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[imgcontainer right] [img:familydollar528.jpg] [source]Mark Nockleby[/source] During a recession, buy stock in dollar stores. Family Dollar leads all of the Daily Yonder 40 stocks, up more than 74% this year. This picture was taken at the Family Dollar in Turners Falls, Massachusetts. [/imgcontainer]
Many rural businesses deal in commodities — coal, oil, grain, cotton, metals — and as the prices for these goods have risen, so have these companies’ stock prices.
As a result, the Daily Yonder 40 — an index of 40 stocks picked to represent the rural economy — has soared this year, far outpacing both the Dow Industrials and the S&P 500.
The 40 stocks in the DY index are up 23.8% since the beginning of the year. The 30 Dow stocks have risen 9.7% and the S&P is up 9.9%. People may be worried about the economy, but this year the stock market has risen nicely — especially among rural companies.
And that gets us back to ever-rising prices for commodities. The strongest increases for materials has been in agriculture this year, according to commodities speculators. Investors are reading reports from the World Bank predicting an increase in the world’s population from 6 billion in 2000 to up to 10 billion by the end of the century, and they see an ever-rising demand for food.
So this year, corn is up 44%, milk is up 6.5%, hot rolled steel is up 4%, copper is up 29%, and oil is up 14%. This has pleased miners, food growers and their suppliers.
Andersons, an ag chemical company, is up 41% this year. Deere, the tractor maker, has risen 46% and all the coal stocks have gone up more than 25% since the beginning of the year. (Scroll down to see a chart showing how all the Yonder 40 stocks have fared in 2010.)
There are more shipments out of rural America, so in the third quarter of this year, RailAmerica reported a 16% increase in revenue.
If higher commodity prices have been good for some rural companies, they have worked a hardship on others. Meat producers have been troubled by high feed corn costs. Tyson Foods and Smithfield Foods, two DY 40 meat companies, both have seen their stocks drop by 22% since April as corn prices have taken off.
Both stocks are still well up for the year, in part because earlier this year they hedged their corn purchases, locking in corn prices for the coming year. As corn prices rose in 2010, Tyson and Smithfield have been able to buy some of the feed they need at last year’s cost.
Only nine of 40 rural stocks have lost money this year. The biggest decline has been the 41.5% drop in Dean Foods, the huge milk company. The dairy business remains in a terrible slump.
Another loser this year has been Monsanto, which has seen a nearly 24% decline in its shares. The chemical and seed company has its troubles. There is doubt its new seeds will produce the increased yields Monsanto is promising. (This has led several state attorneys general to open investigations.)
Round-up, the company’s weed chemical, is facing competition from generic brands. The U.S. Justice Department has opened an anti-trust investigation that appears to be aimed at Monsanto. And “Mad Money” host Jim Cramer said on CNBC that Monsanto “may be the worst stock of 2010.”
Still, Wall Street observer James Grant says he is “sticking with Monsanto.” So is the Bill and Melinda Gates Foundation, which bought 500,000 shares of the company this year. The Gates Foundation has been very active in issues concerning world food production.
[imgcontainer left] [img:nascar07.jpg] [source]Roger Smith[/source] NASCAR is losing fans, so the stock price of International Speedway is down. [/imgcontainer]
The world of rural entertainment is going two different directions. Attendance is down at NASCAR races and for race television broadcasts, especially among young men. So the stock price of International Speedway has dropped over 17% this year.
On the other hand, Gaylord Entertainment, owner of the Grand Old Opry and Opryland, has seen its stock price jump 74.4% this year. Gaylord and the Opry suffered enormous damages when the Cumberland River flooded downtown Nashville earlier this year. But the company has come back with a vengeance.
The driving force in the rural economy, of course, is the recession. That has benefited the big winner among the DY 40 stocks, Family Dollar, which has risen more than 74% this year. People are trying to save a buck or two, and that has sent crowds into the dollar stores. Family Dollar reported a 23% jump in quarter earnings, thanks mostly to higher revenues.
As long as the recession lasts, Family Dollar should do well. The company recently increased its fiscal 2011 earnings projection.
Here is some other news affecting rural companies:
• Despite federal stimulus spending, Astec Industries, the road builder, reports declining revenues. Astec is looking to the passage of a federal highway bill for any increase in road construction.
• Food companies are wanting to raise prices, but they are afraid consumers may shun their products.
As commodity prices have risen, food producers have been squeezed. So far, they have been unable to pass higher costs on to consumers.
• Satellite TV, yes; cable, no.
DY 40 member DirecTV Group reports an increase in subscribers in the third quarter, while the large cable companies say they’ve lost customers.
• Rural hospital owner LifePoint reported in the third quarter that its profits were up 24% even as admissions declined.
• Mohawk, the carpet maker, reported a 49% increase in profits. Sales, however, were weaker than expected. Companies are increasing their earnings by cutting, not by selling more.
Below is a chart showing how all the DY 40 stocks have fared this year.