For the first time in four years, panic has reared its ugly head in the marketplace. With the memory of the 2007-2009 Great Recession still in the back of traders' minds and a recollection that the last bear market resulted in a greater than 50% correction in all three indexes, some investors have chosen to run for the exit. The result has been heightened volatility and a four-day tumble the likes of which we haven't witnessed in years.
Since last Monday, the Dow Jones Industrial Average has shed well over 1,600 points (or 10% rounding up), the broader-based S&P 500 is down almost 210 points (also a 10% dip), and the technology and growth-stock-heavy Nasdaq Composite is off 565 points, or the equivalent of 11%.
As you might expect, pressure on the broader market has weighed on pretty much every sector and a vast majority of stocks. A quick scan of the 3,264 publicly traded companies with a market valuation of $300 million or higher shows that 3,182 have seen their stock price lose value since last Monday. Of course, this also means that 82 stocks have either remained unchanged or advanced in the face of the stock market crash.
What stock market crash?
Let's briefly look at a handful of companies that have, thus far, managed to thwart the weakness in the broader market.
Peabody Energy (NYSE:BTU): up 33%
One of the strongest gainers over the past week has been coal producer Peabody Energy, which has risen 33%. The impetus for the move was a filing with the Securities and Exchange Commission showing that billionaire investors George Soros and his Soros Fund Management had purchased $2.25 million worth of Peabody Energy common stock in the second-quarter. This works out to a little more than 1 million shares of Peabody. We're certainly not talking about a huge position here, but when a billionaire hedge fund manager begins betting on a downtrodden industry, investors take notice.
However, in a broader context Peabody has been a disaster. Even following its 33% gain over the past five trading sessions, it's down 90% on a trailing 12-month basis. Coal prices are at six-year lows, President Obama has proposed legislation (the Clean Power Plan) designed to promote alternative energies, and China, one of the premier sources of coal demand, is seeing a material slowdown in its economy.
Long story short, Peabody is far from out of the woods -- but for now investors are thrilled with Soros' interest in the industry.
AngloGold Ashanti (NYSE:AU): up 23%
As if a coal producer weren't odd enough to be bucking a stock market crash, we can also add in South African gold miner AngloGold Ashanti to the bunch with a gain of 23% over the previous five trading sessions.
What's lit a fire under AngloGold's stock? First, we've witnessed a sharp rise in physical gold prices of $34 per ounce over the past week and nearly $70 per ounce since the month began. Higher per ounce prices mean the potential for better cash flow and margins for AngloGold.
The other component at play was the release of AngloGold's second-quarter results early last week. Although it reported a wider year-over-year loss of $142 million, up from a loss of $80 million in the year-ago quarter, a lot of other factors went its way. For instance, AngloGold still managed to generate $71 million in free cash flow during the quarter, and its total cash cost per ounce fell to $718 from $833 per ounce in the year-ago period. The company also cut its capital expenditures guidance by $100 million to a fresh range of $900 million to $1 billion.
Can AngloGold's rally continue? Ultimately, it's going to depend on the price of gold. Though AngloGold has done a good job of pulling levers to cut costs, African miners are notorious for their higher labor and mine maintenance costs. If physical gold prices find solid footing, I'd personally look elsewhere within the sector for a miner with a history of lower costs.
AGL Resources (NYSE:GAS): up 23%
Noticing a trend with commodities here during this stock market crash? Unlike Peabody and AngloGold where we had to do a bit of digging to discover why their stocks had rocketed higher (pun fully intended), the reason for AGL Resources' move was as plain as day: it agreed to an $8 billion buyout by Southern Co. (NYSE:SO).
Southern's purchase of AGL Resources, a natural gas distributor, makes sense given President Obama's and the Environment Protection Agency's plan to push utilities away from a reliance on coal and toward cleaner-burning energy (like natural gas) and alternative energy. The buyout will also create the second-largest utility company in the United States, serving 9 million customers across nine states. The deal itself should expand long-term EPS for Southern by 4% to 5% per year, but it'll first need the thumbs-up from AGL Resources' shareholders and industry regulators before it can go through. Considering the weakness in natural gas pricing in recent months, I have a hard time believing AGL's shareholders would walk away from this premium; but what regulators will say of the combination is still up for debate.
Lumber Liquidators (NYSE:LL): up 6%
Lastly, troubled discount flooring specialist Lumber Liquidators has managed to eke out a 6% gain over the past five trading sessions following an upgrade from Laura Champine, the covering analyst at Cantor Fitzgerald.
Champine upgraded Lumber Liquidators from "hold" to "buy" and raised her firm's price target on the stock by 20% to $18 after suggesting that regulatory and growth hurdles tied to a 60 Minutes report and subsequent investigation earlier this year have been fully priced into the stock. Per Champine, Lumber Liquidators has filled its executive vacancies with experienced leaders, and she believes the consensus gross margin forecast for the company is simply too low.
But should you believe Lumber Liquidators has laid a new foundation? While not for risk-averse investors, it's hard not to like Lumber Liquidators' business model if it can maintain its manufacturing quality standards and eventually regain the trust of consumers. It's an important point to remember that PR flubs among consumer-facing stocks rarely extend for long periods of time, which bodes well for a Lumber Liquidators rebound.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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