Western CO stocks outperform in November

The Scout Partners Index of Western Colorado Stocks rose sharply in November, +2.3% versus +1.7% for the widely followed S&P 500 index. The 25 stock index focuses on large companies whose operations have a significant impact in Western Colorado. It includes major Mesa County employers such as Wal-Mart, Halliburton, Kroger (City Markets), Startek, CRH (United Companies), and the Union Pacific Railroad.

For the month of November, the strongest performer in the index was Williams Companies (WMB), which surged 13.6%. The Tulsa, Oklahoma-based energy company benefited from rising natural gas prices as colder temperatures, especially in the northeast, boosted investor interest in the sector. In November, Williams also announced the sale of its remaining interest in Williams Four Corners LLC to Williams Partners L.P. (WPZ), which had purchased a 25% interest in Four Corners from Williams Companies earlier in the year.

"The entire energy sector sold off during the summer," said Doug May, President of Scout Partners. "but the sector is enjoying tremendous profit growth and normal profit taking in the sector was exaggerated by the fiasco of Amaranth Advisors’ hedge fund blowing itself up. Once the Amaranth assets were lifted off the market, the entire sector started moving up again and Williams, with rising natural gas prices moving up, found a lot of investor interest."

Qwest Communications (Q) was the index laggard, falling 10.9% during the month of November. May noted that “even if you forget, for a moment, that Qwest’s customer base is canceling its land-based service in favor of VoIP alternatives that are much cheaper, in mid-November it was announced that the new regime at Qwest has decided to cash in $36 million of windfall option gains and, later in the month, that Phil Anschutz is parting with nearly 80 million shares, all of which tends to make investors a tad nervous.”

Scout Partners equal weighted Index of Western Colorado Stocks is comprised of 25 stocks that hope to reflect, to some degree, business conditions in Western Colorado. Reflecting the local economy, the index has a large (over 30%) concentration in the energy sector, which tends to drive index performance. The next largest sector concentration is in industrial stocks, which comprise over 20% of the portfolio.

In the month of November, the index’s concentration in energy stocks boosted index returns, while specific stock selection in the energy, industrial, and telecommunications sectors were the largest drags on portfolio performance. More specifically, Local energy stocks rose 6.7% during the month, while the national energy sector rose 8.0%. Local industrial sector stocks fell 0.5%, while S&P 500 industrial sector stocks rose 2.1% during the month. Qwest fell 10.9% while the S&P 500 telecommunications also fell, but only 0.5%.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

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