Wednesday, September 9, 2009

Goodbye, And What I've Learned

Sorry to say so, but I've decided to wrap this blog up. As it turns out, I've bitten off more than I can chew with this approach; that's why it was turning into little more than a daily round-up. Also, I have to admit to being a writer at heart. Perhaps I veered out of my own circle of competence.

I have, however, learned a lot by watching low P/E, high-yield stocks. Just below, I've got the most important lessons I've learned:

1. The Low P/E strategy is counterintuitive. That's what makes it work, but it only works if done statistically. Picking and choosing, I've found, doesn't work all that well because the counterintuitiveness makes for an added barrier. More than patience, the categorical approach is needed.

2. Because the strategy is counterintuitive, active trading while using it induces specific perils. I'm sure you've already encountered the well-tested advice that it's better to stay pat than trade, but there's a specific performance-drainer that kicks in with low P/E stocks. Because their rising is usually counterintuitive, I've found, they seem to go up too fast. Consequently, active trading often means throwing a lot of the gains away.

More generally, I found that active trading also wrecks diversification. Also: it might be tempting to see the stock market as something of a casino, and to stop trading when your hot hand seems to have vanished. The trouble is, the stock market isn't a casino. Taking this approach leads to opportunity losses.

3. Low P/E stocks that suffer huge one-day plummets often, though not always, bounce back. If there's nothing wrong with the company itself, taking advantage of a big one-day drop often works out.

4. Buying low P/E companies with above-average long-term returns on their equities seems to add performance. I haven't been at this a long time, but investing - categorically - in stocks with long-term return on shareholders' equities has resulted in a mock fund with the highest positive alpha of all the ones I tried. To be specific, "long-term return on equity" is measured in this way: ([sum of net incomes over ten years] / (sum of shareholders' equities over ten years)]. If there are fewer than ten years' worth of financials available, then use what's available but cut out any stock with fewer than five years' worth.

4a. The above strategy does have vulnerabilities. The high-ROE approach would have blown a hole in the investor's portfolio in 2008 due to the bank stocks getting in. (Remember: this approach uses long-term ROE, not short-term.) It also malfunctions in the case of cyclical stocks when in the middle of a cyclical downturn. However, given the counterintuitiveness of the low P/E strategy, I have to urge caution when excluding some companies. My own experience suggests quite plainly that the stocks that shoot up are often a surprise. The best approach to selecting is to make an entire list based upon the low P/E, high-dividend, high-long-term ROE criteria and examine each of them individually. If any individual company has something wrong with it, strike it off individually. Categorical strike-offs should not be done except for cyclicals - and only if you're sure the downcycle will continue for some time. Ironically, the best approach that works is the one Ben Graham recommended for bond selection - with the exception that the only companies to be struck off are those with "clear and present dangers." It's often unclear as to what's junky and what isn't in this part of the stock universe, so confining the exclusion to explicit trouble-criteria is best.

5. Remember to reposition any low P/E portfolio once per year. This turnover rate is enough to keep it roughly current, while also providing enough time for the winners to run.

6. Except for prophylactic research, it's best to work the low P/E strategy mechanically. Once again, the counterintutive performace of many low P/E stocks is the reason why.


I hope these rules give enough basics to use the low P/E, high-dividend strategy successfully. The works of David Dreman go into more details, and supply copious evidence that shows the strategy works. I'd like to thank everyone who's checked in here, regulars as well as occasionals, and I'd also like to point out where I'm going to be in the blogosphere now. I've set up a new blog that's a real veer-off from this one; it's called The Gold Bubble. I hope the title is self-explanatory.

Note: I've read the blogs in the blogroll regularly. There's lots of talent therein; I suggest you give them a try.

Ameren Issuing More Stock, Price Drops

Once again, a non-financial company has issued plans for a secondary offering to the detriment of its stock price. Ameren, an electric utility holding company whose main operating subsidiaries are based in Illinois, has announced it will issue another 19 million shares. (With over-allottment rights of 2.85 million, the issance could be as high as 21.85 million.) Since the company plans to use the proceeds to up its investments in its subsidiaries, there's no reason to assume that the offering won't be dilutive. The best face for this offering would be an increase in regulatory capital leading to higher rates being allowed under the regulations.

