Thursday, August 6, 2009

Daily Wrapup For August 6th

Once again, the macroeconomic news failed to impress on balance. New claims for unemployment benefits did fall, to a number lower than expected, but June same-store sales didn't offer much cause for optimism. They showed an eleventh straight monthly decline. The percentage drop was a little larger than expected, 5.1% versus the general expectation of a drop of 5%.

After opening to the upside, the three major averages fell down swiftly. Once again, the NASDAQ fared the worst: this time, disappointing guidance from Cisco was fingered as the cause (even if the stock closed with a slight gain.) There were three waves of declines today, with the third being the worst. By 2 PM, the NASDAQ was well below 1% and the S&P was not that far away from a 1% drop. There was somewhat of a recovery rally later, which reduced the declines in all three. The Dow, which fared the best, ended up down 0.27%. The S%P 500 closed with a 0.56% decline, and the NASDAQ closed down an even 1.00%. Both of the latter are now below the round numbers that they broached earlier this week. Light sweet crude closed down slightly at $71.94 per barrel.

The lowest-quintile P/E cut-off rose slightly today, to put it back up to Tuesday's level: it reached 11.41, up marginally from yesterday's 11.40. The S&P 500 yield, which serves as the yield cut-off, notched up a basis point to 2.70%. When ETFs and stocks with less than 500M market cap were eliminated, as well as those with greater than 10% yields, the Low P/E Bin was left with ninety-seven stocks for a drop of five from yesterday. Here are the changes in the Bin, as dash-listed below:

- France Telecom SA
- Garmin Ltd.
- Tenaris SA

- Entertainment Properties Trust
- General Dynamics Corporation
- Hillenbrand, Inc.
- NiSource Inc.
- NTELOS Holdings Corp.
- PH Glatfelter Company
- Spectra Energy Corp.
- Titanium Metals Corporation

Of the three Arrivals, only one was new; both of the others got in after only one day's absence. The new one is France Telecom, whose stock fell 1.39% today. That drop put its P/E below the cut-off for the Bin. A larger drop put Tenaris, a supplier of steel pipes to the oil industry, back in the Bin as well. The stock's 3.33% drop put the company's P/E well below the cut-off.

Garmin also fell, but its drop came after a more than 20% rise yesterday. The company announced earnings that, although down, were well above expectations. Consequently, it opened up about 20% yesterday morning and ended yesterday with a gain of 23.8%. Today, the stock opened lower, and was down as much as 8.33% at 2:22 PM ET. It pulled up a little to close down 6.00%. The two-day Garmin saga illustrated the old market rule, "there's always a second chance to buy."

Of the seven Departures, three of them were only in the bin for a single day. Entertainment Properties Trust, a REIT that holds movie theatres, rose 1.14% today. The stock of NTELOS, a phone company in Virginia and West Virginia, went up more in the regular shift. Its 1.46% gain was erased in after-hours trading, though. Both of these stocks' P/Es went back above the P/E cut-off, even if NTELOS may be back tomorrow. The final one-day visitor, PH Glatfelter, got out for a less cheery reason. In miniature, it was like Garmin. A 6.69% rise yesterday, due mainly to an upgrade, well-received earnings and upped outlook, got the specialty-paper maker into the Bin because its market cap rose above 500M. Today, a 2.15% drop got its market cap below the market-cap cut-off. Although Garmin did so in grander style, both stocks' fate show that buying after some great news sometimes puts the buyer into a loss position when excitement wears off.

Two of the other four got out of the Bin because of earnings drops. Spectra and NiSource, an electric and natural gas utility respectively, both saw their 12-month trailing earnings drop their P/Es to above the cut-off level; both were down today. The other two got out for happier reasons. Hillenbrand, a supplier of caskets, jumped up 2.94% to put its own P/E above the cut-off. General Dynamics, a supplier of military materiel and the owner of Challenger, also gained today. Although its rise was only a slight 0.32%, its yield dropped below the yield cut-off.

Sometimes, there is excitement in utilities. Unlike its fellow electric utility Spectra, Ameren Corporation had a solid gain today. The company, whose utility operations are centered in Illinois and Missouri, reported earnings that were eight cents above analysts' expectations if non-recurring items are factored out. Its net income actualy fell 21.4%, from 98 cents in Q2 '08 to 77 cents in 2Q '09, but its core earnings of 75 cents was well above the consensus call of 67 cents. The pre-opening announcement got the stock opening 2.25% above yesterday's close; at its daily high, reached a half an hour into regular trading, it was up about 5%. It held there briefly, and then slid down in two stages to reach its closing gain of 1.82%. The time was more compressed than Garmin's or Glatfelter's, but all three are illustrative of that above-quoted maxim: "There's always a second chance to buy."

That's all for today's Daily Wrapup. Thanks for reading, and may you profit from excitement rather than be consumed by it.

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