Rural Stocks Wallop Dow, S&P Over Last 12 Months
Barack Obama may not show much interest in rural America, but investors have found good value here. The Yonder 40, a collection of companies doing business in rural America, has had a (relatively) good year.
The Yonder 40 — forty stocks that reflect the rural economy — trounced the other major stock indexes over the past 12 months, an accomplishment that can be explained in three words: Coal, Oil and Monsanto.
The Daily Yonder began the 40 exactly a year ago, picking 40 publicly traded companies that were based in rural America in one way or another. Tractor Supply, for example, has its stores in the nation's small towns and rural communities. ("The Stuff You Need Out Here," is the company's slogan.) Peabody digs coal in rural America and Bassett Furniture has factories in rural towns.
In the last 12 months, the Yonder 40 smashed both the Dow Jones Industrial average and the Standard & Poor 500. Nobody has done well over the past year — this was the worst June for the Dow since 1930 — and the Yonder 40 is down just under 5 percent from where it stood exactly one year ago.
Both the Dow and the S&P 500, however, are off by 15 percent — three times the losses of the rural stock index. The NASDAQ is down by 12 percent.
Here are the top five winners in the Yonder 40, showing their percentage increases over the past year (with dividends reinvested):
Walter Industries 274.9%
Penn Virginia 88.8%
Peabody Energy 82.9%
Cimarex Energy 76.4%
Here are the five stocks in the Yonder 40 that lost the most value in the last 12 months:
Lee Enterprises -78.8%
Fleetwood Ent. -70.6%
Regions Financial -63.2%
Gaylord Ent. -55.3%
Sturm Ruger -54.3%
Four of the top five stocks produce oil, gas or coal. Walter Industries produces a high-quality coal (used in making steel) that has doubled in price since November. The only non-energy firm in the top five is Monsanto, the seed and chemical producer that has benefited from the agriculture boom.
Losing stocks in the 40 are a more mixed lot — perhaps because there are more losers (25 of the 40) than winners. To see the full list of stocks, look below.
For an analysis of the Yonder 40's first year, we turn to two Wall Street veterans (and Yonderites) who helped devise this index, James Branscome and John Borden. Branscome is a former managing director of Standard & Poor's. Borden was investor relations manager for JP Morgan Chase. Both grew up in southern Virginia. First, Branscome.
Barack Obama may be ignoring rural but clearly investors are not. The DY 40 benefited by being overweight coal, natural gas, seeds and chemicals, railroads, and the once-despised Wal-Mart, where it now appears even some liberals must be shopping for bargains.
Like the Dow and S&P, the DY 40 lost money on newspapers, banks, house trailers, and higher-end retailers. One joke making the rounds is that Wal-Mart is planning to run a special: buy a toaster or a crock pot and they'll give you a bank. Some folks wouldn't bother given the performance of Regions Financial and Southwest Bancorp over the past year. Chewing tobacco fared okay with UST, but baloney (Conagra), Spam (Hormel), outdoor sports (Cabela's), country music (Gaylord) and car racing (International Speedway) ran off the track. Just shows how practical down-home folks can be.
Walter Industries was simply a home run for a depressed stock that value investors woke up to. Monsanto, however, is a growth investor's story. RoundUp, that wonderful stuff we all spray on weeds and unwanted grass, has lost its patent and now has generic competitors, but clearly MON is pulling in the farmers who want the latest and best in advanced seed that resists drought and insects and produces bountiful yields. Clearly, too, good old green John Deere has something going over Tractor Supply.
With wheat and corn and milk and about everything else people eat and drink headed higher in price, the outlook for the next year for the DY 40 looks promising as well. Mohawk Carpet, the banks, retailers (Wal-Mart excepted), and Skywest may continue to struggle as the economic recession accelerates, but all are at levels for a good bounce once the recovery become visible. Smart investors would probably be well advised to shop at the bottom of this list rather than at the top for the best gains over the next few years. Energy stocks may take a licking as the world wakes up to the fact that oil prices are now high enough to encourage conservation and alternatives. The Saudis aren't stupid, as evidenced by their pledge to pump more oil until the bubble bursts. And thanks to the Supreme Court ruling that we can all keep our guns and maybe even buy a few more, Sturm Ruger might be primed for a shot up as well.
That "giant sucking sound" that Ross Perot promised a few years back can indeed be heard across this land and the world. But it's not NAFTA, like he said. It's the central banks of the world reeling in all that excess cash that was feeding into subprime loans, hedge funds, private equity, and the like. The Greenspan Era of easy money and low interest rates and bubbles galore is being lowered into the grave. So are the Bush tax cuts. Economists insist that people vote their wallets and nothing else. That's not good news for John McCain or anyone running for higher office on the Republican ticket in a year when everyone's wallet is shrinking from higher gas, food and lots of other things.