Ameren's total shares outstanding as of June 30th was 214.2 million. Adding 21.85 million makes for an increase of slightly more than 10% of total shares outstanding. The money is earmarked to be spent, so there's no offset for the dilution factor except for the increase in earnings permitted by the increases in regulatory capital.

Left unspecified were the specific uses to which the funds will be put. Ameren stock dropped when cap-and-trade legislation was churining along, which leads me to suspect that the proceeds will be used to cut down the company's coal consumption by building natural gas generators.

Ameren stock was down 0.70% in regular trading, and down a further 3.12% in after-hours trading. The latter drop may not be reflected in its performance once regular trading starts again.

GE Leaps Up On Upgrade

Thanks to an upgrade of the company, from J.P. Morgan, the shares of General Electric rose 4.54%. The analyst, Stephen Tusa, now rates GE as "Overweight" because the worst seems to be over for the company; even if GE ends up raising money through a secondary offering, said Mr. Tusa, it would be good for the stock because it would dispel undercapitalization doubts.

Mr. Tusa could very well be right, but note the "even bad news is good news" thrust. Call me a worry wart, but that kind of reasoning makes me jumpy even if the troubled banks have shown the same effect over the last several months. Mr. Tusa's price target of $17 will likely be met from the latest close of $14.50, but I believe the path will be fairly jagged. I've been burned myself by "all clear ahead" bullishness.

Tuesday, September 8, 2009

Daily Wrapup For September 8th

Post-long weekend, the three major averages did quite well; so far, the widely-anticipated September Effect has yet to make its appearance except for a few down days. After opening with gains averaging about 0.5%, the averages carved out a trading range; at no point were any of them down on the day. The Dow closed up 0.59%, the S&P finished up 0.88% and the NASDAQ gained 0.94%. Light sweet crude for October delivery ended above $70 per barrel again, closing at $71.10/bbl for a gain of $3.08. Gold got top-story play today because the metal broached $1000/oz, even though it failed to hold on to most its gains in regular trading. Spot gold ended the regular session at $996.70, but moved back above $1000 later.

The lowest-quintile cut-off continued to rise today, from Friday's 11.75 to today's 11.88. The yield cut-off, being the S&P dividend yield, dropped two basis points to 2.58%. After ETFs and stocks with less then 500M market cap were discarded, along with ones yielding more than 10%, the Low P/E Bin was left with one hundred and four stocks for a gain of three from yesterday. Here are the changes in the Bin, as dash-listed below:

- AstraZeneca plc
- New York Community Bancorp, Inc.
- NiSource Inc.
- Northeast Utilities System
- SCANA Corporation
- The McGraw-Hill Companies, Inc.

- Compass Minerals International, Inc.
- General Dynamics Corporation
- Telecom Italia SpA

Three of today's six Arrivals are new: they all got in because their P/Es fell below the lowest-quintile cut-off. New York Community Bancorp, the holding company for New York Community Bank and New York Commercial Bank, is one of not many companies with a payout ratio of more than 100%: its P/E is 11.85 and its yield is 9.51%, for a dividend that has neither been raised nor cut in the last five years. Northeastern Utilities is a holding company for four utilities in the Northeastern United States: three electric, one gas. Its stock was virtually unchanged, but the Bin P/E cut-off rose above its own. McGraw-Hill got into the Bin becaue its stock plummeted 7.22% today, continuing a drop that started last Thursday. Its ratings division is facing potential lawsuits, and Warren Buffett is lowering Berkshire Hathaway's stake in the company.

The three other Arrivals have been in the Bin before. AstraZeneca, the U.K.-based major pharmaceutical company, got back in because its dividend yield ticked above the yield cut-off. Natural gas utility NiSource returned because its P/E fell below the lowest-quintile cut-off. The same cause was behind the return of electric utility SCANA.

