Archive for 2011

  • Employment and Re-Election Chances
    , April 11th, 2011 at 7:50 am

    Since 1948, ten presidents have run for re-election. Three times the unemployment rate was 7.4% or more in November of the election year. Each one of those times, the incumbent president has been defeated.

    The other seven times, the jobless rate has been 7.2% or less. All seven times, those incumbent presidents have won re-election.

    The March 2011 jobs report said the unemployment rate was 8.828%. If the relationship holds up, President Obama has 20 months to lower the jobless rate by 1.5%.

    For the March jobless rate to be equal to the rate in November 1984 (the lowest on the chart for an incumbent victory), there would need to be 2.5 million more jobs.

    Year Unemployment Rate Outcome
    1976 7.835 Lose
    1980 7.459 Lose
    1992 7.447 Lose
    1984 7.181 Win
    1996 5.360 Win
    2004 5.354 Win
    1972 5.254 Win
    1964 4.845 Win
    1956 4.292 Win
    1948 3.764 Win

    Interestingly, when an incumbent president hasn’t been on the ticket, the jobless rate hasn’t had much of an impact on which party wins.

  • Morning News: April 11, 2011
    , April 11th, 2011 at 7:30 am

    Organization for Economic Cooperation and Development Revises French Growth Forecast In Line With Government

    Bank of Japan Cuts Economic View of Seven of Nine Regions After Quake

    Another Huge Economic Warning Comes From The U.K.

    China Reports First Quarterly Trade Deficit in Seven Years

    Brent Crude Oil Falls In Asia; Gadhafi Agrees To Peace Plan

    Gold Drops on Selling After Rally to Record; Silver Reaches 31-Year High

    Rising Gas Prices Cut Two Ways

    NYSE Euronext Rejects Bid by Nasdaq and ICE

    PIMCO Officially Goes SHORT The US Treasury Market

    Endo Pharma to Buy American Medical Systems for $2.6 Billion

    Google Seals ITA Deal But Antitrust Review Looms

    Glencore Chief Says Listing Is ‘Imminent’

    Enriching a Few at the Expense of Many

    Joshua Brown: Volume on Everyone’s Mind

    James Altucher: The Easiest Way to Succeed as an Entrepreneur

  • Wall Street’s Consensus for 2012
    , April 8th, 2011 at 12:43 pm

    For 2009, the S&P 500 earned $56.87. That jumped to $83.77 last year. Wall Street’s current forecast for 2011 is $96.96.

    This means that even after the stock market’s huge rally over the past two years, the forward P/E Ratio is still just 13.75. That’s an earnings yield of 7.27% which is far higher than anything you see in the Treasury market.

    For 2012, Wall Street sees the S&P 500 earning $110.10. Let me caution you that forecasts so far ahead in time should be given a reasonable amount of doubt. But even going by those numbers, it means that the S&P 500 is currently going for 12.11 times next year’s earnings. The earnings yield comes to 8.25%.

    My point is that the fundamentals greatly favor stocks over bonds. Given the past 11 years’ activity, investors are duly wary of that notion.

  • Stocks Against Bonds
    , April 8th, 2011 at 11:46 am

    I wish I had more to say, but this chart really says it all. The black line is the S&P 500 Spyders ETF ($SPY) and the gold line is the iShares Barclays 20+ Year Treasury Bond ETF ($TLT). They’re almost perfectly symmetrical.

  • Bed Bath & Beyond’s 2011 Projections
    , April 8th, 2011 at 11:35 am

    Courtesy of Seeking Alpha, here’s part of the transcript of Bed Bath & Beyond‘s ($BBBY) conference call:

    Based on these and other planning assumptions, we are modeling net earnings per diluted share to be in the range of approximately $0.58 to $0.61 for the fiscal first quarter of 2011. For all of fiscal 2011, we are modeling net earnings per diluted share to increase by approximately 10% to 15%.

    Before concluding this afternoon’s call, a few additional comments relative to our recently concluded fiscal fourth quarter. Our balance sheet remains strong and debt free. We ended fiscal 2010 with cash and cash equivalents and investment securities of approximately $1.9 billion. This includes approximately $112.9 million of investments related to auction rate securities. These securities have an estimated temporary valuation adjustment of approximately $3.2 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed temporary, it did not affect the company’s earnings.

    During the fourth quarter, we had approximately $8.4 million of redemptions of auction rate securities at par. Subsequent to the fourth quarter, we had approximately $5.8 million of auction rate securities redemptions at par, leaving a balance of approximately $107.1 million of these securities. As we have said in the past, and as we have experienced to date, we believe that given the high credit quality of these investments, we will ultimately recover, at par, all amounts invested in these securities.

    Inventories continue to be tailored by store to meet the anticipated demands of our customers and are in good condition. As of February 26, 2011, inventories at cost were approximately $2 billion or $56.17 per square foot. Inventory per square foot was higher than in the prior year, primarily due to increased inventory levels required to support recent increases in comp store sales and timing of receipts.

