Why Indiana stocks are lagging

March 10, 2010
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Major stock indexes have enjoyed nice run-ups in the past year, but Indiana stocks aren’t keeping pace.

The Dow industrials are up nearly 60 percent since the trough in March 2009, and the S&P 500 has fared even better. The Bloomberg index of Indiana companies, though, is only 40 percent higher.

What gives?

Kevin Schmidt, executive vice president of City Securities Corp. in Indianapolis, says things aren’t as bleak as they look. As is usually the case during downturns, Indiana stocks didn’t sustain harsh shellackings. So they’re not bouncing back as quickly.

Schmidt also notes Indiana is heavily concentrated in financial and basic industries, where shares are struggling.

Consider banks. Several institutions in the Bloomberg index—First Merchants, Integra and Old National included—are midsize players. Investors are avoiding the class like the plague because it’s assumed they’re riddled with rotten real estate loans. Depending on the bank, that may or may not be true, but everyone is tarred nevertheless.

“They’re not bad companies,” Schmidt says of the Indiana banks. “They’re not going to go broke.”

Other Hoosier stalwarts, such as Eli Lilly and Co. and WellPoint Inc., are treading water.

The mediocre Indiana index also hides standouts. Interactive Intelligence has ridden the national swell in tech shares. Duke Realty and Simon Property Group have rebounded despite being in real estate. Cummins shares have nearly tripled.

Indianapolis-based Emmis Communications Inc., once so out of flavor that its shares might have been mistaken for dead, is booming, at least compared against itself. An investment in Emmis last summer would have reaped a four- or fivefold return by now.

Yet another factor hurting Bloomberg’s Indiana index is its weighting toward pricier shares. The state has a number of stocks trading at lower levels that have done remarkably well. Finish Line is one.

What are your thoughts about these stocks?

Also, to what extent should President Obama get the credit? The markets crumbled for a few months after his inauguration, but they’re back.

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