All of the three Departures got out of the Bin because of gains in their stocks. Both Compass Minerals, a miner and seller of salt and sulfate of potassium products, and General Dynamics, a defense company, got out because their yields sunk below the yield cut-off. Compass stock gained 0.86%, and General Dynamics stock put in a much higher gain of 4.02%. The final Departure, Telecom Italia, saw its stock gain 3.15%. That leap was enough to push its P/E above the lowest-quintile cut-off.

Gains in both the stock market and metals added a real boost to the stock of metal and coal miner BHP Billiton plc. Recently, Billiton was sagging as an uptrend turned into a trading range. Today's 4.45% gain pushed it up to the top of its range from near the bottom. The company has a diversified product range - "alumina and aluminum, copper, energy (thermal) coal, iron ore, nickel, manganese, metallurgical coal, oil and gas and uranium, as well as gold, zinc, lead, silver and diamonds" - so it has benefitted from recent uptrends in those commodities. There was no company-specific news to account for its leap.

That's all for today's Wrapup. Thanks for reading, and welcome back to another post-summer season.

Monday, September 7, 2009

Now that the long weekend is here...

...I'd like to leave you with a trivia question. Being behind the curve as I am, I watched the Will Smith movie The Pursuit of Happyness for the first time last weekend. I spotted one anachronism in the movie, set in 1981, on first sight.

Here's the question: What was the anachronism?

Here's the answer: When the class for the trainees starts, the teacher/supervisor (played by Dan Castellanetta) hands out copies of Security Analysis...the fifth edition of it. The fifth edition (the "heterodox" one, as it was the only one whose text was not filled with Ben Graham's own writings) was first published in 1988. The only version available in 1981 was the fourth, published in 1962.

New Article In Enter Stage Right

After an end-of-summer hiatus, Enter Stage Right is back on its weekly schedule. As usual, I'm part of the line-up; this week, I center upon the current ObamaCare quagmire as an example of political cynicism gone overboard. If you're here from ESR, welcome.

I have to confess to falling back into my old habits. This long weekend, I've been plowing through Pat Buchanan's revisionist work Hitler, Churchill and the Unnecessary War. Mr. Buchanan's criticism of Churchill in the first two-thirds of the book (which is all I've read so far) have basically gone in one of my ears and out of the other. The impression that I got of Churchill was a politician who was adept at shifting with both party and popular winds. Granted that it does make him inconsistent over time, but that's what a lot of politicians are like....


My overall impression was that Britain lost its Empire because its trick that always worked, no longer did so. The U.K.'s European diplomacy strategy, centered on Europe, bears a striking resemblance to H.L. Mencken's definition of the mission of journalists: to "confort the afflicted and afflict the comfortable." In Britain's case, it was "reward the co-operative and punish the bully." The aim was to keep Europe multipolar and divided. Given this mind-set, it's hard to see how the U.K. governments could have avoided their blunders in the 1930s. Any great power has to be the cat of Aesop's fable The Fox And The Cat; it has to rely upon a single trick that always works. The trouble comes when one of the hounds eventually figures out how to cut the tree down.

Hitler was that hound with respect to the U.K.'s balance-of-power tree. Now cut, it's a wreck. The EU is showing Europe's former great powers how to settle differences peacefully. The "bullies" have figured out how to be co-operative without the U.K.'s help. How to keep France and Germany, not to mention the other EU powers, at odds with each other when they're now bound by treaty?

In geopolitics, America is now the cat with the hegemony. Its trick that always works is the assumption that war is usually unpopular with the people of the warlike States, and that any regime that attacks America's allies (or America) is ipso facto unpopular with its subjects. Mr. Buchanan fears that the extension of NATO to Russia's doorstep is the same kind of folly that humbled the U.K. Although his point is a wise one, and is informed by sound strategic considerations, it seems to me to be too schematic. America is not the U.K.; they're different breeds of cat (so to speak.)

My own opinion is that America's Achilles heel - the hound that will cut down America's hegemony tree - is a a regime that is not a democratic republic, is militarily aggressive on the world stage, but neverthless has the knack of fighting wars that are popular amongst its subjects. One of the reasons why World War 1 dragged out for so long, and why the Versailles Treaty was so vindictive, was the Allies discerning that the German people seemed to like the war.

