Encana Leads Local Stocks Higher

The Scout Partners Index of Western Colorado Stocks rose in May, gaining 4.8% versus a 3.5% monthly gain for the widely followed 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 Markets), StarTek, CRH (United Companies), and the Union Pacific Railroad. Though Encana led the energy sector higher, Arch Coal, Halliburton, Williams Companies, and Royal Dutch Shell all saw their stock prices beat the market during the month of May.


Rising 17.0% in the month, Encana (ECA) ended the month at $61.40 and rose to above $63 about 10 days before month-end, the first business day after natural gas prices peaked for the month at $7.88/MMbtu. “In addition to being a great company in a rising sector,” Doug May, President of Scout Partners, LLC observed, “Southeastern Asset Management’s Mason Hawkins, manager of the Longleaf Partners Fund, disclosed that he had started adding Encana shares to his portfolios. He runs a concentrated portfolio and a lot of people watch what he’s doing, so that helped the stock.” A few days later, an analyst from Citibank’s Smith Barney brokerage unit upgraded Encana from a “sell” recommendation to a “hold.” Encana is up 35% since the beginning of the year.

Safeway Stores (SWY) was the worst performer in the index, returning -4.99% during the month of May in spite of comments at the end of April that earnings would be on the upper end of previous guidance, and despite efforts by the company to boost the stock price by raising the dividend 20% to 6.9 cents per share in an attempt to make the stock more attractive to income oriented investors. “Its contract negotiation time,” May said. “Wall Street is worried that management will have to give away the store to avoid another strike like they had in 2004.” Some 65,000 members of the United Food and Commercial Workers union (UFCW) have been negotiating since early March. The companies are negotiating an extension of the 2004 contract which was signed after a 141-day-long strike, the longest supermarket strike in history. The 2004 agreement had left some workers feeling betrayed by the UFCW negotiators who were representing them.

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 11.7% for the year while the overall market has returned +8.8% over the same time period.

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

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