While the bulls were trotting through Wall Street, they were stampeding across the Buffalo Niagara region.
After badly lagging the broader market during the first year of the recovery in 2009, the stocks of the publicly traded companies in the Buffalo Niagara region made up for lost time in 2010, trouncing the returns on the major market indexes in the process.
A portfolio that owned a single share of each of the stocks of companies based in the Buffalo Niagara region last year would have gained 25.2 percent in 2010, the strongest annual return for the Buffalo Portfolio since 2003. That's more than double the 11 percent gain by the Dow Jones industrial average, and nearly twice the 13 percent rise by the Standard & Poor's 500 index. Even the Nasdaq Composite index's 17 percent jump couldn't hold a candle to the Buffalo Portfolio. Only the Russell 2000 index of small company stocks, which is the major market index that most closely mimics the Buffalo Portfolio, outperformed the local stocks with its 27.8 percent surge in 2010.
It was the third time in four years, and the seventh time this decade, that the Buffalo Portfolio did better than the broader market.
The upward momentum was so strong that more than half of the 20 locally based stocks finished the year with gains that topped 25 percent, led by the more than doubling in Astronics Corp. and Cleveland BioLabs shares. Four of every five local stocks went up, and only three -- Rand Capital, Servotronics Inc. and Gibraltar Industries -- declined by more than 10 percent.
The strong results from 2010 also had another happy outcome for the Buffalo Portfolio: As a whole, it now has recovered all of its losses during the devastating declines in 2008 and early 2009. But that recovery is uneven, with just seven of the 20 local stocks trading above their price at the end of September 2008.
Stocks rallied as shell-shocked investors continued to regain their confidence in the stock market following the devastating declines in 2008 and early 2009.
"We're noticing a little better attitude with client psyches, but they haven't forgotten the 2008-09 environment" said Stephen Robshaw, president of Robshaw & Julian Associates, an Amherst money management firm. "I think we're still getting over that."
Still, with the market's rally nearing the two-year mark this spring, that improvement has investors feeling better about the stock market than they have since the recession began three years ago.
"There's a gradual healing process. There's a gradual deleveraging process," said Anthony J. Ogorek, who runs Ogorek Wealth Management in Amherst. "As that plays out, it's a more attractive market for equities."
While investor fears have been easing, the fundamental underpinnings of the stock market also have been strengthening. Revenues have been rising, while earnings have been even stronger than predicted, partly the result of extensive cost-cutting and productivity enhancements made by companies during the recession, said Bruce Kaz, the president of Courier Capital Corp., a Buffalo investment management firm.
"Corporate balance sheets are in great shape," Robshaw said.
With the Federal Reserve pursuing a monetary policy aimed at stimulating the economy and interest rates remaining at historic lows, the stock market continued to benefit from the same type of tail wind that led to the double-digit gains in 2009.
The low interest rates, which have slashed yields on U.S. Treasury securities, bonds and money market funds, also are starting to lure investors, who fled stocks when the recession started to hammer share prices, back into stocks.
"People almost don't have any alternative to stocks for investors in search of yield," Robshaw said.
The local stocks opened 2010 with a 7.4 percent jump, only to give back some of that gain with a 2.5 percent decline during the spring quarter. But the Buffalo Portfolio finished the year with a flourish, rising by 5.2 percent in the third quarter and shooting up by 13.1 percent in the final three months of the year.
While 2010 was a good year for most of the Buffalo Portfolio's stocks, none could match the stellar returns produced by Astronics, the East Aurora aircraft lighting and electronics maker, whose shares had been crushed in the early days of the recession.
Astronics shares skyrocketed by 146 percent last year, as the company reaped the benefits of its recent cost-cutting and a more lucrative mix of sales. That allowed Astronics' profits to soar by 79 percent through the first three quarters, even though overall sales actually fell by 1 percent, weighed down by sharp declines at its test systems unit.
Cleveland BioLabs was another shining star in the Buffalo Portfolio, with the Buffalo life sciences company's shares shooting up by 118 percent as it continued to make progress toward gaining approval for its anti-radiation sickness drug.
The company's Protectan anti-radiation sickness drug got on the fast track for possible approval, which could come as early as mid-2012, pending the results of ongoing clinical trials. If Protectan clears that major regulatory hurdle, the company then could be in line for the Defense Department to purchase up to 37,500 doses of Protectan under an initial military contract awarded in September, with much larger purchase possible down the road.
Financial Institutions, the Warsaw-based banking company that runs Five Star Bank, was the third-best local stock last year, jumping by 61 percent, propelled by steadily improving profits. The bank started the year with a 24 percent jump in first quarter profits and followed that up with a 22 percent rise in the second and a 68 percent surge in the third.
Financial Institutions' shares have rebounded as the banking company has been able to make more money in an old-fashioned banking way: earning more money from loans, cutting expenses and trimming its bad loans.
Columbus McKinnon's shares surged during the second half as the Amherst material handling equipment maker's sales hit a six-quarter high during the fall and its profits surged, spurring a 49 percent spike in its share price.
Columbus McKinnon executives have long argued that the company's earnings would spike once the economy rebounds and the firm realizes the fruits of an extensive cost-cutting and restructuring program over the last two years. Company President Timothy T. Tevens believes that happened during the fall quarter, declaring that the recovery in its business now is in full swing.
On the downside, Rand Capital shares had the biggest loss on a percentage basis, dropping by 19 percent, but because the Buffalo venture capital firm's shares trade for only $3.23, the decline was just 75 cents in dollar terms.
The value of Rand's portfolio has dipped slightly for four straight quarters as its cash position has swelled to nearly half of its total assets because seven companies in its investment portfolio have been acquired over the last year, some for substantial gains. That has left the venture capital firm with more than $10 million to invest, said Allen F. Grum, Rand's president.
Servotronics' shares tumbled by 14 percent after the Elma motion control equipment and cutlery maker reported a 75 percent drop in its third-quarter profits. Servotronics' knife business started losing money again during the fall quarter after two straight profitable quarters as cutlery sales dropped by 30 percent.
Gibraltar Industries shares were the Buffalo Portfolio's hottest during the fourth quarter, jumping by 51 percent, but that wasn't enough to offset its steep plunge earlier in the year as the construction products maker's markets remained depressed. Gibraltar shares finished the year down 14 percent.