Mich. companies end 2015 on mixed note

Brian J. O'Connor
Detroit News Finance Editor

If the 2015 goal for any publicly traded Michigan company was to beat the market, well, that was fairly easy.

By the close of the trading year Thursday, the S&P 500 index had slid by 0.7 percent, making for a pretty woeful benchmark. A total of 26 of Michigan’s publicly traded companies bested that dismal S&P result, ranging from a 0.4 percent loss by Wixom drug manufacturer Rockwell Medical Inc. to a colossal 56.9 percent improvement by Southfield auto financing company Credit Acceptance Corp.

Meanwhile, 29 Michigan firms ended the year with returns below that of the S&P 500. They ranged from Kalamazoo medical device maker Stryker Corp., which lost 1.5 percent, to Southfield-based auto supplier Federal-Mogul Holdings Corp., which ended the year with a decline of 57.4 percent.

“Once every four years you have flat to slightly negative stock market returns,” said David Sowerby, senior portfolio manager for Loomis, Sayles & Co. L.P. investment management in Bloomfield Hills. “In that type of environment you’re still going to see some big gainers, but you’re also going to see a wider dispersion between the winners and losers. Nationally, health care had a good year, pockets of consumer discretionary had a good year, and much of technology had a good year. But when you look at Michigan it’s much more of a stock-by-stock basis.”

Even at that, year-end results aren’t necessarily the compete representation of a company’s direction.

Despite a huge drop in share price for Federal-Mogul, the firm has split itself into two operating units, and analysts Gabelli & Co. upgraded the stock with a “buy” recommendation at the end of October. Analysts have set a target price of $9, which would represent a 31 percent gain over Thursday’s close of $6.85. Finally, activist mega-investor Carl Icahn — who just won a hard-fought $18.50-per-share takeover battle for the Pep Boys auto services chain — holds 82 percent of Federal-Mogul shares, a stake worth nearly $1 billion that is likely to demand some kind of premium return down the road.

Meanwhile, there may be signs that Credit Acceptance is peaking in value. Company insiders were selling between February and May, and the year’s closing price of $214.02 is well above the median analyst target price of $182 and getting near the analyst high estimate of $245. But other signs are positive: Morningstar still considers the company undervalued, and Compass Point upgraded its rating in November from “sell” to “neutral.”

The year was mixed for Detroit’s Big Three auto companies. Shares of Fiat Chrysler gained nearly 22 percent over last year’s closing price, while General Motors Co. was down close to 2 percent and the price of Ford shares dropped nearly 9 percent.

For shareholders of Fiat Chrysler Automobiles N.V., part of the $13.99 closing value is that next week Fiat is scheduled to complete its spin-off of Ferrari, giving them one share of the exotic car manufacturer for every 10 shares of Fiat they own. Ferrari shares — which trade on the New York Exchange under the symbol RACE — closed at $48 for the year. In the case of Ford, which closed out 2015 at $14.09, and GM, ending the year at $34.01, the share price losses of 9.1 percent and 2.6 percent, respectively, may be the price of success after what’s expected to be a record year of auto sales.

“Fiat has the benefit of Chrysler selling a lot of trucks, like the others, but Europe also is on the mend,” said David Kudla, CEO and chief investment strategist of Mainstay Capital Management in Grand Blanc. “Investors are investing on future expectations, and a lot of people believe that this is the typical auto cycle. When they look ahead, many people think that we’re at the peak of the cycle.”

Beyond Michigan, the stock market spent most of the year like a dog chasing its tail — lots of excitement and activity, but in the end, it got nowhere. In addition to the S&P 500, which measures the broader stock market, the Dow Jones Index lost 2.2 percent on its more established, blue-chip companies. The tech-heavy Nasdaq index gained 5.7 percent, thanks to some big wins in technology sectors.

The year started with fears of economic slowdowns in Europe and China and weak consumer spending after another frigid winter. Investors indulged in what would become a year-long fixation: worrying that the Federal Reserve would or wouldn’t raise interest rates by too little or too much, too fast or too soon.

A glut of oil hit the market and cut the earnings of a number of energy stocks, especially in the Dow index. It caused fears among bondholders and in financial stocks because of exposure to oil investments. Weak first-quarter earnings didn’t help, but the market rallied by May, hitting new highs.

That euphoria didn’t last long: Between will-she-or-won’t-she jitters about Fed Chairwoman Janet Yellen and a rate hike, the market went into the type of completely normal correction that usually happens once a year but hadn’t been seen in nearly four years among U.S. stocks. The result was a drop of about 11 percent and cries that the bears were at hand.

Markets spent the rest of the year fretting about weak corporate earnings, the completely expected and predictable quarter-point rate hike from the Fed in December, and the continued weak recovery from the great recession that continues to keep wages and salaries flat and a large chunk of the workforce out of a job.

For the new year ahead, advisers see a continued bull market with the same kind of volatility witnessed in the past 12 months.

“Equities will be very volatile but we can have an OK year,” said Kudla of Mainstay Capital. “This year was a wild ride to nowhere. We look at 2016 to be similar. Now is the time to hold your own, be very careful about risk and get what you can.”

Sowerby of Loomis, Sayles sees hope amid the gloomy results from 2015.

“One encouraging issue for me in 2016 is that expectations are low,” Sowerby said. “Sentiment is more subdued at the end of 2015 than it was in January of 2015. That’s a good thing because the market goes higher on skepticism and fizzles on euphoria.”

As for local stocks, Frank Arvai, president of Mutual Fund Management Co. in Troy, notes that analysts are very optimistic about the prospects for Ford stock.

“Our most commonly held Michigan-based stock is Ford,” Arvai said. “Schwab rates stocks from one to 100, with one being best, and rates Ford as a one, so they’re saying it’s going to outperform 99 percent of the other stocks. Morningstar likes Ford, too.”


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