America may face its own WWI yet.

Saturday, September 5, 2009

The Buckle Picked Up By Reuters (And Now Motley Fool)

Maybe I'm lucky, or maybe it's coincidence, but a stock I provided a rudimentary analysis for has made it into a Reuters "Buy Or Sell" feature. The stock is The Buckle, Inc., and my analysis is here. The Reuters feature on it does add some detail missing from my own work, such as the fact that the company depends on price increases to keep its margins growing. This point was made by the bear-side analyst cited in the feature. That analyst, Adrienne Tennant of FBR Capital Markets, downgraded The Buckle to "udnerperform" right after its disappointing same-store sales results for July.

The bull-side analyst is Laura Champine, chief financial analyst at Cowen and Co. She pointed to the valuation, noting that its P/E is well below its peers. Each analyst's arguments can be found in the feature.

This is the second time I've lopped into a stock before the pros did. The first was Compass Minerals: after my own rudimentary jobbie, a J.P. Morgan analyst upgraded it on more thorough grounds. To be frank, I'm just glad of the coverage regardless of any influence I have. Time constraints, plus my own dearth of intellectual capital, means that any analysis I undertake will be little more than a poke-through of the financials. Having pros take notice of the same company gives me information I can't scarf out on my own.

So, thanks. Thanks to Reuters; thanks to Nivedita Bhattacharjee, the author of the feature; thanks to both analysts; thanks to J.P Morgan and the analyst for the Compass analysis; thanks to the reporter who wrote it up...

Update: The Motley Fool has published a bullish analysis on The Buckle by Alyce Lomax, which has gotten three supportive comments so far. On the other hand, this fellow went into a Buckle store and didn't like what he saw.

Disclosure: I'm holding both Compass and The Buckle in the actively-managed Marketocracy mock fund I run.

Another Upgrade, Another Spurt-Up

This time, it's Alberta phone company Telus. The company was the beneficiary of an upgrade from Merrill/Bank of America on Thursday afternoon. Initially, the stock didn't react. On Friday, though, the stock shot up 4.46% to close at a year-to-date high. 1.42% of that gain was taken away in after-hours trading.

By my own reckoning, TELUS doesn't have the greatest of financials over the last ten years. Ten-year continuing-operations EPS growth is less than the S&P's, and its ten-year return on equity is 5.76% as calculated in C$ terms using Canadian GAAP figures. I haven't seen that upgrade, but it's likely based on recovery prospects for the Albertan economy.

What's Up With Spanish Banks?

Banco Santander stock was up 4.92% in Friday's regular trading, even though it was down 1.67% in after-hours trading. The news on the company wasn't that good: one of the items in Reuter's Key Developments for the bank was the notice that Santander, Spain's largest bank with a presence in South, Central, and even North America, was increasing its capital so as to be able to pay a dividend. It's selling 15% of its Brazil division in an IPO, after expanding said division by 600 branches. These last two items can be seen as unambigously good, even if a positive spin can be put on the dividend-payment item.

The reason it went up so much doesn't seem company-specific, though. Bancolumbia was up 4.65%, with no backtrack in after-hours trading. The reason could be the banks with Latin American presence are coming into fashion.

If so, then there was an exception: Banco Bilbao Vizcaya Argentaria. This bank, Spain's second-largest, was up only 1.68% on Friday; it too has a presence in Latin America and even the U.S. The stocks of all three banks, however, have been climbing since about mid-July.

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

Friday, September 4, 2009

Daily Wrapup For September 4th

The rally that started yesterday continued today, which lessened the averages' drop over the week. This day's favourite cause was the unemployment number, released before the bell, which came in at an above-expected 9.7%. The raw job losses shrunk, though, making the rise partially caused by previously uncounted workers returning to the workforce (including the discouraged part of it.) At first, the three major averages hesitated, as an opening rally faded. By 10 AM ET, though, the averages eased back into rally mode. At noon ET, they leaped up, especially the NASDAQ, and the rest of the afternoon saw a trading range develop. Thanks to that afternoon push, the Dow closed up 1.03%, the S&P 500 gained 1.31%, and the NASDAQ ended with a much larger 1.79% gain. Light sweet crude for October delivery barely budged, closing up 6 cents a barrel to reach $68.02.

