2010 Has Been Good to Rural Stocks

A collection of rural stocks has risen three times faster than the Dow Industrials or the S&P 500. What's driving this resurgence in the price of shares in companies doing business in rural America?

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It was a joke, kind of, when Brett Arends at the Wall Street Journal announced his “Paranoid Portfolio,” a list of stocks for those who think the United States is being taken over by socialists (or fascists or Martians), that conspiracy rules and Armageddon is just around the corner. Among those stocks Arends recommends for the truly paranoid — in addition to loads of gold, defense stocks like Boeing and companies that treat pandemics — is Sturm Ruger, the gun maker.

Good pick. Sturm Ruger has nearly tripled since November 2008, and is up 60% this year. Moreover, Americans’ love of firearms doesn’t appear to be dissipating. Background checks for firearm sales this March (1.3 million) were up by 25% over March of 2008. The stock price of Sturm Ruger rose by more than 11% in April alone.

Sturm Ruger is a member of the Daily Yonder 40, 40 stocks picked to represent the rural economy. The DY 40 is not a paranoid’s list of American companies, by any means, but, like Sturm Ruger, it’s done well.

Extraordinarily well. Sturm Ruger wasn’t alone.

If the rural economy had followed the rural stocks in the DY 40, it would be boom time in rural America.

Since the beginning of 2010, the DY 40 is up 22%. The Dow 30 has risen but 5.6% and the S&P 500 has gained only 6.4%. (See below for a chart of the DY 40, the Dow and the S&P 500.)[img:Yonder402010.jpg]

Rural stock gains are more than triple those of the other major stock indexes so far in 2010.

In April, not one stock in the DY 40 lineup lost money. They all gained — some by much more than Sturm Ruger. (See chart of all 40 stocks in the DY 40 below.)

It doesn’t just pay to be paranoid. It has paid better to own shares of regional banks. These stocks were beaten down in the recent economic collapse, but in April regional banks roared back.

Regions Financial was up nearly 15% in April alone, and Southwest Bancorp was up over 21%. 

Regional banks have been outperforming the bigger institutions since the second quarter of 2009, according to the Wall Street Journal.

Recent underperformers among rural companies are now recovering.

Home décor sales are up, so Bassett Furniture’s stock price jumped 17% in April.

That translates into rural jobs, at least for this company. Bassett said that it would reopen its Newton, North Carolina, plant, idled since last year. The plant will make a line of lower priced sofas and chairs.

Bassett sees consumers who want to spend less, so the company plans to make furniture prices 20% lower than its current lowest cost pieces.

Mohawk, the Southern carpet maker, made a $20.5 million profit in the first quarter after losing over $100 million in the same period last year. 

Mohawk’s stock price is up about a third this year.

Retail sales in rural America are improving across the board. Family Dollar reports that it “has seen momentum build in the business over the past three to four months” and it expects to see same store sales rise 6% to 8% in the rest of 2010.

Cato reported higher same store sales. Tractor Supply saw an increase in same-store sales, driven largely by pet supplies, heating products and insulated clothing.

And, perhaps the most telling indicator, Tractor Supply raised its outlook based in part on strong sales of riding lawn mowers.

There were some areas that remained relatively weak. Energy prices were wobbly, as the markets worried that weakness in Europe would tamp down demand. Coal stocks are more volatile than other energy stocks, and they have been on somewhat of a roller coaster ride.

The cold weather was good for power producers. Southern Company announced that its net income rose by 75% in the first quarter because of a frosty winter.

Frontier Communications has been gaining approval from states for its purchase of Verizon’s rural phone business. The $5.25 billion purchase of rural customers in 14 states will triple Frontier’s size.

The Wall Street Journal reports, “Rural telecommunications companies are vying to buy more operations to spread their sizeable capital expenditures across a wider base of customers and gain purchasing power when buying equipment.” That was working in April for Frontier, which saw its stock price rise by nearly 15% in the month.

LifePoint Hospitals, the rural health care company, reported that first quarter earnings were up 12%. The rural hospital owner saw its revenue per patient rise 4.4%, much of that coming in outpatient care.

RailAmerica, the rural freight hauler, reports that shipments have increased with the recent upturn in manufacturing. Carloads rose 5% in the first quarter over last year.

On this list of the stocks in the DY 40 index, we show how stock prices changed in April of 2010.

[img:40April.png]

 

 

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