CWS Market Review – June 8, 2021

(This is the free version of CWS Market Review. Don’t forget to sign up for the premium newsletter for $20 per month or $200 for the whole year. The premium version contains more detailed analysis and I cover our Buy List stocks in greater depth. Join us today!)

The “Dangerous” Stock Market

The stock market continues to advance while disregarding any and all concerns for valuation. The latest rally has alarmed veteran market observers, especially the gains we’ve seen in highly-speculative and less-sound areas of the market.

According to Nobel prize-winner Robert Shiller’s cyclically adjusted Price/Earnings Ratio or CAPE, stock valuations have never been higher. Seasoned market observers believe the market is due for a period of rest. Until now, the outlook has been clear, and the buy-it-all strategy has been painless. But newer investors, especially younger investors, have been lured in with the promises of easy wealth. This is dangerous and these newer investors have not experienced a painful bear market. In 1987, the Dow plunged 22% in a single day. It can happen again.

A toxic combination of a cheerleading media and careless politicians have cynically boosted the rally which is increasingly taking the form of a Ponzi scheme. Investors are ignoring fundamentals and are buying to order to quickly sell to a “greater fool.” It’s a dangerous game and no one wants to be the last one holding the bag. This is the hallmark of a casino, not the economy of a responsible country.

The speculation has been aided by a reckless Federal Reserve which seems blind to the threat of inflation and dollar depreciation. Trees don’t grow to the sky and similarly, stock prices don’t rise to the heavens. Moreover, investors aren’t considering geo-political risks. It’s a dangerous world and stability is a mirage. A painful reckoning is at hand.

The lesson is that stocks are dangerous things to own. In case you had forgotten, a little over a year ago, the Dow was at 18,000. If it could be there then, it can be there again and soon. The fact is that we’re entering a period of massive volatility. You, as an individual investor, simply don’t have the risk appetite to deal with that kind of volatility.

The above five paragraphs are nonsense from start to finish. I made it up in about five minutes. Yet it could pass, lightly edited, in the financial press any day of the week. In fact, the last paragraph is almost verbatim from a Felix Salmon video in 2010.

The language is flat. It’s filled with clichés. It ascribes human characteristics to the market. Most importantly, it takes a hectoring and moralizing tone. So much financial commentary is thinly disguised public moralizing. Once you recognize it, you see it everywhere.

Please forgive my unconventional digression, but this needs to be said. Stocks aren’t in any sense “dangerous.” Landmines are dangerous. Any comparison to 1987 is highly misleading. Nor do stocks need to rest, and there’s no such thing as a healthy correction. There won’t be some point in the future when the outlook is clear. I’m afraid it’s never clear.

I don’t mean to attack the media. There’s a lot of excellent financial journalism. But I will point out a certain type of behavior that aims to stoke the fires of righteous indignation. The reason I call it out is because it’s the precise opposite attitude one needs in going about his or her investment decisions. My made-up intro contained zero information that could help an investor.

Investing in the market is business. That’s all. Nothing more. Nothing less. Hopefully, sound judgement will lead you to better returns. Take the meme stocks. They had another strong day today. Will it continue? Beats me. They’re overpriced, but that’s my opinion. They can easily become more overpriced, but I would never say they’re dangerous or that the longs have some moral failing.

A good deal of financial commentary aims to simplify that day’s market action into an easy-to-digest narrative that’s clear, concise and almost always, wrong. The public scolder and the incessant cheerleader will always have a platform, but investors should not confuse their rhetoric with a sober and clear-minded analysis of the market. The media’s agenda is not the same as yours.

The best way to view the markets is to have a long-term focus and an independent mind. The rest is BS.

Heico Raises Its Dividend

Over at the premium service (which you can sign up for here), we’ve been doing very well with Heico (HEI) this year. The stock is up over 12% for us in 2021. The company announced today that it’s raising its semi-annual dividend from eight to nine cents per share.

That’s a tiny part of their earnings, but it’s nice to see a vote of confidence from management. Heico also has an interesting tradition of having frequent yet small stock splits. I count 17 splits since 1995.

Shares of Heico touched another new high today. This was the stock’s ninth consecutive up day. The reason I’m highlighting Heico, in addition to the dividend hike, is that the stock initially fell after its earnings report even though the numbers were quite good.

That’s not uncommon. Traders like to act first and find out the details later. Many times we see stocks fall on earnings news, only to rebound later once the market gets hold of it senses.

