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Posted 1/4/2001
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The Speculator
Do stocks grow faster in the sunshine states?
In 2000, they did. The newest census finds people flocking to a New Sunbelt -- and companies in those states outperforming the rest of the S&P 500.
By Victor Niederhoffer and Laurel Kenner
The census for 1990-2000 provides valuable information for marketers, politicians and investors.
The marketers are interested because it tells them where the customers are. The politicians are interested because it tells them which states are going to gain and lose seats in the House of Representatives. Realtors and developers are interested because it indicates where the new homes will need to be built and sold.
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Stock market investors should be interested because, in the growing service economy in which we live, employees can live wherever they choose. Those companies that are domiciled in attractive states can hire a workforce at a better price than those in less desirable states.
At least that's the theory. And at times like these, where traditional standards of growth and price/earnings ratios play second fiddle to what the Federal Reserve did with interest rates, it seems useful to step back to look at relatively slow-moving and predictable demographic trends.
It's already well-documented that the population has been moving West and South for the last two centuries in search of warmer weather and easier lives. California and Florida, the two coastal anchors of the Sunbelt, have grown their populations 2,160% and 2,930% over the last 100 years, respectively, vs. 270% for the country as a whole.
But a new Sunbelt is emerging. The new trend favors states with lower population density and lower taxes that are attractive to people and, as we shall explain, to investors.
The boom states
The seven states that showed the greatest percentage gains in population during the last 10 years are, in order, Nevada, Arizona, Colorado, Utah, Idaho, Georgia and Florida. The Y2K performance of the S&P 500 companies headquartered in each state appears below:
Stocks of the New Sunbelt
| State | %Pop.Gain, 1990-2000 | No. of Stocks | Avg. % Chg 2000 |
| Nevada | 66 | 1 | 0 |
| Arizona | 40 | 3 | 38 |
| Colorado | 31 | 4 | 11 |
| Utah | 30 | 1 | -86 |
| Idaho | 29 | 3 | -14 |
| Georgia | 26 | 15 | 7 |
| Florida | 24 | 8 | 2 |
S&P 500: -9%
The results support the theory. The seven states in the new Sunbelt performed on average 13 percentage points better in 2000 than the S&P 500 ($INDU), which lost 9%. Such a difference, a 1-in-20 shot by chance alone, taking into account the rather high variability of the returns in each of the groups, is just about on the borderline of the conventions normally used for differentiating true from random phenomena.
The three key states that swung the balance in favor of the Sunbelt stocks were Arizona, Georgia and Colorado.
Arizona's returns were led by Allied Waste (AW, news, msgs), up 65%, and Pinnacle West Capital (PNW, news, msgs), up 62%.
In Georgia, the leaders were AFLAC (AFL, news, msgs), up 54%, Southern Co . (SO, news, msgs), up 49%, and Synovus Financial (SNV, news, msgs), up 38%. In Colorado, the best performer was Adolph Coors (RKY, news, msgs), up 55%.
The worst-performing state among the seven, Utah, had just one stock headquartered there, Novell (NOVL, news, msgs), whose 86% decline was big enough to lower the total average of all New Sunbelt stocks by 2.5 percentage points.
Regrettably, just buying stocks by state is no panacea. Without the stellar contributions of FPL Group's (FPL, news, msgs) 75% return and Allied Waste's 65% gain, the results would have been close to break-even..
Demographics and stocks
We look at this study as a template for other explorations of the impact of demographic trends on stocks. For example, the age and education of the executive and workforce, the sex distribution and the age and mobility of the company could be studied in isolation and combined. What is the influence of marriage and births (that is, mergers and IPOs)? The effect of buying a new home or plant? Do the customers for the products have a growing or declining age profile? More to the point these days, how do growth stocks perform after an extended stay in the hospital?
One thing can be said about demographic trends of this nature, and that is that they are relatively predictable. The move to less populous, warm states has proceeded for at least a century. The seven states listed above gained 400% on average in that time, double the growth rate of the country as a whole. There is every reason to believe that the trend will continue and that good people and good companies will continue to locate there in favorable proportions.
In a difficult market environment where the battle for investment survival becomes paramount, every little edge becomes key.
S&P 500 Companies
Based in the Seven Fastest-Growing States
| State | Company |
| Nevada | Harrah's (HET, news, msgs) |
| Arizona | Allied Waste (AW, news, msgs) |
| Phelps-Dodge (PD, news, msgs) | |
| Pinnacle West Capital (PNW, news, msgs) | |
| Colorado | Ball Corp . (BLL, news, msgs) |
| Qwest Communications (Q, news, msgs) | |
| Coors (RKY, news, msgs) | |
| Utah | Novell (NOVL, news, msgs) |
| Idaho | Albertson's (ABS, news, msgs) |
| Boise Cascade (BCC, news, msgs) | |
| Micron Technology (MU, news, msgs) | |
| Georgia | AFLAC (AFL, news, msgs) |
| BellSouth (BLS, news, msgs) | |
| Coca-Cola Enterprises (CCE, news, msgs) | |
| Delta Air Lines (DAL, news, msgs) | |
| Equifax (EFX, news, msgs) | |
| First Data Corp . (FDC, news, msgs) | |
| Georgia-Pacific Group (GP, news, msgs) | |
| Genuine Parts (GPC, news, msgs) | |
| Home Depot (HD, news, msgs) | |
| Coca-Cola (KO, news, msgs) | |
| National Service Industries (NSI, news, msgs) | |
| Scientific-Atlanta (SFA, news, msgs) | |
| Synovus Financial (SNV, news, msgs) | |
| Southern Co . (SO, news, msgs) | |
| SunTrust Banks (STI, news, msgs) | |
| Florida | Carnival (CCL, news, msgs) |
| Citrix Systems (CTXS, news, msgs) | |
| Darden Restaurants (DRI, news, msgs) | |
| FPL Group (FPL, news, msgs) | |
| Office Depot (ODP, news, msgs) | |
| Ryder System (R, news, msgs) | |
| Tupperware (TUP, news, msgs) | |
| Winn-Dixie Stores (WIN, news, msgs) | |
At the time of publication, Victor Niederhoffer owned or controlled the following equities mentioned in this article: Novell. Laurel Kenner owned no equities mentioned in this column.
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.