• Atrion Update
    Posted by on June 28th, 2017 at 3:23 pm

    In January, I highlighted the stock of Atrion (ATRI). I said that it’s been a spectacular performer and no one on Wall Street follows the stock.

    The describe themselves as follows:

    Atrion Corporation is a leading supplier of medical devices and components to niche markets in the health care and medical industry. Atrion’s proprietary products, ranging from cardiovascular and ophthalmology products to fluid delivery devices, are sold to end-users, distributors and other manufacturers worldwide. As a developer and manufacturer of a diverse range of products, Atrion stays on the forefront of technology and manufacturing with products that meet the needs of its targeted markets.

    ATRI went from $4 per share in 1989 to $459 when I wrote about in January.

    Well…it’s up another 43% since then.

  • Morning News: June 28, 2017
    Posted by on June 28th, 2017 at 7:01 am

    Ransomware Cyberattack Goes Global

    Maersk Shuts Down Some Systems to Help Contain Cyber Attack

    Greece on Target to Return to Markets, Exit Bailout

    Google Faces Years of EU Oversight on Top of Record Antitrust Fine

    The June Curse Strikes Again

    Toshiba Slaps A Billion Dollar Lawsuit On Western Digital

    Nvidia’s Automotive Domino Effect

    Sprint’s Desperate Ways

    Philips to Buy Cardiac Firm Spectranetics for $1.7 Billion

    Nestle, Under Pressure, Plans Buyback and Perhaps Acquisitions

    Turmoil Continues at Pandora Media as Chief Executive Resigns

    Madoff Settlements Reach $12 Billion With New Accords

    Millennials Like to Eat Out

    Cullen Roche: The Right Way to Use Economics as an Investing Tool

    Howard Lindzon: Price, People, Patterns…Repeat!

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  • WaPo: Claire’s is ‘a complete train wreck’
    Posted by on June 27th, 2017 at 11:56 am

    At the Washington Post, Abha Bhattarai writes on the trouble at Claire’s. The retailer has reported 11 consecutive quarters of declining sales and racked up more than $2 billion in debt

    So far this year, more than 300 retailers have filed for bankruptcy, including mall staples BCBG Max Azria, Rue21, Wet Seal and the Limited. Others, including Macy’s, Sears and Bebe have closed hundreds of stores.

    “It’s mass destruction at American malls, and Claire’s is right in the middle of it,” said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates. “Claire’s, which at one time was the most profitable chain in the business, has become a complete train wreck.”

    It’s been a confluence of bad news for the Chicago-based chain, which has long relied on groups of girls coming into its stores with their weekly allowances or birthday money. Fewer Americans are going to malls these days, and those who do increasingly are shopping at fast-fashion chains like H&M, Forever 21 and Zara, all of which have boosted their accessories sections in recent years.

    And although Claire’s, which also owns the accessories brand Icing, has built up its website in recent years, analysts say online shopping is a tricky proposition for the company’s young shoppers, many of whom don’t have access to a credit card.

  • Buying Apple for Dividends
    Posted by on June 27th, 2017 at 11:28 am

    From Jeff Reeves at US News and World Report:

    Eddy Elfenbein, portfolio manager of the AdvisorShares Focused Equity ETF (CWS), says Apple can be a dividend play and that income investors don’t have to look solely for “old granny stocks” that offer income but little in the way of growth.

    AAPL is a great alternative to traditional stocks that income-oriented investors buy, Elfenbein says, because it pairs dividends and growth – which means modest dividends now could become significantly larger over time.

    “Too many investors ignore dividends, but they’re very important” in any investment, he says.

    Price in blue, dividends in black.

  • Bed Bath & Beyond Plunges
    Posted by on June 27th, 2017 at 10:13 am

    Last Friday, shares of Bed Bath & Beyond (BBBY) dropped 12%. They missed earnings by a mile and same-store-sales growth was terrible. This is difficult for me to see. I try not to let my feelings get in the way of investing, but it’s hard to see a company I liked for such a long time fail so badly.

