Rural Stocks Lead Markets in 2009

The 40 stocks picked to reflect the rural economy — the Yonder 40 — did far better than the other major stock indexes in 2009. What does that say about the rural economy?

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The financial press was crowing about the remarkable rise of the Dow Industrials in 2009. The 30 stocks that make up the Dow index jumped nearly 19%.

But what about the stocks in the Yonder 40? The 40 stocks picked to represent the rural economy rose an astonishing 33% in 2009, easily besting both the Dow and the Standard and Poor’s 500, which was up 23.5% in the last 12 months.

Does the resilience of rural stocks mean that the rural economy is doing better than the rest of the nation? Not necessarily. The rural economy is doing well — or poorly — depending on where you live and what business you’re in. The recession continues to wreck local rural economies in Alabama, the Carolinas and Michigan. In the Great Plains, however, unemployment has remained well below the growing national averages. (For the latest on rural unemployment rates, check out this story.) 

The Yonder 40 stock index is similarly varied. Some companies have had a spectacular year in terms of rising stock prices. Others have shriveled to pennies per share or simply disappeared through merger or bankruptcy. See the next page for a chart of the 35 stocks in the DY 40 that remained unchanged since the first day of 2009.

Three groups of rural stocks did better than average in 2009: Coal producers, retail outlets (especially those that sold guns) and food producers.

The standout stock among the Yonder 40 entries was Walter Industries, a coal mining company that saw its stock price jump by 330% in the last 12 months. Walters specializes in coal used in steel-making, and last year China stopped exporting this grade of coal and began importing.

But ALL the coal stocks in the rural stock index thrived in 2009. Of the four highest-flying stocks in the DY40, three were coal stocks — in addition to Walter Industries, Peabody Energy rose 99% and Cimarex Energy jumped 98%. 

Analysts agree that rising oil prices are driving up the price of coal — and coal stocks. The theory is that higher oil prices increase the demand for coal. Rising oil prices didn’t help Penn Virginia, which lost 18% of its value last year, nor energy producer Southern Co., which fell 10%.

Most retail stocks did well in 2009 as well. Nobody did better than Cabela’s, the outdoor and hunting equipment giant. Cabela’s was up 144.6% in 2009, a rise buoyed by an extraordinary uptick in gun and ammo sales since a year ago November. The election of Barack Obama to the presidency and the return of large Democratic majorities to Congress put the fear of gun control into gun owners, shooting sales of firearms up 42% last November.

Gun maker Sturm Ruger had record sales in 2009 (up 67% in the first six months of the year), sales “driven primarily by the change in administrations and fears over the new politics, and also, to some degree by the declining economy,” Michael Fifer, chief executive, told investors following the company’s latest earnings report. (It turns out that during hard times, people like to buy weaponry.) 

Cabela’s benefited from those sales in particular and the company expects sales of ammo to continue at a strong pace. But almost all retailing stocks did well in 2009. After a bum 2008, the S&P retail index jumped 54% in 2009. Among rural retailers, Stage Stores was up 50% and Tractor Supply rose 47%.

The discount stores, which starred in ’08, didn’t fare as well last year. Family Dollar was only up 7% and Wal-Mart, which gained 18% last year, was down by nearly 5%.

Food producers did well, too, in 2009. The price of raw foods has dropped, lowering costs for Yonder 40 firms such as ConAgra (Peter Pan and Hunt’s Ketchup — up 40%), Tyson Foods (chicken — up 40%) and Hormel (spam — up 24%).

Predictably, perhaps, the worst performers still in the Yonder 40 were the regional banks. Regions Financial was among the ten worst performers among the S&P 500, down 33.5% for the year. Regions has not yet repaid the $3.5 billion it took in government bailout funds. 

The worst performer among the Yonder 40 stocks was Southwest Bancorp, down 46.5% for the year.

Some companies that were in the Yonder 40 at the beginning of the year weren’t there at the end. Tobacco seller UST and the Burlington Northern Railroad were purchased. Fleetwood Enterprises, which made mobile homes, filed for bankruptcy. So did Fairpoint Communications, the rural telephone company that was burdened by the purchase of lines from Verizon. 

Lee Enterprises saw its stock price dwindle to pennies and was dropped from the DY 40 when the company was threatened with being delisted. The owner of small town newspapers has staged a small comeback in a tough environment for media properties. 

We replaced these companies with LifePoint Hospitals, the owner of rural hospitals; RailAmerica, the owner of short haul rail lines; the GreenHaven Continuous Commodity Index, an index fund of commodities such as meat, grains, coal and oil; Astec Industries, which provides road building equipment; and Universal Corp., a tobacco seller.

 

 

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