There's an old adage among money managers: "Don't fight the Fed."
The central bank again opened the liquidity fire hose last week in a bid to float an economy that, while no longer in crisis, is still growing at less than 2 percent annually and creating jobs at a disturbingly slow rate. The immediate effect was to drive the stock market higher on Thursday and Friday.
Yet before the Fed's action, most of Minnesota's biggest companies were gaining steam. Even some that struggled earlier in the year have gained traction. Total return for the Bloomberg-Star Tribune 100 index of Minnesota stocks was up 13.8 percent through Friday, with 65 gainers and 33 losers.
Companies that have stayed active in the mergers and acquisitions market have generally fared better than companies that have treaded water. Stratasys shares, for example, rose sharply in April after the maker of rapid prototyping devices announced plans to acquire Israel-based Objet. Total return for Stratasys is up 111.6 percent year-to-date -- more than any other public company in Minnesota.
Graco Inc. is up 30.3 percent so far this year. The maker of fluid handling equipment closed on its $650 million acquisition of the finishing business of Illinois Tool Works but is still negotiating with federal regulators over which ITW units it must divest to satisfy antitrust concerns.
Pentair and Ecolab, two big manufacturing companies, also are busy digesting their biggest acquisitions. Golden Valley-based Pentair has already got European approval for its $4.5 billion acquisition of Tyco's water pipe and valve business. Total return at Pentair is up 31.2 percent. Ecolab, which closed on its $8.3 billion acquisition of Nalco in December, is up 12 percent so far this year and its shares have traded at all-time highs.
Total return at snowmobile and ATV maker Arctic Cat is up 96.8 percent so far this year. And paint manufacturer Valspar is up 48.8 percent amid news of an improving housing market after five years of declining home prices.
Improving markets and consumer sentiment also have given companies confidence to raise funds in the swelling capital markets. Rick Hartfiel, director of investment banking at Craig-Hallum, an institutional research and underwriting boutique, noted that a client -- Minneapolis-based SPS Commerce -- raised $60 million in expansion capital several days ago. SPS, an electronic-commerce concern, is up 34 percent for the year and its shares are trading near all-time highs.
"We've completed five equity offerings in the last six weeks," Hartfiel said in an interview Friday. "That's strong for us. The market is definitely not too frothy yet, but it sure feels better than June and July when things were really slow."
Sometimes a change in leadership or a strategic redirection is the needed catalyst to spur share prices.
Despite its up-and-down ride this year, Select Comfort is on the upswing after new CEO Shelly Ibach took over in June. As longtime chief operating officer, Ibach helped focus the branding on the Sleep Number concept. At this year's annual meeting she told shareholders much work remains to be done. Total return for the mattress maker through Friday: 54.8 percent.
Christopher & Banks, among the dogs halfway through the year, is recovering after retailing veteran Joel Waller was recruited by the board in February to lead a turnaround at the Plymouth-based retailer of women's clothes. Christopher & Banks is now up 41.5 percent for the year to $3.31 per share.
The rise has muffled a takeover offer from hedge fund Aria Partners, which made an offer in July of $1.75 per share.
Hair salon operator Regis Corp. is benefiting under new CEO Daniel Hanrahan. The company went through a bruising proxy battle last fall that led to the ouster of its senior management. Although Hanrahan has only been on the job since Aug. 6, the company is up 16.6 percent year-to-date and more than 40 percent from a year ago.
Meanwhile, a couple of big Minnesota companies that have gotten new leadership are still struggling.
Richfield-based Best Buy, which is down 18.5 percent year to date, recently named Hubert Joly as its CEO. The former head of hospitality company Carlson is billed as a turnaround specialist. Joly has said he intends to grow the company, which is under assault from online retailers such as Amazon and discounters including Wal-Mart and Target.
Supervalu shares have slid from $42 per share in 2007 to $1.68 per share in August, closed at $2.41 per share on Friday.
The big grocery wholesaler and retailer ousted three-year CEO Craig Herkert on July 30 and hired a board member, Wayne Sales, as CEO. Sales is expected to peddle some or all of the company that nearly choked to death on a big acquisition of Western states grocer Albertsons, for which it paid too much just before the recession.
Stronger every day?
So far, no one is calling this bout of stock market exuberance irrational. Brian Belski, market strategist at Bank of Montreal in New York, called the Fed's action Thursday a gift to investors.
"We believe stocks are likely well ahead of themselves, with a higher probability of disappointing near term relative to substantive gains from current levels," Belski told investors late Friday.
He predicts the Standard & Poor's 500, at best, will close out the year at 1,475 -- slightly above Friday's close of 1,465.77. Next year, Belski predicts the S&P 500 to gain another 12 percent to 1,650, based on an improving economy and corporate earnings.
Jim Paulsen, investment strategist at Wells Capital Management, disagreed with the Fed's third round of stimulus because he thinks the economy is recovering sufficiently.
Paulsen expects employment to grow in coming months. Getting another 3 million-plus Americans back to work and earning money to spend is considered the missing economic link.
"We've averaged 165,000 net new jobs per month compared with 130,000 a month last year," Paulsen said in an interview. "The labor force has grown faster than any time in this recovery. I think the stock market's mood is more fundamental than just the Fed's action.
"I think the roots of the economy are getting stronger."
Neal St. Anthony • 612-673-7144 Patrick Kennedy • 612-673-7926