The lowest-quntile P/E cut-off was also up today, from yesterday's 11.68 to 11.75. The yield cut-off, being the S&P dividend yield, fell four basis points to 2.60%. After ETFs and stocks with less than 500M market cap were eliminated, along with ones that yield more than 10%, the Low P/E Bin was left with one hundred and one stocks for a gain of two from yesterday. Here are the changes in the Bin, as dash-listed below:

- Exelon Corporation
- FPL Group, Inc.
- General Dynamics Corporation

- Williams Pipeline Partners LP

The first Arrival is the only new one. Exelon is an electric utility holding company whose subsidiaries supply power to the Chicago and Pittsburgh areas. It got in through P/E compression; the 0.45% drop in its stock was enough to bring its P/E down to the cut-off. The second one is another utility, centered in Florida. FPL Group stock fell also, also compressing its P/E to Bin range. The third Arrival, General Dynamics, did rise, but the yield cut-off dropped faster than its own today. That differential was enough to bring the company back in the Bin.

The one and only Departure got out through a late-day rise in its stock. Williams Pipeline, a holder of natural gas storage and transporation systems, saw its stock rise 4.30% today; most of that rise took place in the last hour. Given the volume, it's possible that it will return to the Bin soon.

The markets did well, but not all stocks did. Before the bell, H&R Block announced a loss that was larger than expected: -39 cents per share vs. an expected -37 cents. That disappointment had a predictable effect on the stock, especially since the disappointment largely came from worse-than-expected continuing-operations earnings. H&R stock started the trading day with a 2.23% loss. Some of the drop was erased around noon, but the early afternoon saw a resumption in the decline that climaxed at about 2:36 PM ET. Then, it recovered somewhat to close at $16.62 - one cent below its opening price.

That's all for today's Wrapup. Thanks for reading, and enjoy the long weekend.

Disclosure: I'm holding H&R Block in the actively-managed Marketocracy mock fund I run.

Thursday, September 3, 2009

August Same-Store Sales Out For The Buckle

This morning, demin, other casual apparel, and footwear vender The Buckle released its August same-store sales figure. Sent out before the bell, the release said that the chain's sales on that basis rose 3.6%.

That result wasn't bad, but for a (perhaps formerly) fast grower like The Buckle, it wasn't very good either. According to the same story, the retailer's same-store sales for all of 2009 were up 11.3% as compared to the same period a year ago. The company's July slip is what got it in the Bin in the first place.

Today, though, The Buckle stock was actually up 1.35%. Its stock fell in the early morning, but recovered in the afternoon. In the end, the market shrugged off the most recent same-store figure.

I earlier wrote an analysis of the company, which offered the opinion that any further slowdown has been discounted. So far, there's little call to change that opinion, even though August is one of The Buckle's big earner months. Hard evidence of margin erosion will have to wait the company's next quarterly.

Disclosure: I'm holding The Buckle in the actively-managed Marketocracy mock fund I run.

Daily Wrapup For September 3rd

Again, the macro feed was pinned as the cause of today's market action. The three major averages opened up, with about 0.4% gains for each, but their gains melted during the first fifty minutes of trading. Then, they reversed course. The cause fingered was the release of the jobless claims report, which came in at a worse-than-expected 570,000. Continuing claims kept rising. Nevertheless, the three averages themselves began rising shortly after its release. After shooting back to near-open levels, the averages rose more slowly until about 1:30 PM ET, when they began gliding down. Then, at about 2:40 PM ET, their fall once again reversed; this time, it was replaced by a more powerful rally, which continued unabated until the close. At the end of regular trading, the Dow was up 0.69%, the S&P 500 had risen 0.85% and the NASDAQ sported a gain of 0.82%. Light sweet crude for October delivery closed down slightly, to $67.96 per barrel, while gold continued its bulish run for the second straight day: the metal closed within $10 of $1000 per ounce.