    Consolidated shareholders equity at February 26, 2011, was approximately $3.9 billion, which is net of all share repurchases, including the approximately $199 million representing approximately 4.1 million shares repurchased during fiscal fourth quarter of 2010.

  • Jamie Dimon’s Shareholder Letter
    , April 8th, 2011 at 8:47 am

    Jamie Dimon just released this year’s shareholder letter. Here’s the whole thing and below is a story from Dow Jones:

    J.P. Morgan Chase & Co. (JPM) could earn between $22 billion and $24 billion a year in a “normal” business environment, Chief Executive Jamie Dimon told shareholders in his annual letter.

    The forecast represents the possibility the nation’s second biggest bank by assets, behind Bank of America Corp. (BAC), could grow earnings by more than 40% from 2010’s profit, which was a record $17 billion. The forecast would be double 2009 earnings.

    Dimon didn’t give a time frame when the more “normal” earnings could be booked.

    Dimon’s long letter to holders reiterated much of what he’s said publicly recently, including his plethora of concerns about regulations and their costs, warning that if reforms aren’t implemented carefully they could hurt the banking industry in the U.S.

    And only weeks after the bank boosted its quarterly dividend as a result of passing the Federal Reserve’s stress tests, Dimon said “if it were up to me personally, I would reinvest all the capital into our company and not pay any dividend–but this is not what most shareholders want.”

    He wrote that the bank’s first priority is to invest in organic growth. His second priority for capital would be to find acquisitions, both large and small. His third priority would be share buybacks.

    Dimon’s letter also touted the bank’s survival through the crisis, saying it has gained market share and is positioned for future growth.

    “Looking at these results in the context of the last three difficult years, what particularly pleases me is how exceptionally our company performed, not in absolute financial terms but in human terms,” he wrote.

    “I remain, perhaps naively, optimistic,” he added.

    JPM currently has 3.91 billion shares so Dimon’s forecast translates to an earnings-per-share range of $5.63 to $6.14. The stock closed yesterday at $47.40 which is roughly eight times Dimon’s “normal” environment estimate.

    (By the way, Dimon’s $20.8 million pay package is in the news today. You’ll see plenty of phony outrage. Let’s remember that this works out to about half-a-penny per share.)

  • CWS Market Review – April 8, 2011
    , April 8th, 2011 at 7:47 am

    Far from being the cruelest month, the stock market and our Buy List are doing very well this month. We’re already up 9.56% for the year compared with just 6.03% for the S&P 500. As usual, we’ve accomplished this without making one single change to our Buy List this year, nor will we make any changes for the rest of the year.

    Now let’s look at what’s been driving our success: First, we had great earnings from Jos. A Bank Clothiers ($JOSB) and Oracle ($ORCL); and the biggest star for us this week was unquestionably Bed Bath & Beyond ($BBBY). After the bell on Wednesday, the home furnishings retailer announced earnings of $1.12 for its fiscal fourth quarter. I was extremely impressed with these results.

    In their last earnings report, Bed Bath & Beyond told us to expect Q4 earnings of 91 cents to 95 cents per share. I looked at the numbers and felt the company would beat that guidance, but only modestly. I was really surprised that BBBY did so well.

    The details are very impressive. BBBY’s quarterly sales came in at $2.505 billion. That’s an increase of 11.6% over the fourth quarter of last year. It’s also an increase of over 30% from the fourth quarter of two years ago. Clearly, someone is breaking free from this economic slump! As fast as sales are growing, earnings are growing even faster. Year-over-year net profit margins have increased for the past eight-straight quarters.

    But as I said in last week’s issue of CWS Market Review, I was really looking forward to hearing what Bed Bath & Beyond’s guidance for this year would be. In Wednesday’s earnings report, BBBY said it was expecting Q1 earnings of 58 cents to 61 cents per share. That’s a growth rate of 11.5% to 17.3% which is very good.

    For the full-year, BBBY said to expect earnings to grow by 10% to 15%. Let’s break out some math: In this past year the company earned a total of $3.07 per share, so their forecast translates to a range between $3.38 and $3.53 per share. Honestly, I think that’s a conservative estimate but let’s stick with it since it’s still so early in the fiscal year (BBBY’s fiscal year ends in February).

    On Thursday, the stock opened at $54 even. During the day, it got as high as $55.17 and finally closed at $54.55. That’s an amazing 10.45% gain in just one day. Up until then, BBBY had been one of our poorer-performing stocks this year, so score one big victory for holding on to high-quality stocks. There’s an old saying on Wall Street that sometimes the best stock to buy is the one you already own.

    Due to the price surge, shares of BBBY aren’t exactly a screaming bargain anymore but I still think the stock is a good buy. It’s very likely that the company will give us some positive surprises this year and that should continue to help boost shares. I rate Bed Bath & Beyond a “strong buy” up to $55 per share.

