Local stocks receive year-end energy boost

The Scout Partners Index of Western Colorado stocks rose +1.33% while the broad market fell -0.70% in December (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 were mostly positive during the month. The leader in December was Arch Coal (ACI), which rose +18.7% during the month to close at $44.93. The stock is up nearly 50% since the beginning of the year, putting it well ahead of the S&P 500 benchmark index. Bill Barrett and Harsco closed out the year with even strong year-to-date returns, but Arch Coals’ strong showing in the month made it a standout.

Doug May, President of Scout Partners, a Grand Junction-based registered investment advisor, noted that, "coal prices, like most commodities, are climbing as the value of the dollar falls,” May said. "Simply put, the U.S. dollar doesn’t go as far as it did before. To buy a barrel of oil or a pound of coal, buyers are having to give up more dollars because in the world economy the dollar currency won’t buy what it once did." Rising coal prices mean that those companies with sizable coal reserves are worth more, and stock prices are rising as the market factors that in.

Mesa Air (MESA) was the worst performer in the index for the second month in a row, falling -18.3% in December. The stock is now lost about two-thirds of its value during the year, closing the month at $3.09. The stock stabilized during the month of December, but fell sharply during the last few trading days of the month.

"Some of it may have been tax selling," May observed, "but more of it was the announcement at month-end that the company’s September 30 earnings announcements was delayed by the need to conduct a complete review of certain estimates and reserves that could affect it’s financial results."

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 10.7% for the year while the overall market has returned +5.5% over the same time period.

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

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