Exxon Mobil added to Index

The Scout Partners Index of Western Colorado Stocks fell in June, losing 1.2% versus a 1.7% monthly decline 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. During the month, Exxon Mobil (XOM) was added to the index to replace Kinder Morgan following a management led buyout which took the company private and resulted in it being de-listed from the stock exchange.

Leading the index higher, rising 12.3% in the month, Airgas (ARG) ended the month at $47.90. The company pre-announced stronger than expected same store sales and raised its earnings estimates. “Management says that expected earnings from operations should be in the range of $0.61 to $0.63,” said Doug May, President of Scout Partners, LLC, “which is about 17% higher than the old estimates and the Street earnings estimates for the company. The next day, all the analysts raised their estimates and a couple of them raised their target price as well.” Airgas is up more than 18% since the beginning of the year. Arch Coal (ACI) was the worst performer in the index, falling -13.8% during the month of June, though the stock had spiked higher in May and is still +16.2% since the beginning of the year. “Utility companies have been stockpiling coal, so there are some concerns about the earnings impact of that going forward,” May said. “It also didn’t help that Goldman Sachs downgrade Arch Coal to a sell on June 18th. Wall Street almost never issues a ‘sell’ rating, so Goldman’s call really caught investors’ attention.”

The addition of Exxon Mobil helps maintain the index’s heavy weighting toward industrial material sector stocks, which now represent 21% of the index, which reflects the considerable impact of the energy sector on the local economy. 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 10.4% for the year while the overall market has returned +7.0% over the same time period.


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

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