The lowest-quintile cut-off also rose today, from yesterday's 11.51 to 11.68. The S&P dividend yield, which forms the yield cut-off, fell two basis points to 2.64%. Once ETFs and stocks with less than 500M market cap were also gotten rid of, as well as ones with greater than 10% yields, the Low P/E Bin was left with ninety-nine stocks for a rise of five from yesterday. Here are the changes in the Bin, as dash-listed below:

- Alliance Holdings GP, LP
- Cardinal Health, Inc.
- Herbalife Ltd.
- Holly Corporation
- Weight Watchers International, Inc.
- Williams Pipeline Partners LP

- China Petroleum & Chemical Corp.

Two of the six Arrivals are new to the Bin, while two others returned after long absences. Alliance Holdings, a coal income trust, got in because its P/E hit right on the lowest-quintile cut-off. The second new Arrival, Cardinal Health, got in due to an accounting scandal. The healthcare-products supplier was found to have defrauded its shareholders about its revenues and income; the revelation pummelled the stock last Tuesday, bringing it into Bin range.

The two returnees which have been gone for a while are, oddly enough, both in the dieting line. Herbalife, a seller of weight management, nutritional, energy, and fitness products, got back in the Bin because its yield rose to a level above the cut-off. That was due to a drop in its stock, which started almost a month ago. The same reason applies to Weight Watchers, a seller of diet foods plus associated products and services, whose stock hit its peak about a week after Herbalife's.

The other two Arrivals haven't been gone for that long. Independent refiner Holly Corp. is another one that returned because its yield rose above the cut-off, whereas natural gas storer and transporter Williams Pipeline saw the P/E cut-off rise above its own.

Finally, the sole Departure, China Petroleum, exited the Bin for the reverse reason to most of the above: its yield dropped below the S&P yield cut-off.

It looks like the TARP-repayment magic is still around. CVB Financial annouced early this morning that it had sent the cheque to the Treasury to buy back its TARP preferreds. Although its stock was slow to take off, take off the stock did. CVB's been on a downtrend for close to a month, which has likely resulted from fears about its commercial-loan portfolio. Today, however, it shot up 4.93% in regular trading. In after-hours trading, it was up a further 1.71% subsequent to it giving up most of its regular-trading gains. The TARP repayment seems to the the trigger, but the leap-up could very well be a relief rally; there's no fundamental reason for it to rally right now, and won't be unless its financials show that CRE-related fears for its loan portfolio are overblown.

That's all for today's Wrapup. Thanks for reading, and hang on for sending-back-to-school season.

Disclosure: I'm holding CVB Financial in the actively-managed Marketocracy mock fund I run.

Wednesday, September 2, 2009

Brookfield Properties CEO Says Fears Of Commercial Real Estate Collapse Overblown

That's what Rick Clark said, according to this excerpt from a CNBC interview. His words didn't help the stock of Brookfield all that much, though. It was down 4.60% to close at $9.74.

Still, that supposed doom has been very widely anticipated. A contrarian would wonder...

Barron's Pans Oil Refiners...

...and later claims that the drops in their stock shows the panning was sound. The original article claimed that there was more to the gasoline consumtion drop than hard times: Americans are trading in less fuel-efficient cars for more fuel-efficient ones, a trend that the author claims is a long-term one.

The two stocks mentioned as evidence were Sunoco Inc. and Tesoro. The former dropped 1.86% in regular trading, but the latter only dropped 0.78% Tesoro's decline was about in line with the overall market, and Sunoco's was fairly gentle compared to some other oil stocks. Both were up in after-hours trading, too. Perhaps Barron's Online was a little eager to showcase the work, although time will tell.

Interestingly, another Bin stock in refining got slaughtered today, but was not mentioned by Barron's. Recent high-flyer Holly Corp. was down 4.07%, and was unchanged in after-hours trading.

Update: Perhaps I spoke too soon. Sunoco was slaughtered the following day, with a 4.68% plummet in its stock. On the other hand, Tesoro was down only 0.85%. Its two-day drop was less than the S&P 500's one-day September 1st drop.

