Minnesota's biggest companies hang tough in first half

The economy wobbled and the stock market tanked. Doubts about the recovery resurfaced and Main Street grew increasingly suspicious that the game is rigged by Wall Street.

"The world has become more trader-oriented and that is not good," said Phil Dow, equity investment strategist at RBC Financial. "There is no good news, it seems. And the Gulf of Mexico oil spill doesn't help, on top of higher taxes coming and deficits as far as you can see."

Despite those headwinds, the Bloomberg Star Tribune 100 Index of Minnesota's biggest publicly held companies declined just 1 percent in the first six months of 2010, less than the Standard & Poor's 500 (down 6.7 percent) and the Russell 2000 (down 1.9 percent). And 54 of the ST100 companies delivered positive total returns through June 30. And 31 of those were double-digit gains.

Taking a longer view, the best Minnesota stock to own over the last three years is not one of our bellwether titans such as Ameriprise Financial (down 40 percent over the last three years) or U.S. Bancorp (down about 25 percent) or Medtronic (down about 26 percent).

No, the winner is Winmark, the low-profile franchiser of Play It Again Sports, Plato's Closet and other peddlers of used products. Winmark has risen by nearly 56 percent this year and an average of 20 percent annually over the last three years.

There are few other Minnesota companies that have been shareholder winners since July 2007, shortly before the stock market started a 20-month descent that erased more than 50 percent of the market value of America's publicly held companies.

Many of the names at the top of Star Tribune 100 gainers column are small technology and medical plays, including IntriCon Corp., Vascular Solutions, Virtual Radiologic Corp., FSI International and Stratasys. The biggest six-month gainer is EV3, a medical device firm that in June agreed to be acquired by Dublin-based Covidien PLC for $2.5 billion, or $22.50 per share.

Double-digit gainers include restaurants (Famous Dave's of America and Caribou Coffee) and manufacturers (Toro Co., coatings maker Valspar Corp., industrial cleaning equipment maker Tennant Co. and Polaris Industries, maker of ATVs and snowmobiles).

Topping the losers column is ValueVision Media, the perennially troubled TV shopping retailer. Others include Hutchinson Technology, which makes components for disk drives, investment bank Piper Jaffray Cos. and global fertilizer giant Mosaic Co.

The crystal ball

After a nerve-racking second quarter, investors and executives are wary about the rest of 2010.

"I think this is a severe correction, but not a bear market," said Doug Ramsey, research director at the Leuthold Group, which had forecast a nearly 20 percent increase in the S&P 500 this year to more than 1,300.

"You need to scale this [downturn] against what preceded it: the worst bear market since 1932 that was down 57 percent and then we went up 80 percent. We didn't have the precursors to a classic market top in the spring. I think the recovery is intact."

Leuthold and Dow still believe the stock market will finish in positive territory this year. And so do I.

Despite our flaws in Washington, D.C., and New York, the American economy is poised for a stubbornly slow but prolonged recovery that will eventually will return millions to work and green to investor portfolios.

We are still the lowest-taxed, most-productive economy in the world. And the "wall of worry" that has been erected in recent weeks is going to be surmounted.

"The economy is expanding," said Dow, ticking off a list of recent positive indicators, from manufacturing output to employment, that have largely been interpreted by analysts in the weakest possible way.

"We're looking at a 27 percent earnings increase for the S&P 500 in the second quarter and it was 55 percent in the first quarter. Revenue growth will be critical and we will find out. But these statistics are not indicative of a double-dip recession."

David Joy, market strategist at Ameriprise Financial, agrees.

"External concerns are driving the pessimism. We know that monetary policy will remain accommodative. We think [U.S. economic output] will average a little better than 3 percent in the second half. We are seeing the workweek expanding and that's typically a prelude to more hiring. Europe is addressing their bank health and getting no credit for the actions they're taking. The concerns over China are irrational."

An undervalued market?

Meanwhile, nearly half of professional money managers responding to the late-June Investment Manager Outlook survey believe the market is undervalued, a substantial rise from the 28 percent figure in the March 2010 survey, according to Russell Investments. Only 9 percent of managers believe the markets to be overvalued.

Keith Tufte of Cherry Tree Investments said it's likely that federal capital gains and dividends taxes will snap back to their 2001 level in 2011, which may prompt some investors to sell late this year. However, because not much money has been made in the market lately, it may be smarter for long-term investors to hang on in hopes of better days ahead.

One final reason for optimism:

"We're in the middle of a sustained recovery in the U.S.," John Paulson declared recently. "The risk of a double dip is less than 10 percent. It's the best time to buy a house in America. I think we're about to turn a corner."

John Paulson?

He's the hedge fund manager who famously predicted the U.S. housing bubble in 2007 and made billions in the process.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com