As the market started turning back it naturally inspired many investors, traders and fortune tellers with crystal balls. I would rather not forecast where the S&P 500 is going to be in the next year or two, but I can certainly say we are almost at the end of the recessionary period. The housing market appears to be bottomed out in many markets; according to realty.org, first quarter median house value in the US is at $169,000, which I believe is a healthy price for home buyers. Though it feels bad to see your own price decline in value, it is a well needed correction.
Consumer revolving credit declined from the peak of $961 Billion in 2008 to $928 billion and is in now in a declining path. Savings (both M1 & M2) have improved from $7.2 Trillion in early 2007 to $8.4 Trillion dollars. In the first quarter of 2009, U.S. current-account deficit decreased to $101.5 billion, the smallest deficit since the fourth quarter of 2001 ($154.9 Billion). As of May 2009, Manufacturing and trade inventories declined 8 percent to $1.368 Trillion from last year's May inventory of $1.487 trillion. The latest numbers appear to be very positive, so we are probably at bottom of the recessionary period.
However, historically, markets have turned around in the middle of recessions with the anticipation of an economic rebound. The March 2009 bottom could be the lowest point for this market, however there may be occasional corrections and sell offs from now until next year. Unemployment is at its historical high, 14.7 million people (9.5 %) were unemployed with the manufacturing, business services and construction industry shedding more workers.
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However, the unemployment trend still continues, even after the economy has picked up the heat. Traditionally, employment numbers rebound six to nine months after the market starts rebounding. Since the beginning of the recession in December 2007, 7.2 million people lost their jobs but the rate of job losses is declining from December 2008.
Source: Bureau of Labor Statistics
As consumer spending declined in this recessionary period, a decrease in trade deficit and government spending spurred aggregate demand and fueled the economy. With natural growth in population and young immigrant work force and productivity improvements mobilizing the economy, soon we may see improvement in GDP numbers. Short interest rates are at near zero, and the Fed is consistently increasing money supply by purchasing government bonds and mortgage-related securities. Easing on money generates aggregate demand, but the negative consequence is we will have to battle with inflation as the economy picks up the speed in late 2009 and early 2010. As the economy starts rebounding, there are certain companies that will benefit from economic expansion; one of them is Carlisle Companies Inc. (CSL):
Carlisle companies Inc. is a diversified manufacturing firm consisting of seven active operating companies broadly categorized into construction materials, transportation products, applied technologies, and specialty products and has around 11,000 employees. The core strength of this company is its diversity.
Half of its revenue comes from construction segment, which include thermo plastic polyolefin (TPO) roofing systems, PVC products and energy efficient roofing systems. The Transportation segment contains tire and wheel business and specialty trailer business and has manufacturing locations in both the US and China. The Applied technologies segment includes the commercial food service business serving restaurants, hotels, and hospitals. The Specialty products division includes a diversified portfolio of products including off-highway brake systems to refrigerated truck equipment.
After last quarter's results, Carlisle sales for the past 12 months reached $2.5 Billion dollars and revenue continuously grew at a 10 to 12 percent rate.
Healthy Financial Ratios: Carlisle maintains 18 percent ROE and 9 percent return on assets, and maintains cash conversion at 86 days on average.
Carlisle has a current ratio of 2.5 from last quarter's results; on average it maintained a safe short-term solvency current ratio of at least 2.0 or more for the past five years. Carlisle reduced its long-term debt to 14 percent to its equity, on average it maintained 17 times of interest coverage. Carlisle has $1.04 cash per share and last year it generated $3.00 free cash per share.
It’s a wonderful business with sound financial background and diversity in its operations, and Carlisle appears to grow healthy as the economy rebounds. Historically, Carlisle rebounded and grew faster than the economy right after the past three recessions. Certainly, we can anticipate the same kind of return for Carlisle this time around as manufacturing, construction and transportation spending picks up from both private and government sectors.
Disclosure: Long CSL since May 2009.
Federal Reserve Stats (.pdf):
Consumer Credit (.pdf)
Manufacturing Activity (.pdf)