Rural Stocks Excel in 2012

We picked 40 publicly traded companies we thought reflected the rural economy. So far in 2012, those stocks — the Daily Yonder 40 — have easily bested the other major stock indices.

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Here at the Daily Yonder, we’re constantly looking for ways to compare rural America to cities and to the nation as a whole. One way we do that is through one of our concocted measures of the rural economy — the Yonder 40 stock index.

The Yonder 40 is made up of 40 publicly-traded companies that do much of their business in rural America. We began the 40 in 2007, when a couple of friends from Wall Street helped pick the 40 companies that best represented the rural economy. We have coal companies and Walmart; Monsanto and a Virginia furniture maker; food companies (Tyson, Hormel, Dean Foods) and the corporation that owns the Grand Old Opry. (See the full list on the jump page.)

The idea was that we might learn something about the rural economy if we followed the companies that do their business largely in rural communities.

According to that calculation, the rural economy this year is doing better than the nation as a whole. 

Look at the chart above. In the first five months (nearly) of 2012, the Yonder 40 is easily besting the other major stock indices.

The DY40 is up 11.9 percent so far this year (and that’s down from a 21 percent gain the index achieved in late April). The Dow Industrials are up 2 percent and the Standard & Poor’s 500 is up 4.8 percent.

The only major index that comes close to the DY40 is the NASDAQ, which is up 8.9 percent this year.

If you take a longer view, the Yonder 40 looks even better.

We began the DY40  in July 2007, before the start of the recession. By May of 2009, the Yonder 40 was down by as much as 30 percent, similar to drops in both the Dow and the S&P 500.

In October 2010, however, the Yonder 40 turned positive and now the index of rural stocks is up a whopping 27 percent from where it started in 2007. The Dow is still down 7.1 percent and the S&P 500 is off by 12.3 percent during the same period.

Different sectors have led the rural economy since 2007. For many years, coal mining stocks soared, for example. In 2012, however, coal has suffered, as cheap natural gas prices have led anyone who is able to switch from coal to gas. That and the slumping world economy have resulted in dismal stock prices for coal stocks.

Peabody Energy is down nearly 28 percent this year. Walter Energy is off by 17.5 percent and Cimarex Energy is down 12.7 percent.

So what has led the rural economy in 2012? Well, it’s been banking and retail. 

The financial collapse of 2008 led to much lower bank share prices, but rural bank shares have come roaring back in 2012. Southwest Bancorp is up over 60 percent this year alone and Regions Financial has risen 47 percent.

Rural retail is also higher in 2012. Cabela’s, the outdoor outfitter, leads with a 42.9 percent gain in 2012. All of the retail stocks on the DY 40 are also in positive territory this year: Tractor Supply is up by 42 percent. Cato, Stage Stores and Family Dollar are all up by double digits this year. Even sluggish Walmart, which lagged for years, is up nearly 10 percent this year.

(Walmart is an interesting story. The company got rid of 9 percent of its merchandise two years ago in order to simplify what experts said was a cluttered format. Sales at established stores fell every quarter since. This year, the company began to restock — and re-clutter — its stores. And sales responded.)

In addition, companies that make goods for retail sales, especially for housing, have rebounded. Bassett Furniture is up 26.6 percent this year, and Mohawk Industries, the carpet maker, is up 16.4 percent.

You can see in the chart below which DY40 companies have gained or lost share price in 2012. Twenty-five of the 40 rural stocks have either broken even this year or gained share price.

Daily Yonder
The 40 rural stocks in the Daily Yonder 40.

Agricultural stocks cooled off this year. Deere, ConAgra, Tyson, Smithfield Foods, Ralcorp all showed declines. Commodities led the way over the last several years, but they have slumped in 2012. The GreenHaven Commodity Index — an index of all commodities, from oil to grain to steel — has dropped 8.3 percent this year.

Here is news from individual Yonder 40 stocks that also tell something about the rural economy:

• Barron’s in late May said coal stocks may be oversold and could be ready for a rebound. But, Morningstar, at about the same time, warned that as “natural gas prices continue to fall and the outlook for coal–especially from Central Appalachia–worsens, we are becoming more nervous that leveraged coal firms may fall into distress in the next two or three years.” 

• Walmart has not only returned the clutter to its store, the Bentonville, Arkansas, company has also resumed sales of rifles and shotguns at hundreds of its U.S. stores. 

Walmart stopped selling hunting rifles and bullets at all but a third of its U.S. stores five years ago because of lagging sales. Bad timing. Sales surged in the months leading up to the 2008 election and haven’t stopped since. (Look at the stock price of the gunmaker Sturm Ruger, a DY40 member; Sturm’s stock price is up 22 percent this year.)

Walmart is now returning guns to nearly half of its 3,600 U.S. stores.

• Food makers are cutting costs because of decreasing demand. General Mills, for example, cut 850 jobs, 2.4 percent of its workforce, citing decreasing sales of packaged food items. Food producers in the DY40 are lagging this year, too.

• Deere expects sales of farm equipment to rise as farmers plant more acres and receive more for their crops. Deere is expanding its manufacturing capacity as a result, especially at its Waterloo, Iowa, plant, which makes large, high-horsepower tractors.

• Dean Foods, the milk company, is doing better — but largely at the expense of dairy farmers. Milk costs for Dean have declined and so the company’s profits have returned. But lower milk prices to Dean mean lower milk prices paid to dairy farmers.

• Frontier Communications, the nation’s largest rural telecommunications company, has seen earnings continue to drop as revenues decrease. Frontier has 3 million residential customers and 302,000 business customers, both down 9 percent from last year.

• The recession has continued to affect NASCAR. International Speedway reports that attendance is still lukewarm. 

• Rural hospitals owned by Lifepoint report better earnings and revenues. But admissions growth has been slowed as people opt to delay surgery during the continuing downturn.

• More acres planted mean more revenues for Monsanto. The world’s largest seed company said second-quarter earnings jumped 19 percent over last year as corn seed sales increased 17 percent. Farmers are expected to plant the most acres since 1937.

• RailAmerica, which owns short haul and regional railways, may be sold. The railroad company has produced 20 percent sales growth since it went public in 2009. But the company reports that it is exploring “strategic alternatives,” which means a sale.

 

 

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