This is from Heico’s press release:

Laurans A. Mendelson, HEICO’s Chairman and Chief Executive Officer, along with HEICO’s Co-Presidents, Eric A. Mendelson and Victor H. Mendelson, commented, “This dividend recognizes HEICO’s strong cash flow generation, coupled with our confidence in the future, including for a sustained commercial air travel recovery. Further, as is the case for all HEICO shareholders, the vast majority of HEICO’s Team Members will directly benefit from the dividend increase through their share ownership and we are deeply grateful for our Team Members’ outstanding efforts, especially during the COVID-19 Pandemic.”

Considering the impact of cash dividends, prior stock splits and stock dividends, one share of HEICO worth $8.38 in 1990 has become worth on a combined basis approximately $5,361, representing an increase of approximately 640 times the 1990 value and a compound annual growth rate of approximately 24% as of June 4, 2021.

A gain of 640-fold in 31 years is truly remarkable. That’s why I don’t dismiss a minor dividend hike. Over the years, it adds up. Heico is a wonderful stock.

Workers Needed Everywhere!

Earlier today, the Labor Department released its jobs openings report. According to the report, there are now 9.3 million job openings across the United States.

The report completely floored Wall Street. Not only is it an all-time record, but it’s also over one million more jobs than Wall Street had been expecting.

The economy is reopening at an impressive rate. According to the latest survey, 48% of companies say they have unfilled jobs. Bloomberg notes that hotel and restaurant workers are quitting at the highest pace on record. The New York Times says that for the first time in many years, workers are gaining leverage over employers. Hopefully that will result in higher wages, and that will result in more revenues for business.

According to the May jobs report, which came out on Friday, the U.S. economy created 559,000 net new jobs and the employment rate dropped 5.8%. Wall Street had been expecting 671,000 new jobs.

Private payrolls added 492,000 and manufacturing added 23,000. Average hourly earnings increased by 0.5%. In the last year, average hourly earnings are up 2%.

The average work week was 34.9. The labor force participation rate was 61.6%. The under-employment rate fell to 10.2%. The payroll gain for March was revised to 785,000. The number for April was revised up to 278,000.

If these numbers continue, I think the Federal Reserve could taper its bond purchases before most people think. We’re still probably 18 months from getting back to normal. For now, the labor market appears to be headed in the right direction.

Stock Focus: Raven Industries

If I told you about a stock that’s up 750-fold over the last 40 years, you’d probably assume that it’s very well-known on Wall Street. Instead, Raven Industries (RAVN) is barely a speck on the canyons of Wall Street. The stock has been an amazing winner, yet it’s virtually ignored. Only a handful of Wall Street analysts bother covering it.

What do they do? Raven has picked up where the Montgolfier brothers left off. Raven specializes in balloons. Or to be more specific, as Dun & Bradstreet describes them, “a diversified technology company that caters to the industrial, agricultural, energy, construction, military, and aerospace sectors.”

The company has a few divisions, but what most gets my attention is Raven’s Aerostar division. This group sells high-altitude research balloons as well as parachutes and protective wear used by U.S. agencies. (See this video.)

Raven’s Engineered Films Division makes reinforced plastic sheeting for various applications. Their Applied Technology Division manufactures high-tech agricultural aids, from GPS-based steering devices and chemical spray equipment to field computers.

Check out this long-term chart of Raven (black line) against the S&P 500 (blue line):

Raven has beaten the S&P 500 by such a large margin that the index nearly looks like a flat line. Raven has gained more than 5,200% while the market is up 335%.

What’s also impressive is that Raven is still below its all-time high from three years ago. Notice how the chart shows several downdrafts, but each time, Raven has bounced back.

Raven has a market cap of $1.6 billion and only four analysts cover it. Compare that with Facebook (FB) which has over 50.

Raven’s business got hit hard during the lockdown, but it’s coming back nicely. Raven’s fiscal year ends at the end of January. The Q1 report came out a few weeks ago. In it, Raven said it made 26 cents per share which nearly doubled estimates. That’s up from 11 cents per share one year ago. Quarterly sales rose 30% to $112.5 million.

Raven isn’t on our Buy List this year, but if it were to fall to a decent valuation, like it did a year ago, it would be an attractive addition to our Buy List.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. Don’t forget to sign up for our premium newsletter.

Posted by on June 8th, 2021 at 5:23 pm


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.