    One of our new additions to the 2011 Buy List is Deluxe Corp. ($DLX). I’ll admit that this was a bit of an oddball buy but I’m a stock junkie so I’ll go practically anywhere to find a good stock. Little did I know that DLX would turn out to be one of our biggest winners so far: through Thursday, shares of Deluxe are up 21.76%. Whodathunkit?

    Deluxe is in the business of printing checks, which, to put it kindly, is a business with a limited future. I often tell investors, especially new investors, not to pay so much attention to what a company does. Instead, they should pay attention to how well the company does it. This is counterintuitive to how we think about business. Simply put, there’s money to be made in lots of places, and right now, Deluxe is a cash flow machine.

    The shares ended 2010 at roughly half their 2007 high. Plus, they pay a decent dividend so I decided to add DLX to this year’s Buy List. In January, Deluxe reported Q4 earnings of 78 cents per share which was seven cents more than Wall Street was expecting.

    With that earnings report, Deluxe said to expect earnings this year to range between $2.85 and $3.10 per share. That gave the stock an incredibly low P/E Ratio of eight. Even with the shares’ impressive rally, DLX is still going for only nine times the upper end of its range. On top of that, the 25-cent quarterly dividend works out to a yield of 3.6% which is more than a 10-year Treasury bond’s yield. Don’t let Deluxe’s dullness fool you. It’s a very good buy up to $30 per share.

    First-quarter earnings season will start next week. Most of our Buy List stocks will report in late April and early May. However, we will have one early-bird earnings report and that will be from JPMorgan Chase ($JPM) which reports before the opening bell on Wednesday, April 13th.

    For the fourth-quarter earnings report, I was convinced that JPM would beat Wall Street’s forecast of 99 cents per share. I said it would be at least $1.10 per share. It turned out to be $1.12 per share. The stock responded well and cracked $48 by mid-February but it hasn’t been able to top that price since then. The other good news was that JPM raised its dividend from five cents per share to 25 cents per share.

    Wall Street currently expects JPM to report Q1 earnings of $1.16 per share. My numbers say to expect $1.24 per share. I’ll be very curious to hear how well JPM’s business units are performing. The most important factor affecting JPM is that the extra-wide yield curve is very good for them. Jamie Dimon, the CEO, just said that JPM could earn $22 billion to $24 billion in a “normal” business environment. That’s insanely good (around $5.60 to $6.20 per share), but Dimon didn’t say when. He just said that’s what they could do when things are “normal.” JPM is a very strong company. I think it’s a great buy below $50 per share.

    That’s all for now. 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!

  • Morning News: April 8, 2011
    , April 8th, 2011 at 7:45 am

    EU Stress Tests to Examine 90 Banks, 5% Core-Capital Pass Rate

    Battle Starts Over British Bank Rules

    Portugal to Face Strict EU Aid Terms Amid Political Storm

    Japanese Central Bank Aids Utility, Rebuilding

    Gold At Record In Asia; Silver Breaks $40/Oz.

    Obama Demands Budget Deal to Avert Government Shutdown

    The Logic of Cutting Corporate Taxes

    Gas Prices Don’t Stall March Sales At Limited, Other Stores

    Goldman Bets on China Insurance With $900 Million Taikang Stake Buy

    Disney Plans Lavish Park in Shanghai

    Expedia Plans Spinoff

    Google Close to U.S. OK on ITA Deal

    Ergen Wages Deal-a-Month Spree to Boost Dish, EchoStar With Web

    Joshua Brown: Wall Street Gets Paid for the Demolition AND the Salvage

    Howard Lindzon: Web 3.0…The ‘S’hock and ‘A’we Phase…Speed and Acceleration

  • Early Afternoon Market Update
    , April 7th, 2011 at 1:25 pm

    I wanted to give you a quick market update for today’s trading. It’s currently 1:20 pm here in the East. Our Buy List is up 0.51% today while the S&P 500 is down 0.28%. For the year, we’re almost exactly 10%.

    Without question, the heavy lifting today has been done by Bed, Bath & Beyond ($BBBY) which is currently up 10.43% to $54.54.

    Deluxe ($DLX) is up to $28.66 to another new 52-week high. I may have said this before, but I can’t believe that DLX is a 24% winner for us. Yesterday, Ford ($F) got as high as $15.98 although it’s pulled back some today.

    AFLAC ($AFL) was having a good day today. The stock got as high as $55.24 this morning before news of another earthquake in Japan brought the shares to as low as $53.73. Fortunately, cooler heads are prevailing and the stock has rebounded to $54.18. AFLAC continues to be a very good buy.

  • Good Day for BBBY
    , April 7th, 2011 at 9:55 am

    Bed Bath & Beyond ($BBBY) opened at $54 per share.