The Star Tribune 100 stock index at midyear shows 57 gainers and some reasons for optimism in the second half.
Minnesota companies and the broader stock market indexes posted solid gains for the first half of 2012, despite pessimistic headlines on the U.S. economy and chronic concerns over the eurozone crisis.
Although the market gave up some of what was a 12 percent first-quarter gain, there's no denying good performance by many companies, a still-growing economy and the conviction of some optimistic market strategists that the U.S. economy will continue to recover.
Friday's strong performance, driven by hope that European leaders are making progress on what's become a chronic three-year financial crisis, put the market firmly in positive territory for the first half.
The Bloomberg-Star Tribune index of Minnesota's 100 largest public companies is up 4.9 percent since January, while the broader Standard & Poor's 500 index rose 8.3 percent. The Russell 2000 index of small companies climbed 7.8 percent.
John De Clue, chief investment officer of the Private Client Reserve of U.S. Bank, said last week that he's modestly positive about the future, citing modest growth of the U.S. economy, a resurgent manufacturing sector and the relative cheap valuations on U.S. companies.
"Sentiment has been so negative and money continues to leak out of equity mutual funds and into bonds yielding 1.5 percent," De Clue said. "That's a sign of pessimism. Are you really sure you want to throw the U.S. stock market and this economy under the bus? There's a lot [that's] working.''
Among the Minnesota companies that posted strong first-half gains are:
•Medtox Scientific, which finished up 92 percent thanks to a June buyout offer. The provider of employment drug-testing and clinical laboratory services agreed to be acquired by Laboratory Corp. of America Holdings for $241 million.
•Stratasys, whose machines make quick-turnaround prototypes, rose 63 percent. The Eden Prairie company is merging with Israeli company Objet Ltd. The combined company will be 55 percent owned by present Stratasys shareholders.
•Arctic Cat rose 62 percent, including an 8 percent gain to a $36.56 close on Friday thanks to a "buy" recommendation in an inaugural report by an industry analyst at BMO Capital. Plymouth-based Arctic Cat, which was trading at about $12 per share last summer, is seeing double-digit sales growth and strong profitability from snowmobiles and new two-seater off-road vehicles that are starting to replace traditional four-wheelers.
•H.B. Fuller has seen its stock price rise by 33 percent since the beginning of the year, on the strength of a good second-quarter earnings report and improving outlook. The specialty-chemical company also raised its earnings estimate for fiscal 2012.
•Buffalo Wild Wings, the casual-restaurant chain that doesn't seem to stumble, is up 28 percent this year. The stock closed at $86.64 Friday, but below its quarterly high of $94.81. First first-quarter revenue grew 38 percent to $251.1 million, roughly in line with analysts' expectations. Same-store sales -- from stores open more than a year -- rose a strong 9.2 percent at company-owned stores.
•Polaris Industries, one of the world's largest makers of snowmobiles and ATVs, rose more than 27 percent in value during the first half of the year. Snowmobile sales were off during the last, snowless winter, but Polaris has seen demand soar for its ATVs and on-road vehicles, such as Indian Motorcycle, and Global Electric Motorcars.
•UnitedHealth Group rose 15 percent so far this year to a $58.50 close on Friday. The big health insurer is well-positioned for the health care overhaul. Its shares even rose Thursday when the U.S. Supreme Court upheld the Affordable Care Act. Flush with cash, UnitedHealth in June said it would launch a new share buyback program and reward shareholders with a 30 percent hike in quarterly dividends.
The forlorn so far this year include:
•Select Comfort shares have declined 3.6 percent in 2012. Select, which closed at $20.92 Friday, traded as high $35 per share in April. Select's stock got hit last month after Tempur-Pedic, a Kentucky-based competitor, slashed its earnings forecast.
•Beleaguered Best Buy, which lost its CEO to scandal amid declining fortunes. Then, in June, Chairman Dick Schulze, who didn't apprise the board last year when he learned his hand-picked CEO was having an affair, quit the board. Best Buy shares, which fell from $33 per share to under $18 per share last month, recovered some ground last week, closing at $20.96. There's speculation that Schulze, who owns about 21 percent of the electronics retailer's stock, may launch a takeover attempt at age 71.
•Northern Oil & Gas, the Wayzata-based energy play on the North Dakota oil fields, has seen its shares trimmed 33 percent as energy prices dropped.
Optimists hope last week's strong finish, after the European authorities agreed to aid struggling banks, is a harbinger of a positive 2012. But some big U.S. companies, including Ford Motor and global consumer products maker Procter & Gamble, have warned of an earnings slowdown thanks to their exposure to recessionary Europe.
Harrison Grodnick, senior portfolio manager at Minneapolis Portfolio Management Group, said companies such as 3M and Cisco are undervalued in today's market, which is trading at a very modest price-to-earnings ratio.
Grodnick and De Clue noted that investors remain uncertain about long-term debt issues, most imminent in Europe, but also facing the United States. Add to that the uncertainty of the pending presidential elections and concerns about the "fiscal cliff'' -- a host of tax breaks that are set to expire in December -- and you have an environment that dampens stock prices. Others see that environment as an opportunity.
"I'm bullish on the long-term outlook for stocks right now," said Keith Tufte, chief investment officer of Adam Smith Advisors at Cherry Tree Companies. "The U.S. stock market is only trading at 12 to 13 times earnings for 2012, which is well below the long-term average of 15 times.
"[Stocksl are dramatically more attractive than [low-yield] bonds right now. We currently have a slow-growing economy, low interest rates, low inflation, low valuations. ... Historically those have been favorable conditions for a rising stock market."
Neal St. Anthony • 612-673-7144 Patrick Kennedy • 612-673-7926