Rough start to 2008

The Scout Partners Index of Western Colorado stocks fell -4.59% while the broad market fell -6.01% in January (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.

Energy stocks fell more than the market as falling crude oil prices marked the beginning of the new year. The leader in December was Wells Fargo Bank (WFC), which rose +12.9% during the month to close at $34.08. The bank reported solid revenue growth and no unexpected loan reserves for the most recent quarter, and rallied with the rest of the financial sector when the Federal Reserve dramatically lowered short-term interest rates to 3.0% in the latter part of the month.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "Wells Fargo hasn't strayed into areas of investment banking and deal-making that got Citigroup and some other banks in hot water,” May said. "They warehouse much of their own loan production, too, which kept them focused on loan quality while other financial companies became too preoccupied with the quantity of loans underwritten." Loan losses associated with foreclosures of sub-prime loans have forced several other financial service firms to additional capital to shore up their financial position, but Wells Fargo has thus far avoided those difficulties.

Qwest (Q) was the worst performer in the index for the second month in a row, falling -16.0% in January. The stock closed the month at $7.01. AT&T helped trigger the mid-month sell-off in stocks when the company's CEO cited consumer softness at an investor conference on January 8 that was broadcast over the web. During the month, the telecom sector fell -12%.

"Qwest was hit a bit harder," May observed, "because it is more leveraged and therefore more at risk if we do find ourselves in the midst of a major recession."

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 +4.7%% over the past 12 months while the overall market has returned -2.32% over the same time period.

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

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