Monday, August 24, 2009

Daily Wrapup For August 24th

It was supposed to be the start of another winning week, but an early afternoon drop put an end to that hope. The three major averages were up in the morning, continuing Friday's rise until about 11 AM ET. At that point, they were all up more than 0.5%; the S&P 500 was close to a 1% gain. Then, the decline started. Slow at first, like the first dip on a roller coaster, the slide took the averages into loss positions by early afternoon. A recovery attempt in mid-afternoon kept the averages at about the break-even point, but that failed to hold until an aborted 3:30 rally was replaced by a sustained last-minute rise. The Dow was the only one of the three to end regular trading in positive territory, with a miniscule gain of 0.03%. The S&P was down an almost as miniscule 0.06%, and the NASDAQ dropped 0.14%. Although disappointing, the day could have been worse. Light sweet crude oil was a mitigating factor: October crude was up 31 cents a barrel to close at $74.20. $75 is near, and the bullish comments are coming back.

The lowest-quintile cut-off for the Low P/E Bin, contrary to the averages, was also up, from Friday's 11.89 to today's 11.96. Almost like the index itself, the S&P 500's yield didn't budge from Friday's 2.59%. Once ETFs and stocks with less than 500M market cap were discarded, along with ones that yielded more than 10%, the Bin was left with one hundred stocks for a drop of three from yesterday. Here are the changes in the Low P/E Bin, as dash-listed below:

- Baytex Energy Trust
- Snap-on Incorporated
- United Bankshares, Inc.

- Altria Group, Inc.
- Holly Corporation
- Honeywell International Inc.
- NTELOS Holdings Corp.
- Telecom Corp of New Zealand
- WSP Holdings Limited

Baytex, an oil and natural gas energy trust based in Canada, was up slightly. Its P/E, though, didn't rise enough to match the rise in the P/E cut-off; that brought it back into the Bin. Snap-On got back in for the same reason, although its stock declined slightly in regular trading.

Thanks to some discouraging comments made recently about the regionals, the stocks of those banks haven't performed all that well lately. One of the stocks that was affected by today's rout in those financials was United Bankshares, Inc., a regional with subsidiaries in Virginia and West Virginia. It dropped 3.82% today; the resultant P/E compression brought it back to the Bin after an absence precipitated by a hope-induced rally in the regionals.

Despite the overall market droop, Altria Group racked up an impressive 1.61% gain today. Holly Corporation gained an even more inpressive 3.41%. These gains in the stocks of the American arm of Phillip Morris and one of America's larger independent refiners, respectively, put both companies out of the Bin as their P/Es expanded to above the cut-off. Honeywell, a well-known maker of control systems, also exited the Bin for the same reason: its stock jumped up 2.62% today.

The fourth Departure, NTELOS Holdings, continued Friday's zoom-up by posting a 6.42% gain today. That jump makes for a 12.8% two-day gain for the Virginia and West Virginia telecommunications service provider. There was no news to account for it on Friday, but there was today: NTELOS announced a stock buyback program. Perhaps it was just a relief rally, though: in after-hours trading, the stock lost all of today's gain. Unless this fall-back is due to after-hours vagaries, it looks like NTELOS will be in tomorrow's Arrivals.

New Zealand Telecom makes for the fifth of five Departures to be pushed out because of a jump in its stock. A 4.00% gain expanded NZTel's P/E enough to put it out of the Bin. The last Departure, though, got out through a drop. WSP Holdings shares' 1.44% loss on the day put its market cap below 500M.

About two weeks ago, in an earlier entry, I mentioned Suburban Propane Partners' tender offer for no more than $175 million worth of 6.875% Senior Notes due 2013. That offer included a $50 bonus, per $1000 face-value in notes, for tendering on or before the early-tender deadline. That deadline expired at 5 PM ET last Friday. Today, the company announced that holders of more than $300 million worth of the notes had tendered by that expiry date. Since the early tender option was oversubscribed, Suburban will be paying $1025 per $1000 face value for the entire buyback. My back-of-the-envelope calcualtion in the same entry, assuming 2% yield on cash, concluded that the deal would be accretive to earnings if the entire allotment was tendered. Despite that calculation, Suburban's stock dropped 0.07% today. It's still below the secondary-offering price of $41.50 for the trust-unit issuance that'll provide partially payment for the tendered bonds. Despite that discrepancy, the underwriters agreed to a partial taking up of their over-allotment option this morning: about 231,000 of the available 330,000 units.

That's all for today's Wrapup. Thanks for reading, and may any discrepancies you happen upon be to your advantage.

Disclosure: I'm holding Suburban Propane Partners in the actively-managed Marketocracy mock fund I run.

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