    Bed Bath & Beyond was on our Buy List every year until I decided to drop it from this year’s list. It certainly looks like I made the right call. In fact, I probably held on too long.

    This is especially hard for me because BBBY used to exhibit all the signs of the stocks I like. It was an Eddy stock if there ever were one. They had strong cash flow, low debt, solid margins and a consistent operating history.

    The stock was actually a big winner for us for a few years. Starting in 2012, BBBY began lagging the market. At first, I dismissed the slide as a short-term move. I gave BBBY the benefit of the doubt. Then I saw that the problems were severe and eventually let it go.

    The lesson for investors, especially me, is that good stocks can turn into bad ones very quickly. Selling a position should be completely unemotional.

  • Morning News: June 27, 2017
    Posted by on June 27th, 2017 at 7:12 am

    China’s Premier, Li Keqiang, Praises Free Trade, in Contrast to Trump

    Hollywood is Auditing China’s Box Office for the First Time

    Indian Technology Workers Worry About a Job Threat: Technology

    Google Fined $2.7 Billion in E.U. Antitrust Ruling

    Draghi Says Stimulus Still Needed Even as Euro Area Reflates

    No, Fed Didn’t Make a Mistake by Hiking Rates

    The Top Five Tech Rivals Join Forces to Shape Policy—and Fight the Government

    Buffett Wants a Big Deal. Lately, He’s Settled for Small Ones

    With Crowding in U.S. Market, Activist Investors Look to Europe

    California Is Listing a Key Ingredient in Monsanto’s Roundup Weed Killer as Cancer-Causing

    Sprint Enters Into Exclusive Talks With Charter, Comcast On Wireless Deal

    Effects of Takata Bankruptcy to Extend Far and Wide

    World’s First ATM Machine Turns to Gold on 50th Birthday

    Ben Carlson: Playing All The Hands You’re Dealt

    Roger Nusbaum: Central Bank Hedge Funds?

    Be sure to follow me on Twitter.

  • Checking In On The 2/10 Spread
    Posted by on June 26th, 2017 at 12:43 pm

    I like to take an occasional look at the spread between the two- and ten-year Treasuries. Over the last 35 years, negative 2/10 spreads have often preceded recessions. It’s not perfect, but the spread’s track record is better than a lot of economists’ track records.

    Thanks to the Fed’s latest rate hike, the spread is down to about 80 points. It’s very close to a 10-year low.

    We’re not in the danger zone just yet, but we’re getting closer. The futures market thinks the Fed will hold off doing anything for a few months. They currently see a 50-50 chance of another rate hike in December.

  • The Number of Stocks Has Dropped in Half
    Posted by on June 26th, 2017 at 11:23 am

    In the Wall Street Journal, Jason Zweig points out that the number of publicly traded stocks has dropped in half over the last 20 years. This, Zweig posits, may help explain why so many active managers have failed to beat the markets. The reasoning is that the stocks that went into making historically-attractive strategies are no longer around.

    Small-caps work! But there are so few small-caps left.

    Or, micro-caps work! But there are only a handful left.

    As a result, active managers are plowing over the same fields. The effect has hit the small-cap arena especially hard. Twenty years ago, there were over 4,000 stocks that were too small for the Russell 2000. Today, there are less than 1,000.

    I tend to be skeptical about claims that don’t make intuitive sense. For example, tobacco stocks have done very, very well historically. That’s great, but I don’t see it as a reason why that should continue. They’re for-profit companies just like so many others. But it does make sense for bonds to lag stocks over the long-term because they’re different kinds of instruments.

    Whenever we hear that “value” or “momentum” has done well in the past, we have to remember that it’s likely that meant a very different group of stocks that we have to work with today.

  • Morning News: June 26, 2017
    Posted by on June 26th, 2017 at 6:55 am

    Only the World Can Stop Germany as Business Climate Hits Record

    Italy Bank Deal Lifts Europe Shares, Dollar on Back Foot

    Is Coal Making a Comeback?

    Trump’s Anti-Nafta Stance Is on a Collision Course With Natural Gas

    Texas Is Too Windy and Sunny for Old Energy Companies to Make Money

    Corporate Tax Rate at 28% Seen as More Likely Than Historic Cut

    Bankers Are Hiring Cyber-Security Experts to Help Get Deals Done

    The Credit Card Rewards War Rages. Are You the Loser?

    Takata’s Long Road Through Bankruptcy

    Loeb’s Third Point Targets `Staid’ Nestle for Change

    Shkreli Made Big-Money Brag to FBI and Now Faces His Reckoning

    China Sentences 3 Australians to Prison for Promoting Gambling

    Jeff Miller: Technical Danger Signals?

    Michael Batnick: This Is Your Nightmare Scenario

    Jeff Carter: The Human Crisis in Finance

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  • CWS Market Review – June 23, 2017
    Posted by on June 23rd, 2017 at 7:08 am

    “Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.” – Peter Lynch

    The stock market easily survived the Federal Reserve’s recent rate hike. In fact, the S&P 500 touched a new all-time high as recently as Monday. However, aside from the new high, the chief characteristic of the market continues to be its very low volatility.

    Simply put, the market ain’t doing a whole lot of moving around lately. This seems at odds with so many of the headlines we see coming from around the world. Here’s a remarkable stat: seven times in the last eleven trading sessions, the S&P 500 has closed up or down by less than 0.1%. That’s a very small move.

    If the market were to average daily changes of 0.1%, that would mean the Volatility Index (VIX) should be less than 2. The takeaway is clear—we’re living in a volatile world with extremely chill financial markets.

    Frankly, we’re in the midst of a lull period for the stock market. I don’t expect much action from the markets until the second-quarter earnings season begins in another few weeks. While there hasn’t been a great deal of action for the overall market, there have been some growing currents underneath the surface.

    As the second quarter wraps up, Wall Street is experiencing a pronounced sector rotation. The tech sector is getting wobbly. Healthcare stocks are finally coming to life, and oil is dropping like a stone. Also, many retail stocks are in full retreat. I’ll tell you what it all means. I’ll also run down several of our Buy List stocks. Plus, I have several new Buy Below prices for you. But first, let’s take a closer look at where the economy and markets stand at the middle of the year.

    The Stock Market’s Quiet Sector Rotation

    The market continues to be quiet and upward. In the last 43 trading says, the VIX has closed over 11 just four times. The S&P 500 has already set 23 new highs this year, and we’re not even at the midway point yet. By historic standards, that’s a high pace.

    But not all stocks are equally calm. Two weeks ago, the Tech Sector got dinged for a 2.5% loss. Actually, the selloff on June 9 wasn’t that big by historic standards, but it was gigantic by 2017 standards. Tech stocks are starting to settle down, but there could be another move down for them. Fortunately, Microsoft (MSFT), our large-cap tech position on the Buy List, is holding up well. I’m going to keep our Buy Below for Microsoft at $70 per share. This has been a very solid performer for us. I’m looking forward to another good earnings report next month.

    The healthcare sector badly lagged the overall market from the middle of 2015 until the early part of this year. Since then, healthcare has become increasingly popular. In fact, the Healthcare Sector ETF (XLV) has now beaten the overall market for seven days in a row. A lot of this, naturally, surrounds the debate about healthcare reform. I won’t speculate on the political debate, but the U.S. Senate has moved forward with a bill of its own. The bill in its current form probably won’t go very far, but it could serve as the starting point for a negotiation. In any event, many healthcare stocks are acting much better.

    On our Buy List, the healthcare rally has been good news for Express Scripts (ESRX). If you recall, the pharmacy-benefits manager dropped more than 10% after they said they’re losing their largest customer. The shares have gained back more than 8% since then. This week, I’m raising my Buy Below on Express Scripts to $69 per share.

    I think it’s interesting that healthcare is improving while retail is falling. Perhaps rising premiums are taking a bite about out of shopping plans.

    Perhaps one of the more surprising moves lately has been the downward spiral for oil. Many traders had assumed that OPEC had finally wrested control of oil from the bears. Not so. Since May 23, the price for spot West Texas crude has fallen from $51.47 per barrel to $42.74 per barrel. This week, oil touched a 10-month low. This is especially bad news for OPEC because it took a lot of arm-twisting to get all the members on board for the production cuts. Now prices are lower than when they started.

    This has been especially difficult for energy stocks. The Energy Sector ETF (XLE) broke $76 per share late last year. This was part of the Trump Rally. This week, the XLE broke below $64 per share. Fortunately, we don’t have any major energy stocks on our Buy List. This wasn’t a prediction on the macro economy from me. Rather, I just didn’t see any energy stocks I liked at the moment.

    Amazon’s (AMZN) surprising move to purchase Whole Foods (WFM) has shaken up many consumer and retail stocks. The market apparently thinks this is bad news for stocks like Hormel Foods (HRL) and JM Smucker (SJM). I don’t see why, but the market doesn’t always think these things though.

    Shares of SJM have dropped for the last seven days in a row to reach a new 52-week low. The shares now yield 2.5%. This looks to be a good buying opportunity for SJM. I’m going to lower my Buy Below on Smucker to $131 per share.

    The real loser in the retail sector of late has been Ross Stores (ROST). I still like Ross a lot, but the stock has been a dud lately. In the last three weeks, ROST has lost over 12%. The deep discounter has proven itself to be one of the few “Amazon resistant” retailers out there. Let’s also remember that Ross has recently raised its full-year guidance, plus they increased their dividend by more than 18%. I’m going to drop my Buy Below on Ross down to $59 per share this week. The next earnings report is due out in mid-August.

    Since the beginning of June, the Consumer Discretionary Sector (XLY) and Consumer Staples (XLP) have both been laggards. I’m not sure if this trend will last. I noticed, for example, that this week, we got a very good existing-home sales report. For May, existing-home sales rose 1.1%. This was the third–highest report in the last 10 years. On a year-over-year basis, housing inventory has dropped for 24 straight months. That’s probably a decent sign for consumer spending. I should also note that initial jobless claims have now been below 300,000 for 120 straight weeks.

    Buy List Updates

    Shares of Alliance Data Systems (ADS) have drifted higher recently. The stock rallied after its earnings report in April, but lately gave most of it back. ADS has now climbed for the last six days in a row. This week, I’m raising my Buy Below to $264 per share.

    Cerner (CERN) has been a big winner for us this year. It’s currently up 42% YTD. This week, I’m going to bump our Buy Below up to $68 per share.

    CR Bard (BCR) isn’t slowing down since the acquisition was announced. The stock just touched another 52-week high this week (see below). The merger with Becton, Dickinson seems to be going well, and both stocks are drifting higher. I’m keeping my Buy Below on BCR at $330 per share.

    This week, Stryker (SYK) announced that it’s buying Novadaq Technologies for $701 million. Novadaq is a Canadian fluorescence-imaging technology manufacturer. The deal is expected to dilute Stryker’s earnings by three to five cents per share, but it will have no impact of their full-year adjusted earnings. Stryker’s current guidance for this year is $6.35 to $6.45 per share. I’m raising Stryker’s Buy Below to $145 per share.

    That’s all for now. Next week is the final week of trading for the first half of the year. It also marks the three-quarters mark for the decade. On Monday, we’ll report on orders for durable goods. Then on Tuesday is consumer confidence. On Thursday, the government will give its second revision for Q2 GDP. Last month, the government revised Q2 growth from 0.7% to 1.2%. That’s not very good. On Friday, we’ll get the personal-income and spending data for May. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy