aren't that good for power generators.

The five Departures got there for various reasons, including one that will be popping up now that earnings season is here. Cervecerias got thrown out of the Bin because of an earnings drop; its P/E is now 14.66, thanks to the shrink in the E. Chubb and Polaris got out thanks to P/E expansion; they both tend to be companies that return when trading action's been lousy. [Note: This tendency is a recent pattern that may be due to coincidence, and is likely to vanish.] The other two got kicked out: Harvest plummeted to the point where its yield is now above 11%, and Hugoton's market cap dropped below 500M. Both are energy trusts, and both got hammered hard today. They weren't the only ones.

That's all for today's Wrapup. Thanks for reading, and enjoy any spurt-up that comes from the above-mentioned Two-Step.

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