Insights on Indicators

Jan. 1, 2003
The performance of shares in publicly traded electrical manufacturers and distributors puts a year's events into perspective.A stock price average for

The performance of shares in publicly traded electrical manufacturers and distributors puts a year's events into perspective.

A stock price average for an industry reveals several key pieces of information. Since any one firm's stock price theoretically takes into account all known news and predictions about that company, it anticipates the performance of that company. A stock price average, which combines the stock prices of various companies in an industry, can therefore act as a kind of leading indicator of that industry. It's a tool for use in forecasting as well as in investing.

We at Electrical Wholesaling, via our newsletter Electrical Marketing, have created stock price averages for both electrical distributors and electrical manufacturers. They appear in Electrical Marketing every time it publishes, twice a month; the data is recorded by us daily. On the distribution side, so few companies are publicly owned that it's difficult to find enough of them to do a composite grouping. We have run a stock price average for electrical distributors several times during the past 20 years, but inevitably we've had to drop it when acquisitions depleted the list of distributor stocks that made up the average. Our latest distributor stock price average has been running since 1996, with the grouping of five distributors listed on page 44. You will note that only one among them, Rexel, Inc., could be considered predominantly an electrical distributor; yet all are players in today's diversified electrical distribution business. (With Rexel, Inc. recently acquired by Rexel, S.A., it will shortly stop trading and have to be dropped from our index.)

On the manufacturer side, we have been tracking approximately 45 stocks (give or take a few due to acquisitions and startups) since 1996. The companies in our manufacturer stock price average as of the middle of December 1997, the latest for which we could insert data for this January issue, are listed in the table.

If you compare either of these electrical industry stock price averages against other well-known indices such as the Dow Jones Industrial Average or the S&P 500, you can judge how well the electrical wholesaling industry is doing. Individual company performance can be compared against industry performance, too, with some very revealing results.

Taking a look at both the electrical manufacturer and electrical distributor stock price averages during 1997:

*In both cases, one-year performance is solidly up. Our distributor stock price average is up 17% year-to-date through mid-December; while our manufacturer stock price average is up 21% for same time period.

*Both manufacturer and supplier stocks handily weathered the stock market crash in October 1997. In both cases, our indices fell less abruptly than the market overall. On the graph on this page of 1997's data for manufacturer stocks, you can quite clearly see the one-day drop in October.

The index has been on an upward trend since then, although in starting from that lower level following the October 27 drop, it has never quite come up to its year-high experienced earlier in October. In the case of the distributor stock price average, the "crash" appears more as a blip in an on-going upward climb. The distributor stock price average went on to post new year highs in early December and, at press time, appears that it will finish the year on an upswing.

*The stock price movement over the 12-month period is very similar for both electrical manufacturer and distributor stocks. The distributor average started the year at relatively higher levels, then pitched downward to lows in March; the manufacturer average started lower, came up a bit, then headed into the same trough in March as the distributor prices. If you were to lay the two stock charts on top of each other, you would see them running very similarly through the year, with the exception of the already-mentioned divergence at the outset, and the reaction to the October stock market crash.

*The year-to-date change for both indices mirrors that for the Dow Jones Industrial Average, within a percent or two.

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