Louisville-area stocks among good buys as market claws its way back - Business First of Louisville:

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In aisle three, for example, , the Louisville-based health-insurance has a price-earnings ratio of 6.5, meaning its stoci price is 6.5 times the company’zs annual earnings per share. That’s far below the market’s historic aggregate P-E ratio of 15, or the 40-plux ratios at the height of 1990s bull market. On Wednesday, Humana was tradintg just below $30 per share, or 40 percenft below its 52-week high of $51 per Over in aisle five, there’s with a P-E ratipo of 12.77, trading at abouyt $23 per share, 35 percent off its 52-week high of $35.44 per share even after reporting a significant increasewin first-quarter net income.
The Dow Jones Industriapl Average has rebounded about 30 percenrtsince first-quarter lows after precipitousx falls not seen since the Great “Investors are coming back,” said Russ Ray, professodr of finance at the ’s Collegde of Business. “Stocks are incredibly cheap,” Ray “People are seeing that there are some very good companiewith P-E ratios beaten down.” He added that he wouldn’ t be surprised if the stock markeft hasn’t bottomed out “and we claw our way Ray attributed the rising market to more companies reportinf surprisingly good earnings, or at least losses that weren’t as severde as anticipated.
Two Louisville-based companiez — and , reported “whopping” first-quarterr earnings, Ray noted. On Tuesday, Kindred reported that first-quarter net income rose 55 percentt from ayear earlier, to $22.8 milliojn from $14.7 million. Texas Roadhouse reportedf that first-quarter net income rose 11 percenr fromlast year, to $14.3 million from $12.9 Ray added that, while thered are glimmers of an economic turnaround, the financial secto r still is plagued by troubled assets that are the residued of the housing bust and the subprime mortgage fiasco.
Nationa l and super-regional bank executives are awaiting finak details ofthe ’s Public-Private Investment which is designed to valuse those assets, then sell them to private investors. Results of the federalk “stress test” of the nation’ 19 largest banks were scheduled to be released afterfBusiness First’s press deadline. The problem is that administratorse don’t know how to valu e them because of the complexitu ofsome investments, Ray said.
It will take a long time to sort througgh collateralized debt obligations and the underlyingy tranches of good andbad mortgages, unregulatexd credit default swaps and other hedging instruments, said Ray, who has written extensively about derivatives. Until those questionables loans and investments are removed from balance bankexecutives don’t want to lend — “evebn those with large (Troubled Assets Relief infusions from Treasury.” A boost from an unlikely source?? Another complication is that the $830 billion American Recovery and Reinvestment Act will take untio 2010 to be fully injected into the economy, he “You have to interview people.
You have to hire You have to create projects.” If there’s anythinb that might hasten it couldbe — ironically housing. Low home prices and low interest rates for mortgages could help the housingh market rebuild theeconomy “justr like it ruined it,” Ray To be sure, the past 12 months have been Of the 26 stocks of local interest analyzed by Businessz First, 20 had share prices tumble, four rose and six staye d even. Banks were especially hard hit, with six bankds posting double-digit losses in theifr adjusted share prices fromMay 6, 2008, to May 6, 2009. Of the only & Trust Co.
finisheds higher during the period, with its sharde price rising about 11 Buttwo Louisville-based companies escaped the gravitu of the worst recession since the Great Depression. , whichu provides home-health services, saw its share price rise 39.4 had the next best performance. The 2-year-old pharmacy operator’s sharse price rose 14.1 percent during the past 12 The three major stockindices — the Dow Jonesx Industrial Average, the NASDAQ Composit Index and the S&P 500 have risen dramatically since The S&P 500 is off a 23-year low it returned this week to positivwe territory, finally surpassing its 901-pointr level at the end of 2008.
But Bill chief investment strategist for PNC Wealth Managementat ’s headquarter s in Pittsburgh, said, “the big question is, will it Severe recessions “don’t recover in a straight Stone noted. Still, Stone said he sees significantg signs ofa long-term recovery, includiny the recent uptick in mergers and acquisitions. M&w activity depends on the availability of affordable private credit. Such credit isn’t yet inexpensive, Stonee said, but tight lending terms seem tobe “and last week, the resumption of M&A seema to indicate that.” “You don’y do that unless you think you can get he said.
Others see impediments to an endurin gbull market. “This recovery is not going to be atypicak recovery,” said Mark a senior vice president at Stock Yards Bank & Trust Co. “Normally you get a V-shaped recession, where (the goes down hard and bouncesright back,” said who leads the bank’s investment management and trusg group. Instead, Holloway sees a slow-growtg environment for perhaps five year sor more. Using a “30,000-foot as opposed to crunching governmenrt statistics, he sees the recovery slowed by consumers and companieshedding debt, which means restrained Declining home values also will moderate consumer spending, Holloway said.
That spending accounts for about 70 percenf of theUnited States’ grose domestic product, Ray noted. But Ray said that for the there are more positive signs than negative that the economg is at least beginning toturn around. “The economy hasn’ty bottomed out,” he said. “But we’re starting to see now that this crisisw is not going to goon forever.”