Fastenal (FAST) is a $5.8B market cap industrial company that supplies components and parts for construction and manufacturing. FAST reported earnings yesterday that again confirmed a recurring theme of weakness in non-residential construction. This area has often been called “the next shoe to drop” that will presage further weakness in the economy. This drop has yet to show up anywhere in the stock market, but it continues to show itself in the earnings reports of companies that do business in this sector.

Not surprisingly, FAST reported weak results for the previous quarter (click here for the detailed earnings report):

The Fastenal Company (FAST) of Winona, MN reported a drop in earnings to $47.6 million or 32 cents per share in the third quarter of 2009, from $72.9 million or 49 cents in the prior-year quarter. However, the company has managed to meet the Zacks Consensus Estimate. Net sales for the quarter declined 22% to $489.3 million.

Fastenal blamed the weak economy for the fall in earnings and sales. Economic conditions negatively affected sales in the industrial production business (business where the company supplies products that become part of the finished goods produced by others) and non-residential construction business.

Fastenal Co (FAST) is due to release Q3 earnings on Monday 12th October.

The market will be looking for any evidence of margin pressure and the management guidance will be closely scrutinized.

Q3 2009 Earnings Call Transcript

October 12, 2009 10:00 am ET

The Applied Finance Group’s (AFG) Market Forecast Project is a monthly poll of professional investors designed to provide insights on how investors currently view the market and economy. This poll started out as an AFG client only poll at AFG’s annual research summit, but due to its popularity and successful predictions it has been expanded to all professional investors who register and participate and will be done monthly. The benefit of participation is being the first to receive the results before they are released on our blog or to anyone else.

Earlier this month as a result of one of the poll’s questions that the Tech sector was the most attractive sector to invest in over the next 12 months, we released a list of Tech stocks that we like and a few that looked overvalued as well. In last month’s survey the Basic Material sector was the second most attractive place to invest due to the fact that many investors see an economic recovery ahead that may directly benefit many of the companies within the Materials sector when home building and new construction begin to correct and recover.

The message from this earnings season is that 1) the bottom of the recession is now behind us, 2) Visibility going forward remains poor, 3) cost-cutting and restructuring have turned American companies into lean, profit-making machines, and 4) despite prospects for continued economic weakness, an economic recovery seems closer than ever. Earnings season was NOT the debacle I had originally pictured. The S&P 500 reached its most recent bottom around the beginning of earnings season on July 8, and is up a healthy 13% since then. On July 9, I claimed the S&P 500 was ready to bounce, but I expected a weak bounce that would soon give way to earnings-related selling. I also expected the June highs to hold. Reviewing the performance of the companies that seemed to send up the proverbial red flag provides a great demonstration of how the market's obstinate faith in the near-term future has presided handily over any and all negative indicators.

On July 7, Acuity Brands (AYI) warned about the drag from non-residential construction, and MSC Industrial Direct Company (MSM) warned about the dim view held by its customers for near-term improvement in the economy (click here for more details). If you had bought the stocks of these companies at the close of trading after these earnings reports (five weeks ago), you would now be up 17% in AYI and 13% in MSM. Not bad for delivering bad news.

About Economic Margin

Created by The Applied Finance Group, The Economic Margin (EM) Framework was developed to evaluate corporate performance from an economic cash flow perspective and is an alternative to accounting-based valuation metrics. EM measures the return a company earns above or below its cost of capital and provides a more complete view of a company’s underlying economic vitality

At the end of each trading week, Hillbent scans the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our Market Condition Summary to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

After a slow week for dividend increases last week, eleven companies with strong balance sheets showed enough confidence in their ability to generate sufficient cash flows to substantiate dividend raises. Despite the tough economic conditions the USA is experiencing, these companies still managed to defy the odds and increase their cash dividends. The companies that showed their promise in rewarding stockholders include:

Enterprise Products Partners L.P. (EPD), a midstream energy company, which provides services to producers and consumers of natural gas, natural gas liquids (NGL), crude oil, and petrochemicals, increased its quarterly distributions by 5.60% to 54.50 cents per share. Enterprise Products Partners L.P. is a dividend achiever, which has increased its quarterly dividend in each of the past eleven years. The stock currently yields 7.80%.

