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Letter to the Editor

This article originally appeared in the January 2008 Issue of INSIGHT

Hot and Cold

Well, Wall Street has made it into 2008 after a dark and stormy December. Things heated up and cooled down at the Stock Exchange as quickly as a thermometer in Cleveland rose and fell throughout the month. My blood pressure was just starting to settle down this morning as I picked up my trusty pen with a barely shaking hand.

After all, I am a reasonable man, and I have weathered many financial storms over the years. The Dow marked the New Year up from January 2007 - not the sizeable increases it hit now and again during the last quarter of 2007 - but still up a bit.

Then, my attention was immediately caught by the dreaded R word. Goldman Sachs has just predicted a recession for the U.S. economy in 2008, based on a slightly shrinking Gross Domestic Product (GDP) and a rising unemployment rate. Of course, this comes as no big surprise to most investors. For now, let’s see how our industry related stocks stand.

My predictions for how our insurer stocks would fare during 2007 missed the mark, as did our publicly-traded insurers’ stock prices. Allstate is down almost 21 percent from its New Year 2007 per share stock price. Progressive has had a dismal year on Wall Street, posting an almost 27 percent YTD decrease in its stock price in December. Safeco’s per share price fell almost 11 percent YTD. What remains a mystery to me is how, overall, our Insurer Index December mark is almost 15 percent below its January posting after a nearly worry-free hurricane season in 2007.

On the foreign side, the Boyd Group made a nice, steady recovery in 2007. The Canadian body shop consolidator’s per share stock price started out back in January 2007 at 42 percent below its New Year 2006 mark. During 2007, Boyd’s stock price climbed over 88 percent YTD.

Solera Holdings, whose operating company in the U.S. is Audatex, marks its first anniversary on the NYSE in a nice position. This international estimating systems provider seems to be doing a lot of things correctly after its earlier purchase of the claims business of ADP. Headed by Tony Aquila, Solera has a stock price up almost 60 percent YTD on Wall Street. Having some nice cash on hand and a growing customer base in emerging markets does not hurt either.

Aftermarket and salvage parts giant LKQ continues to shine at the Stock Market. The company’s per share stock price of a hair below $20 is up nearly 74 percent YTD.

No good news for our auto dealer stocks has appeared throughout 2007. Per share stock prices for AutoNation, CarMax, Sonic, and Penske are all more than 20 percent below their opening 2007 postings. I predict that these auto dealership consolidators will be likely to rid themselves of several of their less profitable locations early in 2008. Clearly some lean and mean activity is essential.

-Charles Baker-

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