Mesa Air plunge doesn’t deter local market index

The Scout Partners Index of Western Colorado stocks rose +7.29% while the broad market gained +5.13% in April (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.

Arch Coal(ACI) rose +31.9% in April. The stock is up nearly 28% since the beginning of 2008, while the broad market has fallen -4.8% during the same period of time.

Doug May, President of May-Investments, a Grand Junction-based registered investment advisor, noted that, "coal has been strong lately and Arch Coal was a strong performer all month.” May added the company's April 21 earnings release was reassuring to investors. "Earnings were more than 20% above consensus, revenues beat expectations, and the company is talking about supply tightness in the eastern united states that is resulting in declining stockpiles."

Mesa Airlines (MESA) was the worst performer in the index, falling -71.9% in April. "The stock has all the earmarkings of a sinking ship," May said. "It paid out huge bonuses to management at the end of last year. It lost an $80 million lawsuit with Alaska Airlines, which just settled for 65 cents on the dollar as long as it was paid immediately in cash. They have $100MM of bonds that bondholders could force the carrier to repurchase as soon as June 16, assuming they haven't filed bankruptcy by then, they operate in an industry where it seems that a new carrier is going belly-up each week, and they are looking to raise a fraction of that amount by giving away half the company in a new share offering in a distress sale to new investors, assuming they can find anyone willing to pony up the money."

Mesa has lost almost 80% of its value thus far in 2008. "I'm sure glad that the Board paid up for that bonus money at the end of last year to lock the current team up for the long-term, though in this case it looks like "long-term" might just be a matter of weeks."

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 +7.33% over the past 12 months while the overall market has fallen -4.44% over the same time period. Year-to-date, local stocks are up +3.32% while the broad market is down -4.8%.

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

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