FOCUS ON THE 15: Buyers turn to financial, retail and tech sectors

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By Jim Victor | Saturday, April 26, 2008 5:48 PM CDT | () comments

Investors continued to push into stocks last week. But preferences on their shopping lists changed markedly by midweek.

In the first half of the week, oil had climbed to a new record closing high on the New York Mercantile Exchange, at $119.37 per barrel. Up with oil were oil-and-related-resource stocks such as metals and our own agribusiness companies’ stocks, helped by growing needs for fuel and food.

But the second half of the week was a reversal of fortunes. The U.S. dollar gained on growing expectations that the Federal Reserve may be nearly finished lowering interest rates, seeing evolving strength in some economic reports. With the stronger dollar, oil and resource prices slipped. Related stocks, including agribusiness, slipped as well. Buyers became more interested in financial stocks, retailers and technology companies.

In this massive and short-term shift, our Quad-City Times Key 15 gave up 20.20 to 1,408.49, weighed down by the agribusiness stock retreat. Most hurting the area business barometer were Deere, off 2.68 to 90.00, and Monsanto, which slumped 3.71 to 125.48.

The biggest change in last week’s survey, however, belongs to Quanex. Quanex changed totally, splitting into two companies. Gone is the steel operation, Mac Steel, and all of the vehicular products division. Tuesday’s close at $55.30 per share removed $39.20 in company value according to plans made months ago. What remains is the building products division of which the Nichols Aluminum operations in Davenport are a yet more prominent component. With a remaining value of $16.20 per share following the $39.20 taken by the split, Quanex actually finished the week at 16.93. And our Quad-City Times Key 15 was adjusted accordingly.

Also adjusting its business was Kraft, whose Oscar Mayer operations here also are prominent. But Kraft continues to focus on core operations and divesting others. Last year, Kraft acquired Group Danone’s global biscuit business. Approval by the European Commission, this acquisition was conditioned on Kraft’s divestiture of selling certain subsidiaries in order to avoid the risk of market dominance for those products. Last week, Kraft agreed to sell the Artiach biscuit business in Spain to Panrico, and the Balaton chocolate trademark in Hungary to Nestle. Kraft shares finished the week, up 1.55 at 33.00.

Earnings reports continued to monitor corporate profit progress in a changing economy. In banking, First Midwest Bancorp has extensive operations here and posted 14 percent less net income, down from $0.58 per share a year ago to $0.52. First Midwest cited “negative trends in residential development markets” as the reason for increasing its loan-loss provision. Chicago area residential markets were the focus here. Still, First Midwest cited “good progress in commercial sales activity, which is expanding loan balances at a 9.1 percent rate.” First Midwest shares finished 2.82 lower at 25.93.

YRC Worldwide, with Roadway trucking operations here, finished its first quarter with the loss it had earlier forecast. YRC says it lost .81 per share compared to a .02 per share profit one year ago. Chairman Bill Zollars’ said “The soft economy, severe winter weather, and record fuel prices created a very difficult operating environment in the first quarter.” Zollars saysYRC is taking steps to control what can be controlled. Importantly, Zollars had an interestingly upbeat assessment of the rest of 2008, “Despite the macroeconomic challenges that we are facing, we believe that we have turned the corner and expect meaningful earnings improvement starting with the current quarter.” That’s quite a change, and investors bid YRC shares up 2.40 to 17.10.

As the new week begins, you can expect more of those corporate quarterly reports to shape opinion. But for many, one overarching highlight will be Tuesday’s Federal Reserve meeting, along with the board’s take on the economy and interest rate guidance. Get ready.

Jim Victor is senior vice president-wealth management and financial advisor for Smith Barney, Davenport. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. a) The firm is a market maker in the publicly traded equity securities of this company. b) Within the past 3 years, Citigroup or its affiliates has acted as manager or co-manager of a public offering of securities of this company.