S&P 500 down 142bps, while the secular value portfolio only dropped about 100bps. Some of the energy related stocks were up plus Asia didn't decline as much and TSRA was flat on the day.
Graco (GGG) got whacked for 4.5% thanks to a downgrade from CIBC -- did not see the note but I'm guessing continued housing weakness as can be seen from Home Depot's earnings miss are the reasons cited. Graco is a long term holding -- I got in too early but I believe my risk is limited and the business is really really good. They sell fluid handling equipment to housing contractors and industrial customers.
Its a niche business that relies on new product innovation to drive growth. Overseas, many painters still use brushes rather than paint sprayors like the kind that GGG sells. Graco's international growth has been very strong but the deterioration in US housing related revenues has been too much to overcome. The company said on its last conference call that their housing related revenues generally lag trends in housing starts by 6 months.
May's housing start data showed a 2.4% M/M decline and a 24% year over year decline. pretty ugly so I expect Graco to miss numbers -- I am guessing that Graco's housing related business will bottom a year from now. Good news is that with the shrinkage in US housing and the strength in international sales this problem area is becoming a smaller issue all the time.
One other stock that got whacked today was Deerfield Triarc Capital (DFR). Subprime mortgages had a rough day and that impacted a lot of financials. DFR is a mortgage REIT that also has some alternative assets that include a lot of high yield and private equity debt related securities. Investors are nervous about these areas given the subprime credit issues. The managers of DFR's portfolio generated very strong results during the last credit downturn during 2000-2002. DFR's credit losses were 1% vs. the Merrill high yield index, which suffered over 10% defaults.
I see DFR as a $30 in 2 years with little risk of downside. I will cover this one more at a later date.
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