It's time to plant fencerow to fencerow and bet that the food shortage is a better investment thesis than peak oil. The DY 40 and the overall markets may not be screaming bargains for those of us who invest with fallen dollars, but for those who hold Euros and other strong currencies like the Chinese Yuan and the Brazilian Real, America looks like a bargain. They may go shopping for more than Budweiser.
When I first looked at this spread of performance what hit me in the face was the wide range of results.
This has not been a normal 12 months. Putting Walter aside, there is an almost evenly spaced continuum from up 90% to down 79% in the Yonder 40. My guess is that in a normal year there would be a few significant outliers but that the majority of the stocks would be in a significantly tighter range.
At least half of the difference between the Yonder 40 and the S&P 500 is related to financials, bank stocks. Twelve months ago financials represented somewhat over 25% of the S&P. The Yonder 40 has two banks that represent 5% of the index. Then let’s say you give half credit for Berkshire Hathaway, because of its insurance businesses (and maybe that’s too much). Give Waddell and Reed half credit as a financial because it’s solely a fee-based operating business, a plain vanilla, conservative asset management firm with no credit exposure. Doing that you have Y40 financial exposure at 7.5%.
If financials were down 30% roughly during these twelve months that means a negative 2.5% impact on the Y40 and a negative 7.5% impact on the S&P. So by my seat-of-the-pants math that accounts for half the difference between the 40 and the 500.
I don’t have the numbers at my fingertips, but I would guess that the Y40 is overweighted relative to the S&P in coal and in businesses that support agriculture — equipment, chemicals, seed. Those sectors have done well in the past year. The Y40 is probably underweighted relative to the S&P in real estate related exposure —housing,construction materials — sectors that have suffered.
This may may account for more of the difference between the 40 and the larger indexes. To the extent that the Y40 is an appropriate reflection of the rural economy, the results simply say that it was a much better year for those with exposure to that part of our economy.
Manhasset, New York
Below is a full list of the Yonder 40, ranked by performance over the last year. We show what $1,000 would be worth as of the end of the day Monday if invested in each of the stocks, with dividends reinvested.
|Rank||Company||Ticker||What $1,000 invested 7/1/2007 would be worth today||Percent Change|
|1||Walter Industries Inc.||WLT||$3,748.92||274.9%|
|2||Penn Virginia Corp.||PVA||$1,898.57||89.8%|
|4||Peabody Energy Corp.||BTU||$1,828.59||82.9%|
|5||Cimarex Energy Co.||XEC||$1,763.98||76.4%|
|6||Waddell & Reed Financial Inc.||WDR||$1,347.29||34.7%|
|7||Deere & Co.||DE||$1,227.19||22.8%|
|8||Burlington Northern Santa Fe Corp.||BNI||$1,204.98||20.5%|
|9||Wal-Mart Stores Inc.||WMT||$1,178.59||17.8%|
|10||DIRECTV Group Inc.||DTV||$1,121.13||12.1%|
|11||Berkshire Hathaway Inc. Cl B||BRKB||$1,124.76||11.4%|
|13||Plum Creek Timber Co. Inc. REIT||PCL||$1,106.10||10.6%|
|15||Bassett Furniture Industries Inc.||BSET||$1,006.19||0.6%|
|16||Hormel Foods Corp.||HRL||$958.35||-4.2%|
|17||Mine Safety Appliances Co.||MSA||$953.27||-4.7%|
|18||Ralcorp Holdings Inc.||RAH||$922.78||-7.7%|
|20||Citizens Communications Co. Series B||CZN||$836.67||-16.3%|
|21||ConAgra Foods Inc.||CAG||$753.09||-24.7%|
|22||International Speedway Corp. Cl A||ISCA||$740.78||-25.9%|
|23||Cato Corp. Cl A||CTR||$705.52||-29.5%|
|24||Tyson Foods Inc. Cl A||TSN||$648.83||-35.1%|
|25||Smithfield Foods Inc.||SFD||$645.70||-35.4%|
|26||Mohawk Industries Inc.||MHK||$637.16||-36.3%|
|27||Dean Foods Co.||DF||$614.73||-38.5%|
|28||Family Dollar Stores Inc.||FDO||$606.09||-39.4%|
|30||Stage Stores Inc.||SSI||$569.19||-43.1%|
|31||Tractor Supply Co.||TSCO||$557.86||-44.2%|
|33||FairPoint Communications Inc.||FRP||$506.80||-49.3%|
|35||Southwest Bancorp Inc.||OKSB||$496.46||-50.4%|
|36||Sturm Ruger & Co.||RGR||$456.81||-54.3%|
|37||Gaylord Entertainment Co.||GET||$447.17||-55.3%|
|38||Regions Financial Corp.||RF||$368.31||-63.2%|
|39||Fleetwood Enterprises Inc.||FLE||$293.93||-70.6%|
|40||Lee Enterprises Inc.||LEE||$211.60||-78.8%|