The Dow Industrials had a good year. But nobody had a better year on Wall Street than the stock index made up of companies doing business in rural America, the Daily Yonder 40.
Sure, the Dow Industrials came back in 2010, rising 11%.
The Dow’s gain was piddling compared to the Daily Yonder 40, forty stocks picked to reflect the rural economy. The DY40 rose 31.4% this year, a gain that swamped all the major stock indexes.
The S&P 500 rose 12.8% and the NASDAQ rose 16.9% in 2010, showing that much of the comeback in the last year was in small cap stocks.
The rural-based stocks (see below for a full list) have beaten these larger stock measures since we began the DY40 in July 2007. In the past three and a half years, the Dow is down 13.7% and the S&P 500 is off by 16.3%.
The Yonder 40 is up 14.1%. And that trend doubled down in 2010.
There are some structural reasons for the DY40’s success. The rural index has a large number of small and mid-cap stocks. These smaller companies have done well, particularly in 2010.
Also, the Yonder 40 is equal weighted — that is, each stock in the index counts the same, regardless of the size of the company. So the giant Walmart can do poorly this year and it doesn’t weigh down the DY index. The S&P 500 is weighted by company size, so Walmart’s poor showing in 2010 affects that index more than the DY40.
Most of all, however, the companies that are big in rural America were also big among investors.
Three out of four DY40 stocks gained ground in 2010, but no company saw its stock price rise more than Tractor Supply, the retailer that sells rural America “the stuff you need out here.” Tractor’s good fortune just may reflect the extremely strong farm economy, which had land and crop prices rising.
All the rural retail stocks performed in 2010 — except for Walmart, which gained only about 1% in 2010. Family Dollar rose 78.6%, as the Main Street bargain store beat Walmart to the price-wise shopper. Stage Stores and Cato also rose, 40.3% and 36.6% respectively.
The consumer discretionary sector led the S&P in 2010, up 25%, but the consumer stocks in the DY40 did better than that. People were still buying guns (Sturm Ruger, up 57.6%) and camping equipment, as people vacationed closer to home (Cabela’s, up 52.5%).
Hotel and entertainment stocks were higher; Grand Old Opry owner Gaylord Entertainment rose 82% this year.
It is true that people continued to stay away from NASCAR, so International Speedway was down 8% for the year.
The Federal Reserve pushed money into the country in an attempt to motivate people to take more risks and to offset deflation. While the Fed had limited success in pushing down interest rates, the central bank has succeeded very well in raising asset prices, particularly commodities.
Below are the stocks in the Daily Yonder 40 and how they fared in 2010:
Also, again last year the world didn’t grow enough food. Stockpiles were drawn down and food-related industries did well in the markets as a result.
These are trends that benefit rural-based companies, and you can see that in the DY 40. An index that tracks commodities (GreenHaven) rose 25.2%. Farm-equipment maker Deere rose 53.5%. Hormel Foods, Smithfield Food and Tyson Foods all rose by more than a third.
Farmland prices were up everywhere, and there was a rush to purchase grain elevators, as investors found ways to make money on the rise in commodities and food. The Andersons was one DY 40 company that invested in grain storage, and the market rewarded that strategy with a 40.8% increase in its stock price.
Coal was another commodity that remained in demand, and coal companies also saw their stock prices rise. Anybody who had Walter Energy, Peabody or Cimarex stock was happy in 2010. All three were part of the DY 40.
The lower value of the dollar made U.S. exports more attractive to foreign buyers, which also helped the coal stocks and Deere.
Another beneficiary in 2010 were rural banks. It became clear in the last year that regional banks would survive and would become prime targets for buyouts or mergers. The two regional banks in the 40, Southwest Bancorp and Regions Financial, both benefited.
There were nine losers among the 40 rural stocks. There is still an oversupply of milk, so Dean Foods continued to plummet in 2010. The nation’s largest milk company lost more than half its value.
Dean also agreed to pay Northeastern dairy farmers $30 million to settle an antitrust suit. The farmers had claimed the settlement was a “major win for fairy farmers in the Northeast who have been squeezed by monopolization and price fixing.”
Monsanto was also a company that suffered through 2010, losing 14.8% of its value. Monsanto has come under antitrust scrutiny by the Department of Justice, and farmers have said the company’s new corn seed does not match the yields advertised. Those claims have spurred the West Virginia attorney general to begin his own investigation of the company.
What about next year? The Washington Post Saturday predicted that investors may have tired of coal and will be more interested in cleaner energy investments.
Food companies have vowed to increase their prices in 2011, which they hope will rebound their fortunes. ConAgra has had lower profits largely because it has been discounting its products.
Equipment sales continue to look strong as the world concentrates on increasing food production. The Northwest is increasing its exports of wood products to China, providing the raw material for that country’s construction boom. (That should help DY 40 member Plum Creek, a large timberland owner.)
There is some talk among Republicans of selling off the Tennessee Valley Authority, the New Deal power generator. That could shake up the moribund utilities market.
Predictions, of course, are generally wrong!