What a week it has been! I've received queries regarding Wednesday's market action, folks wanting to know why markets were so positive following Tuesday's midterm election. I've heard several pundits proclaim that is simply because markets like a divided government. I don't buy that, at least in this case. It may have been true in the past, but my explanation is a bit simpler: Markets were breathing a sigh of relief that its expectations were met. (Similar to the sigh of relief by Real Money's own Doug Kass, for winning our double or nothing bet, and not being on the hook for two steak dinners).
Given all of the variability and lack of accuracy in polling, the market rewarded investors for the lack of a major surprise, one that would have been interpreted as potentially worse for the markets.
Meanwhile, the earnings reports have been rolling in, and some in value/distressed land have been downright ugly. Last week, double-net FreightCar America (RAIL) put up some bad third-quarter numbers -- there is no other way to say it. The company's $0.50 quarterly loss was much worse than the expected $0.26 loss, while revenue was slightly ahead of consensus and shares fell nearly 25% to an all-time low -- and that includes 2008-2009. You know things have run off the rails (pun intended) when your stock is trading below where it was during that dark period. RAIL, which now trades at 1.24x net current asset value, ended the quarter with $60 million, or just under $5 per share, in cash and short-term investments.
Dean Foods (DF) , one of my tax-loss selling candidates from last year, reported slightly better-than-expected third quarter revenue on Wednesday, but a $0.28 per share loss -- much worse than the consensus $0.06 loss. The company also cut full-year earnings guidance from between $0.32 and $0.52, to between $0.10 and $0.30. That was good for a 22% shellacking. Yesterday, the company, not unexpectedly, cut its dividend 67% to $0.03 a quarter, which equates to a 2% yield. DF is now trading at about 11x next year's consensus estimates, but has really fallen out of favor with investors, and has much to prove in order to get back into their good graces. This one, barring a recovery between now and year-end, may be on the tax loss selling list again this year.
Finally, Kronos (KRO) also missed big after Wednesday's market close, reporting earnings per share of $0.26, well below the $0.69 "consensus" (just three analysts cover the name). Shares fell 17% to a 52-week low. KRO now yields 5.2%, as the company kept the dividend steady at $0.17 cents a quarter, and trades at about 5x next year's consensus, although I'd expect that to change as there is a big disparity at this point between estimates. My interest in KRO stems from the fact that sum-of-the-parts play NL Industries (NL) owns a boatload of KRO shares, and has been hammered in its own right, as KRO has taken it on the chin.
It's been a rough week, which thankfully is in the dumpster.
