Arch Coal leads local index higher

The Scout Partners Index of Western Colorado stocks rose along with the market in October, +4.30% versus a +1.59% monthly increase for the widely followed broad market S&P 500 stock index (total return including dividends). 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 Market), Exxon Mobil, StarTek, CRH (United Companies), and the Union Pacific Railroad.

Leading the index higher, rising 21.5% in the month, Arch Coal (ACI) ended the month at $41.00. The stock is up +36.5% since the beginning of the year, putting it well ahead of the S&P 500 benchmark index, though it has been a particularly volatile year for the stock.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "Arch Coal announced a weaker than expected quarter, only 19 cents per share instead of the 27 cents that Wall Street was expecting, but they tempered that news with a positive outlook for the rest of the year and for 2008, and more importantly with the price of crude oil gaining more than 10% on the month, the outlook for pricing in 2008 looks solid, which should lead to upward estimate revisions."

Qwest (Q) was the worst performer in the index, falling -21.6% in October and the stock is now -14.4% for the year, closing the month at $7.16. The stock is now down more than 30% from its recent high of $10.45 last May.

"It looks like Richard Notebaert got out just in time," May observed, refering to Qwest's former CEO who retired in mid-August. "Revenues were lower, they had to cut the earnings forecast, and any talk of restoring some sort of dividend payout to investors has been set aside until they can get a handle on things," May said.

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. Local stocks are up 13.9% for the year while the overall market has returned +10.9% over the same time period.

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

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