Falling market sends local index lower

The Scout Partners Index of Western Colorado stocks fell along with the market in November, -3.96% versus a -4.18% monthly decrease 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.

Helping cushion the fall, Mesa Labs (MLAB), rose 10.5% during the month to close the month at $24.90. The stock is up +31.5% since the beginning of the year, putting it well ahead of the S&P 500 benchmark index.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "Mesa Labs delivered a really solid quarter, with revenue increasing 16% year-over-year and earnings up 40%," May said. "With all of the difficulties that investors are experiencing in the financial sector, a stock with good earnings growth that isn't in any way tied to the sub-prime mortgage sector starts sounding more attractive."

Mesa Air (MESA) was the worst performer in the index, falling -18.7% in November and the stock is now -55.9% for the year, closing the month at $3.78 and traded as low as $3.10 on November 21.

"At the end of October, the company lost a significant court case," May observed, "and started the month of November by terminating their Chief Financial Officer. During the second week, they announced that air traffic was down. Merrill Lynch kicked off the third week of the month by finally recommending that clients sell the stock, now that the stock price was half what it was at the beginning of the year, and the company finished the month by posting a $90 million bond just in case it loses its appeal of that October ruling." On November 20th, the company's Board of Directors announced that they had approved certain ammendments to the employment agreements for several officers. "In Japan, this company's CEO would probably commit suidice," May said, "but in this country its ever vigilent board decided to give the management team a raise and extend their contracts. Investors should keep that in mind next proxy season."

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 9.3% for the year while the overall market has returned +6.2% over the same time period.

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

Go to Investments main page.