Western CO stocks miss out on Christmas Cheer

The Scout Partners Index of Western Colorado Stocks fell sharply in November, -1.3% versus a +1.3% increase for the widely followed S&P 500 stock 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 December, the strongest performer in the index was Safeway Companies (SWY), which surged 12.2%. The California-based grocer hosted a mid-month analyst meeting in which the company said that 2007 earnings may top current Wall Street expectations for the company. The company showcased its Blackhawk Network subsidiary which sells gift cards for major retailers such as Home Depot and Best Buy, and raised its stock repurchase plans from $400 million to $1 billion.

"When (Wall Street commentator) Jim Cramer started talking up Blackhawk," said Doug May, President of Scout Partners. "the stock shot up about 3 points in two days. The analyst meeting seemed to confirm what Cramer was saying about the stock, and it all happened during a week where investors seemed to be deciding that the housing sector wasn’t going to drag us into a recession after all. Blackhawk might indeed be a jewel in Safeway’s arsenal,” May said, “but I’m not convinced that we’re headed for a soft landing."

Arch Coal (ACI) was the index laggard, falling 16.4% during the month of December. In spite of recent upgrades from brokers HSBC Securities and Bank of America, the stock declined steadily throughout the month. May noted that “natural gas prices plunged during the month, and coal competes with gas on the electrical generation side so natural gas prices falling 30% creates some worries about future coal prices.”

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. Local stocks rose 2.3% last month while the overall market climbed 1.7%, but December’s weakness in the energy sector caused the situation to reverse while the rest of the market enjoyed a holiday surge.

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

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