While talking about the stock market today, a friend of mine sighed out loud: "the vacillation is mind-numbing." Another bad jobs report motivates some to clamor louder for a second stimulus package, and the stock market reels. Goldman Sachs (GS) wows us with how much profit exists in riding the backs of American taxpayers, Intel (INTC) crushes well-managed expectations, and the market goes back to celebrating the coming end of the recession. It probably also helps that almost every stock market technician was staring at that tantalizing head and shoulders pattern on the S&P 500. Anyone shorting based on those technicals has likely been scrambling for cover this week as the bounce that I expected from oversold conditions continues. With yesterday's surge, this is all the bounce I am willing to bet on for now. I am going back to neutral for the next two weeks or so, and I remain bearish over the next 4-6 months. I still suspect that the June highs will hold for the summer and the extended trading range will throw both bears and bulls for loops.

While expectations for an imminent recovery grow, I remain interested in tracking contrary data as a way to stay prepared. This earnings cycle has already delivered, and the market has bounced anyway. I know that commentary from company executives must be treated with caution - after all, last summer, almost every one outside of the housing industry seemed to insist that business was satisfactory. So, it is certainly possible that today's somber and sober executive simply does not or cannot see the recovery bearing down upon the business. As always, time will tell.

4:13 PM, Jul 13, 2009 --

• NYSE up 133.9 (2.4%) to 5,761.37.
• DJIA up 185.2 (2.3%) to 8,332.
• S&P 500 up 21.9 (2.5%) to 901.05.
• Nasdaq up 37.2 (2.1%) to 1,793.

GLOBAL SENTIMENT

Q2 2009 Earnings Call

July 13, 2009 10:00 am ET

The 2009 list of Dividend Achievers consists of 284 companies. Many of these companies are in the banking, finance and real estate arena. The above timeline excludes most banking, finance and real estate companies and instead focuses on all other sectors of the economy. I routinely avoid falling industries or sectors of the economy that are breaching new highs (highest relative strength).

What should be noticed is that the remaining stocks (after excluding banking, finance and real estate) provided us with 166 companies to invest in with 9 months and 35 different days in the year to (theoretically) buy low and sell at whatever price suits our needs. All of this could be done within a one year time frame allowing the investor to get out when and if necessary. Below I have a table with Dividend Achievers performance from their 52-week low (the left column has the best performing and the right the worst performing).

On Monday the 13th of July, Fastenal Company (FAST) will announce their Q2 earnings numbers. Many believe that Obama’s stimulus bill will be beneficial to FAST as their products are so essential to nearly every kind of industrial and construction project.

Download the full report by clicking here.

Short interest figures as of mid-April were released on Friday after the close and showed an overall decrease in short interest for NYSE and Nasdaq listed stocks. In the chart below, we show the average short interest as a percentage of float for S&P 500 stocks. After peaking at 5.6% in mid-March, short interest as of mid-April has now declined to 5.5% of the average stock's float.

At first glance, it is somewhat surprising that short interest has only declined by a marginal amount. Given the 25%+ rally in the S&P 500, one would expect to see short interest decline by a much larger amount. Digging into these numbers, however, the headline short interest numbers are somewhat misleading due to the extraordinarily large short interest in Citigroup (C). Due to the arbitrage taking place over the upcoming conversion of the preferred into common shares, Citi's short interest represents 12.1% of the total short interest for the S&P 500 . If one were to back Citi out of the calculations, short interest would be about 5.4% of the average stock's float.

Fastenal Company (FAST)

Q1 2009 Earnings Call

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

This week, turning the focus to global macro funds, we'll be checking in on Bruce Kovner's Caxton Associates. Do note that global macro funds are typically not equity focused funds. While they do indeed have equity exposure, the majority of their holdings are in other markets. So, we mainly check in on their sector exposure to see what types of global macro themes they may be investing in.

This is the Fourth Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

The funds we have already covered include: