CWS Market Review – June 24, 2011
In our CWS Market Review issue from two weeks ago, I said that I was keeping a close eye on the S&P 500’s 200-day moving average. Apparently, I’m not alone; Mr. Market seems to be paying very close attention as well.
Consider that last Thursday, June 16th, the S&P 500 performed a near-perfect intra-day bounce off its 200-DMA. It’s almost as if traders were following it oh-so-closely. That bounce prompted a nice four-day rally which fizzled out on Wednesday.
So the S&P 500 repeated itself on Thursday by performing another near-perfect bounce off its 200-DMA. This time, we got a cool 1.63% rally going into Thursday’s close. According to Bespoke, that was our biggest intra-day climb following a 1% down move in nearly a year. That’s some bounce. That makes two tries so far to pierce the 200-DMA but we still haven’t closed below it. The last time we did was back on September 10th of last year.
So what does this mean? Unfortunately, we shouldn’t draw too much from this. But I will say that the market often goes in for three “tests” of these support levels. If we pass all three, then the trend, whether up or down, has a habit of continuing onward. Historically, the data is unambiguous—the S&P 500 has performed much better when it’s above its 200-DMA compared with when it’s below it. The good news is that we’re still above it.
But make no mistake: The problems in Europe have clearly rattled stock investors here. It got so bad that the yield on short-term Treasuries actually turned slightly negative on Thursday. That means that investors were willing to pay the government to borrow their own money. Now that’s fear!
This week, I want to review some recent good news from our Buy List stocks. The best news came from Bed Bath & Beyond ($BBBY). The company gave us a great earnings report on Wednesday, plus it guided higher for the year. Few things please me more than the sweet sounds of the “beat-and-raise” choir.
Let me give you the back story: A few months ago, BBBY told us to expect Q1 earnings to range between 58 cents and 61 cents per share. I knew that was a low-ball projection. I said in last week’s issue that I was expecting a “modest” earnings surprise, around 63 cents per share. Well, I was very pleased to see that the results came in at 72 cents per share. BBBY also said that it’s forecasting Q2 earnings of 77 cents to 82 cents per share. (I was expecting a little more, and honestly, I still think I’ll get it.)
Let me reiterate that this was a very strong earnings report. BBBY’s sales typically slow down in the quarter following the holidays, but they’re still doing a brisk business. Earlier, BBBY told us to expect earnings to grow by 10% to 15% for this fiscal year which ends in April. Now, they’ve upped that range to 15% to 20%.
Let’s do some math: For 2010, the company earned $3.07 per share which means the new range comes to $3.53 to $3.68 per share. Personally, I think $3.70 per share is very doable. Thanks to the good earnings news, the stock jumped by more than 5.3% on Thursday to close at $56.93. I’m raising my buy price on BBBY from $55 to $58.
Now let’s move on to Oracle ($ORCL) which reported very good earnings after the close on Thursday. For their fiscal Q4, Oracle earned 75 cents per share which topped Wall Street’s consensus by four cents per share. I was very happy with ORCL’s numbers, but let me explain this in a little more detail because traders got spooked in the after-hours market and the shares dropped sharply. (I’m writing this before Friday’s open.)
Early in the quarter, Oracle gave us a guidance range of 69 cents to 73 cents per share. The Street was only at 66 cents per share. What struck me was how early Oracle was willing to go public with this optimistic guidance. But the Street was still skeptical and their consensus rose only to 71 cents per share. Because Oracle’s guidance was so strong, I wasn’t expecting a big earnings surprise (I had said I was looking for about 73 cents per share.)
In Thursday’s after-hours market, shares of Oracle traded about 7% lower which I think was completely nuts. I saw some grumbling about weakness in Oracle’s hardware business. It’s true, it is weak, but it’s only about 10% of Oracle’s overall revenue. On the conference call I heard what I really wanted to hear—guidance for Q1. Oracle said that it projects earnings between 45 and 48 cents per share for its first quarter. Yep, another low ball. My view is that if they’re saying that, they really mean “at least 50 cents per share.”
I have to stress that Oracle’s business is a cash-flow machine. The company is sitting on close to $29 billion in cash. Oracle continues to be a great stock. Don’t let any short-term volatility scare you. I think it’s very likely that ORCL will be at $36 before the end of the year. I’m keeping my buy price at $34 per share.
In February, I said to expect another dividend increase from Medtronic ($MDT) in June. Fortunately, the company proved me right on Thursday when they announced an 8% increase to their quarterly dividend. This is their 34th-straight yearly dividend increase. Not many stocks can say that.
The new dividend is 24.25 cents per share so that comes to 97 cents for the year. Going by Thursday’s close that comes to a yield of 2.53%. Medtronic is coming off a tough year which included a slew of earnings downgrades. In retrospect, though, the earnings weren’t nearly as bad as the share price indicated.
Medtronic recently gave us full-year earnings guidance of $3.43 to $3.50 per share. I think they got stung last year by having to lower their guidance more than once, and that’s why I think this latest guidance is on the low side. Even if we take the mid-point of this guidance, that means the shares are going for 11 times this year’s earnings. Plus we now have a dividend that yields nearly as much as a 10-year Treasury. This is a good company that hit a rough patch. I’m lowering my buy price for Medtronic to $45 per share.
That’s all for now. Next week is the final week of Q2. It’s also the week before the three-day July 4th weekend, so I think Wall Street will be fairly quiet. All the big shots will be running off to their summer pads at the Hamptons or Martha’s Vineyard.
Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
– Eddy
Posted by Eddy Elfenbein on June 24th, 2011 at 7:03 am
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
- Tweets by @EddyElfenbein
-
Archives
- December 2024
- November 2024
- October 2024
- September 2024
- August 2024
- July 2024
- June 2024
- May 2024
- April 2024
- March 2024
- February 2024
- January 2024
- December 2023
- November 2023
- October 2023
- September 2023
- August 2023
- July 2023
- June 2023
- May 2023
- April 2023
- March 2023
- February 2023
- January 2023
- December 2022
- November 2022
- October 2022
- September 2022
- August 2022
- July 2022
- June 2022
- May 2022
- April 2022
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- July 2021
- June 2021
- May 2021
- April 2021
- March 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- July 2006
- June 2006
- May 2006
- April 2006
- March 2006
- February 2006
- January 2006
- December 2005
- November 2005
- October 2005
- September 2005
- August 2005
- July 2005