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Letter to the Editor
This article originally appeared in the November 2005 Issue of INSIGHT
Really No Rally?
We have been anticipating a Fourth Quarter rally. Where is it??
Viewing what has happened to DuPont, Sherwin-Williams, Valspar, and PPG, as well as such non-energy related stocks, such as CarMax, Keystone, and Boyd, there does not appear to be much, if any, momentum for an increased stock price this year.
Pity the poor glass makers. Sand may be cheap, but the price of the energy, e.g. natural gas, required to turn sand into glass has gone right through the roof/glass ceiling.
These same energy cost increases, tied directly to oil, continue to push up the cost of manufacturing key components of refinish materials, with certain solvents being impacted, by 50 to 70 percent increases over the past two months.
On the parts side, I still like LKQ and Keystone from an investment standpoint. Both continue to make acquisitions and build on “Same Store Sales.”
Insurers like Nationwide, USAA, and Progressive continue to put more pressure on shops for increased use of aftermarket and salvage, and, in the case of salvage, it is now being specified, in some cases, for current model year vehicles.
On the insurer side of investments, you probably, and with good reason, disagree with Progressive’s push on salvage and aftermarket, but they have put themselves in the position of leadership in reduced combined ratios and overall profit improvement, which is reflected in the 32 percent increase in the value of Progressive’s stock this year.
Insurers are still tallying the costs resulting from Hurricanes Katrina and Wilma. Allstate reported a Q3 loss of $1.55 billion as a result of the hurricanes that pounded the Gulf Coast over the summer - its biggest quarterly loss as a publicly traded company. (See page 16 for details.)
In addition to insurers, body shops, both dealers and independents, also continue to tally the costs. The jury’s still out on where the potentially 100,000+ flooded vehicles will end up. Will some go for salvage? Will some be rebuilt? INSIGHT will continue to track these developments.
Our INSIGHT Fund Index has been languishing since April this year, the last month that a positive percentage of change appeared in our stock chart. No rally appears possible for our INSIGHT Index anytime soon. Down almost eight percent YTD, I will not be surprised (sigh) to see my handpicked stock index close out 2005 down by ten percent.
The INSIGHT Index, however, has had a better year so far than the Dow Parts & Equipment Index. This has been in the red for percentage of change since two days into January. I expect that its current mark of just over 18 percent down will continue to sink past its 2005 low point of almost negative 20 percent.
-Charles Baker-
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