Update 2: Tesoro's being hammered now. So, it seems I did speak too soon.

Daily Wrapup For September 2nd

Today's market action seems tailor-made for the phrase "it could have been worse." Still following the macro meme, market participants ascribed today's somewhat disappointing performance to the ADP employment report. The 289,000 loss in jobs is an improvement over recent months, and it would have had a positive spin put on it a month or two ago. But, expectations are higher now and it is September.

There was some substance to the attribution. After opening slightly lower and churning, the three major averages dropped quickly at about 10:15 AM ET. They reached their lows of the day as of 10:30 AM ET, when all three of them were riding losses of 0.4% or above. That plunge quickly reversed itself, though, and the averages spent the next four hours in a range. For the Dow and S&P 500, the range centered around the unchanged level; for the NASDAQ, about the +0.15% level. The last forty-five minutes saw all three dropping, right to the end of regular trading. As a result, the Dow ended up down 0.32%; the S&P, down 0.33%; and the NASDAQ, creeping into loss territory for the first time in the afternoon, ended down 0.09%. Light sweet crude oil for October delivery dropped slightly, to $67.93 per barrel. Interestingly, gold had a banner day today - and the cause ascribed was the ADP report too. Usually, the U.S. dollar and Treasury securities would rally in such a case, but not this day; gold rallied. It's too early to call this jump-up anything more than a portent, but it's not inconceivable that the safety-seekers are beginning to switch from Treasuries to gold.

Along with the general market, the lowest-quintile cut-off for the Low P/E Bin dropped today, from yesterday's 11.58 to today's 11.51. The yield cut-off, that being the S&P 500 dividend yield, rose a basis point to 2.66%. After ETFs and stocks with less than 500M market cap were also screened out, along with ones yielding more than 10%, the Bin was left with ninety-four stocks for a drop of one from yesterday. Here are today's changes in the Bin, as dash-listed below:

- Merck & Co., Inc.

- Banco de Chile
- Williams Pipeline Partners LP

Merck stock hasn't had the best of times since its peak on August 27th. After exiting the Bin thanks to P/E expansion, the major pharmaceutical company is back again due to its stock dropping 1.91% today. The first Departure contrasts with Merck fairly neatly. Banco de Chile got out of the Bin thanks to a 1.06% gain, which pushed its P/E above the cut-off. The final Departure, Williams Pipeline, did drop today but not enough to keep its P/E in the lowest quintile. Consequently, it's the second and final Departure today.

More than a week ago, the Banco Santander analytical department raised Mexican stocks to "overweight" on grounds that the Mexican economy shows the greatest potential for improvement amongst major Latin American economies come a recovery. Bin stock Telefonos de Mexico, the main provider of telecommunications services in that country, has been doing fairly well over the last month: one fundamental reason was it paying off its 2009 debt commitment early. After churning along in an increasingly narrow trading range from early April to the beginning of August, Telmex stock has been largely moving up. Today, the ADSs gained 0.89% to close at $18.22 per. That trading range centered around $16.

That's all for today's Wrapup. Thanks for reading, and may trading ranges be good to you.

Tuesday, September 1, 2009

Whither GE?

General Electric is the second-biggest Bin stock in terms of market cap, and probably the one best known. Like so many stocks that rocketed up in the past few months, it's been hammered recently. Today, it closed down 4.03% to reach $13.34.

On the one hand, "GE exec sees another 12-18 tough months ahead." That statement comes as part of its new "framework" approach to guidance, which has replaced specific targets. On the other hand, Sanford & Bernstein analyst Steven Winoker sees the reduction of uncertainty - which GE itself called a flattening of the downtreand - as good for the stock; his target price is currently $16.

I can't presume to forecast what GE stock will do in the near future, but I believe there's a near-term downtrend in place. I'll stipulate that there were downtrends in place for many industrial stocks in June that were sharply reversed. This time, though, there isn't any plausible catalyst in place to do so (except for company-specific items.) I don't see any in GE's near future that might do so; today's overall market drop in the face of good economic news suggest that the previous catalyst - discounting recovery - is spent.

