Monday, August 10, 2009

Daily Wrapup For August 10th

The day didn't start off all that well. The three major averages opened lower, and had scraped close to break-even territory shortly before 11 AM ET. That time marked the high of the day. The averages then sunk, but the pace of the decline was slower than some recent ones. Another late-afternoon rally partially erased the drop, and left the Dow with a loss of 0.34%, the S&P 500 with a decline of 0.33%, and the NASDAQ was a loss of 0.40%. The U.S. dollar continued to gain strength, and the price of light sweet crude dropped a little to close at $70.60 per barrel. The nervousness about the spring-summer rally continues.

The low P/E cut-off dropped slightly today, to 11.60 from Friday's 11.62. Thanks to ending a slight inferring inaccuracy on my part, the S&P dividend yield dropped two basis points to 2.65%. When ETFs and stocks with less than 500M market cap were eliminated, along with ones yielding 10% or more, the Low P/E Bin was left with one hundred and six stocks for a gain of two from yesterday. Here are the changes in the Bin, as dash-listed below:

- Altria Group, Inc.
- Compass Minerals International, Inc.
- Permian Basin Royalty Trust
- The Buckle, Inc.
- UIL Holdings Corporation

- DCP Midstream Partners, LP
- PriceSmart, Inc.
- Tenaris SA

Typically, the Low P/E Bin gets stocks that not many people have heard of. Today, at least one of the three new Arrivals is a well-known name. Altria Group holds the U.S operations of Phillip Morris, the maker and purveyor of Marlboro and associated brands. It got in because its P/E compressed to a point slightly below the cut-off. The Buckle got hammered today, by a 4.31% decline, to the point where its P/E got well below the cut-off. It's a chain that sells casual clothes primarily to young people. UIL Holdings is a stock that's more normal for the Bin: it's an electric utility which services the southwestern part of Connecticut. Its 12-month trailing earnings have gone up, pushing its P/E down to a level a little below the P/E cut-off.

The other two Arrivals are ones that have tended to go and return as their price and the Bin cut-offs fluctuate. Compass Minerals, a miner and seller of rock salt and sulfate of potassium, dropped 1.41% today. That drop brought its yield back up to Bin level. Permian Basin, an express trust receiving income from several Texas oil and gas properties, rose 2.78% today. That gain put Permian's market cap, once again, above the 500M cut-off.

The first Departure, DCP, had a big fall today, in part because it has mistakenly overstated its 2Q '09 net income last Friday. The yield of this natural gas storer, fractionater and natural-gas-liquid seller is now well above the 10% maximum. PriceSmart, an operator of warehouse shopping clubs, arrived for a day and is now gone. A 2.50% rise in the stock pushed its P/E above the cut-off, even though an after-hours drop shaved about half off its gain. Tenaris' 12-month trailing earnings dropped due to 2Q '09's EPS being below 2Q '08's. So, the maker of steel pipes for the oil industry saw its P/E upped and it out of the Bin.

Given the recent crack-spread squeeze, it may be surprising to see a refinery company that's reported 2Q '09 EPS higher than 2Q '08's. But, that's what Holly Corp. managed to do. The refiner reported an EPS gain of 26.1% compared to the same quarter a year ago; as might be expected, the stock was up 1.73% on the day. This report is one for the bottom-up crowd, as it's an unexpected one given the troubles the refining industry has been facing recently.

That's all for today's Wrapup. Thanks for reading, and keep your eyes on the exception.


  1. Are you familiar with the survivorship bias? What I understand about it so far is that these supposed returns the S&P and Dow or I guess going back even farther just an index of the few stocks there were have manipulated returns over the long-run because many of the companies in them went bankrupt and were removed from the index. Few companies survive over the long run so these supposed 7% returns since the 1800s in stocks is even way less than that figure. Am I getting this right?

  2. I think that would make the returns negative maybe even... Talk about a con game Wall Street is playing with investors telling them to buy and hold in their retirement accounts.

  3. Yes, Mark, you're right about survivorship bias. It actually affects backfitting tests of trading strategies, as the companies that went bankrupt don't even show up in the selection list. In real time, they would have.

    I think Compustat's adjusted for that bias in its databases.