With the eighth calendar month of the year coming to a close, it's once again time to take a step back and look at the market's winners and losers for the last 31 days to see which trends -
if any - have developed. For August, Eastman Kodak (EK) blazed a bullish trail for photographic products' 79% rally, while home entertainment software was dragging the bottom with a 13% loss for the month...thanks to big losses from Electronic Arts Inc. (ERTS) and THQ Inc. (THQI).
The runners up in the plus column were the multi-line insurers like Aon Corporation (AOC), The Travelers Companies Inc. (TRV), Genworth Financial Inc. (GNW), and Allstate Corp. (ALL); the average insurer gained 36% last month. Next to last was the obscure heavy electrical equipment group with an average 11% dip. This industry includes names like Rockwell Automation Inc. (ROK) and Ametek Inc. (AME); Ameteck was the cause for most of the group's loss.
A quick look at each cluster would be time well spent.
Photographic Products
To say that
Eastman-Kodak led the group higher would be an understatement - it was the only stock in the bunch to make any appreciable progress.
The bulk of the move came after Kodak made news at a trade show... but the news indicated much more than the location of their kiosk. It appears as if Eastman-Kodak has finally shrugged off the remaining loyalties to the analog/film age and has finally seen that the big money is in something else... helping other s make money in the digital age. The bulk of the trade show focus was on that very premise, with little attention being given to things like film, printers, etc.
Plus, Kodak also announced they'd be installing digital print kiosk in about 70 drug stores in Ohio; that's part of the new mindset... let someone else manage your nickel machine (it's good for the drug stores too).
Though encouraging, it remains to be seen if Eastman-Kodak is actually ready to shake off old ways, old lines, and old habits - including several years of operating losses.
It's a step in the right direction, but the new Kodak isn't nearly as investment worthy as other names out there are right now.
Home Entertainment Software
Just for the record,
Electronic Arts and
THQ Inc. were the big losers for the calendar month, but once we were into the thick of August,
Activision-Blizzard was rolling along nicely with the other stocks losing ground.
The problem isn't poorly run companies. The problem is (1) impossibly high comparable from last year, and (2) a substantial lack of hot, new titles every gamer is clamoring for.
Many analyst and investors are concluding that the video gaming industry - once thought to be recession proof - has finally fallen prey to the longest (and harshest) recession since World War II. Why? Because 2009 is on pace to be the first year since the late 90 that video game sales have declined.
The reality is, however, that no designer has even come close to publishing anything as exciting as last year's Guitar Hero, Fallout 3, Grand Theft Auto IV, Star Wars: The Force Unleashed, and World of Warcraft: Wrath of the Lich King.
Still, while that explains the diminished attraction to Electronic Arts, THQ Inc., and Activision, it doesn't make it any easier to own shares of the video game makers.
The gaming industry is about coming up with in-demand games. Until these companies can do that again, their stocks are nothing special (clearly).
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Multi Line Insurers
We mentioned
Aon Corporation, The Travelers Companies, Genworth Financial, and Allstate above, though many (not a multitude, but most) broadline insurers and bigger insurance companies without full lines posted pretty decent results in August.
Our interpretation of these gains is a straight-forward one.... we think the group as a whole is underestimated, though there are enough problems with individual names within the group that it makes more sense to pick certain stocks than to buy a fund or ETF.
Heavy Electrical Equipment
These stocks went from bad to worse on Monday, flying right in the face of what's going to be,
yes, a pretty bullish opinion of the group.
Ametek is an exception to that optimism - it got crushed for a reason.
Rockwell Automation, however, could be one that would be easy to get attached to. The P/E of 18.8 is reasonable, and the forward-looking earnings estimates - we feel - are too low.
Bear in mind that only 10% of the world's stimulus money has actually been spent; the rest is on the way. The bulk of those funds are still earmarked for infrastructure improvements, which indirectly - though significantly - benefits heavy equipment makers like Rockwell,
ABB Ltd. (
ABB), and
Eaton CP (
ETN).
The heavy electrical equipment industry is one we suggest picking individual stocks from rather than trying to buy into through a fund. Though there are no funds with that specific focus anyway, the risk/reward scenarios just lend themselves to picking winners.
By the way, many of those winning electrical equipment names are found from the small and micro cap segment of the group.
If you'd like to review our follow-up thoughts to these trends as they unfold, or hear about news ones as they develop, sign up for the free Small Cap Network newsletter today. Our aim is to turn news and information into actionable, money-making ideas.