My own hunch says that GE is going to keep dropping. It peaked at about the time when near-troubled banks like CVB Financial and United Bankshares have. Even though there's more to GE than its financial arm, there's no replacement for the recovery catalyst which would help the overall company reverse the stock's current downtrend.

Welcome to September, after which follows October.

Disclosure: I'm holding CVB Financial in the actively-managed Marketocracy mock fund I run.

Daily Wrapup For September 1st

It's only September 1st, and they're already talking about the "September Effect." [Example.] Despite two pieces of good news, one on the home front and the other in the manufacturing arena, the three major averages went into a tailspin shortly after the items' release. The day started off unambiguously bullish, with all three averages solidly up by the 10 AM ET release time. Had the market still been macro news driven, the rally would have continued. Pending home sales kept rising, even though it's almost unprecedented for them to do so six months in a row. (The first-time house buyer tax credit had a lot to do with it.) Manufacturing activity shifted into expansion, while new orders shot up. The two production-related readings are consistent with the recession finally ending. Nevertheless, soon after both items' release, the averages plummeted: what were solid gains turned into unambiguous losses. The downtrend continued at a much slower rate from 11 AM to 12 PM ET, and settled into a trading range for the rest of the afternoon. A fitting end to today's trading came when an end-of day rally was choked off in the last few minutes. The Dow finished down 1.96%, the S&P 500 lost 2.21%, and the NASDAQ dropped an even 2.00%. Light sweet crude oil, for October delivery, also joined in the plunge party: it was down $1.91 a barrel to close at $68.05 in regular trading.

The lowest-quintile P/E cut-off also plunged, from yesterday's 11.80 to 11.58. Inversely with the S&P 500 itself, the yield cut-off shot up six basis points to 2.65%. Once ETFs and stocks with less than 500M market cap were also eliminated, along with ones yielding more than 10%, the Low P/E Bin was left with ninety-five stocks for a drop of four from yesterday. Here are the changes in the Bin, as dash-listed below:

- Williams Pipeline Partners LP

- Cooper Industries, Ltd.
- France Telecom SA
- Harvest Energy Trust
- Telkom SA Limited

The sole Arrival got back in the Bin because its stock plopped. Williams Pipeline Partners, an operator of natural gas storage and transportation systems, saw its P/E drop below the lowered cut-off due to a 2.54% decline in its stock.

Of the five Departures, three got out because they no longer fell into the Bin's dividend range. The indicated dividend of CRH plc, a European purveyor of home building materials, dropped to well below the S&P cut-off. Harvest Energy, a Canadian oil, natural gas and refined petroleum products income trust, saw its yield go above 10% due to a 5.29% drop in its stock. Today's carnage spared the stock of Telkom entirely, wich closed unchanged; the S&P yield cut-off rose above its own yield.

The other two got out thanks to their P/Es ending above the lowest-quintile cut-off. France Telecom's stock dropped 1.20%, less than the overall market, and its P/E got above the cut-off. The final Departure, circuit protection device and tool maker Cooper Industries, is the oddity of the bunch: its stock was actually up by 1.02% today. An interesting counter-move, especially given that it was booted off the S&P 500 recently. Cooper's P/E expanded, pushing it above the cut-off.

Speaking of gainers, there's an even odder one in the Bin. It gained 2.53% today, on no news: this leap is enough to make it an outlier. What makes its gain even more unusual is its line of business. Hugoton Royalty Trust is an express trust that own several producing oil and gas properties in Texas. Given both the market's and oil's fate, you would expect a stock like this one to be down a lot today. (Contrastedly, Harvest was.) Yet, for whatever reason, Hugoton stock put in a performance more August-worthy. Until a week ago, it was hanging around $14 in a narrow short-term trading range, which it now has risen above: Hugoton closed at $15.02 today. Whether there's good fundamental reason, ow whether it's been spared for a more technical reason, remains to be seen.

That's all for today's Wrapup. Thankls for reading, and may your pleasant surprises be understandable ones.

Disclosure: None.