Covington, KY - As we continue to celebrate the Wildcat’s National Championship, let us not overlook the exemplary stock performance of our local public companies. While it may seem for many people that the financial world has been collapsing all around them, stocks have actually put together a historic rally over the last three years. Subsequently, investors that had the wherewithal to remain invested have been handsomely rewarded.
In fact, if you had simply put your money in a fund tracking the S&P 500 such as the SPDR S&P 500 (SPY), your total return from 3/31/09 to 3/31/12 would have been 87 percent or 23 percent annualized. In dollar terms, $10,000 would have grown to $18,700.
While that is intriguing, even more so are the returns of the publicly traded companies in the Lexington area.
There are four, with a market capitalization (stock price multiplied by shares outstanding) of at least $100 million and have been around for three years. They are Tempur-Pedic International (TPX), Lexmark International (LXK), Community Trust Bancorp (CTBI), and Delta Natural Gas Company (DGAS). It should be noted that because Rhino Resource Partners (RNO) went public in September 2010, there is not yet three years of data for this company.
These four local stocks have all performed well with three of the four beating the S&P 500 over this time period. Tempur-Pedic soared from $7.30 to $84.43 over this period, which is a total gain of 1056 percent or 126 percent annually. These gains are justified as the company’s revenues have nearly doubled while net income has almost tripled in the last three years. Also outperforming the S&P 500 was Lexmark and (+26 percent annually) and Delta Natural Gas (+25 percent annually). Community Trust was positive over the period with a +10 percent annualized return, but they did trail the S&P 500.
On average, these companies performed very well. In fact, if you would have put $2,500 into each stock for a total $10,000 investment three years ago, your portfolio would now be worth $42,160. Most of the $32,160 profit is attributable to Tempur-Pedic, which gained $26,414.
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Because this is a small sample, let’s extend this study to the entire state of Kentucky, including Louisville and Northern Kentucky. With this expansion, the sample grows from four companies to 19 with four in Northern Kentucky and 11 in Louisville.
The Northern Kentucky area companies include Ashland (ASH), Omnicare (OCR), General Cable (BGC), and Bank of Kentucky (BKYF). The Louisville companies are Yum Brands (YUM), Humana (HUM), Brown-Forman (BF.B), Texas Roadhouse (TXRH), Papa John's (PZZA), Churchill Downs (CHDN), Republic Bancorp (RBCAA), Kindred Healthcare (KND), PharMerica (PMC), S.Y. Bancorp (SYBT), and Almost Family (AFAM).
The only Northern Kentucky company to outperform the S&P 500 over the last three years was Ashland, which went from $10 to $61 for a gain of 510 percent or 82 percent annually. Ashland’s ascension erased the loss the stock experienced in 2007 and 2008. The stock is now trading close to its all-time highs. The other three stocks each gained between 13 percent and 14 percent annually.
A similar $10,000 investment with $2,500 in each Northern Kentucky stock would have grown to $26,114 over the three-year period. As in Lexington, most of the profit would have come from one company, Ashland. Of the $16,114 profit, $12,655 would be due to Ashland’s gain.
There were four companies in Louisville to beat the S&P 500 from March 2009 to March 2012. They were Yum Brands (+39 percent), Humana (+53 percent), Brown-Forman (+31 percent), and Churchill Downs (+24 percent). On the other side of the profit line were Kindred Healthcare (-17 percent) and PharMerica (-9 percent).
If you had invested a total $10,000 equally in the 11 Louisville companies in March 2009, your portfolio would have risen to $17,414.
Investing $10,000 equally across the entire state of Kentucky would have yielded $24,372. Only the Louisville area companies on average underperformed the S&P 500 fund and that was simply because of a few of the smaller companies’ poor returns.
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Most financial experts would say that one must diversify beyond their region and we would certainly agree. Even though the returns of Tempur-Pedic are extremely enticing, it is usually not wise to put all of your eggs in one basket. There were many investors in Houston who learned this the hard way, believing a company called Enron would be a great long-term investment.
Andrew Stout, CFA, CFP is a Sr. Investment Officer with MCF Advisors, with offices in Covington and Lexington. astout@mcfadvisors.com