Archive for October, 2012

• Dividends Soar 19.5% in Q3
  Eddy Elfenbein, October 8th, 2012 at 11:42 am

  According to the latest numbers from Standard & Poor’s, dividends are hot. For the third quarter, the S&P 500 paid out an index-adjusted 7.771 in dividends which is an all-time record. That’s an increase of 19.5% over the third quarter of 2011. For the first and second quarters, dividends rose by 15.1% and 14.9% respectively.

  For the trailing four quarters, the S&P 500 paid out an index adjusted 29.59 in dividends which is also an all-time record. It just narrowly takes out the previous four-quarter peaked which came in the third quarter of 2008. At the latest prices, that comes to a yield of 2% (note that this is going by trailing payouts, not project). For the year, I think it’s very possible for the S&P 500 to pay out 30.60 in dividends.

  Here’s the S&P 500 (in blue, left scale) along with dividends (in black, right scale). The two lines are scaled at a ratio of 50-to-1.

  

  I like to follow dividends because they tend to be stable. During the market plunge of 2008-09, however, dividends took a beating especially in the financial sector. The government wasn’t about to allow bailed out banks to pay funds to their shareholders. As a result, many banks slashed their dividends to the bone.

  Only recently have dividends in the financial sector started to some signs of life. Two weeks ago, the Financial Sector ETF ($XLF) paid out a quarterly dividend of 6.6 cents per share. That’s a 32% increase over one year ago, but it wasn’t that long ago that the XLF was paying out more than 20 cents per share.

• Morning News: October 8, 2012
  Eddy Elfenbein, October 8th, 2012 at 5:55 am

  Shift in Global Growth Engines Signals Gain After Pain

  Europe Finance Ministers Meet Amid Spanish Woes

  German Trade Surplus Boosted by Strong Exports

  East Asia Growth Seen at 11-Year Low on China Slowdown

  Japan Carmakers To Cut China Production By Half

  US Follows Australia In Naming Huawei As A Possible Security Threat

  Bank Profit Leading S&P 500 as U.S. Earnings Growth Sputters

  Oil Declines a Second Day as Europe Ministers Meet Amid Slowdown

  BAE’s Largest Investor Voices Concerns Over EADS Merger

  UN Says Europe Wastes 50% Of Fruit And Vegetables — And America Isn’t Much Better

  Business Hiring Calms Concerns About U.S. Fiscal Cliff

  Chevy Sonic-to-Fiat 500 Surge in Big Year for Small Cars

  The Patent, Used as a Sword

  Jeff Miller: Weighing the Week Ahead: Entering a Season of Fear?

  John Hempton: Carlyle’s China Problem: Some Questions For David Rubenstein

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• Highest Close Since 2007
  Eddy Elfenbein, October 5th, 2012 at 10:24 am

  The market is up on today’s jobs report. If the S&P 500 holds up, this will be our highest close since December 28, 2007.

  Here are some more facts about the jobs market.

  For the jobs-to-population ratio to be what it was 12 years ago, we’d need 13.5 million more jobs, or 21 million fewer people.

  Since March 2001, the economy has created 999,000 net new jobs.

  Since June 2005, the U.S. economy has created a grand total of -107,000 net jobs.

  In 25 months, the U.S. economy lost 8.779 million jobs. Over the next 31 months, we gained back 4.256 million, or 48.5% of what we lost.

  The number of Americans in the civilian non-institutional population over the age of 16 without a job now stands at 100.798 million.

• September Unemployment = 7.8%
  Eddy Elfenbein, October 5th, 2012 at 8:30 am

  The jobs numbers are out! The U.S. economy created 114,000 jobs last month. The revisions for July and August were 86,000.

  Most surprisingly, the unemployment rate dropped down to 7.8%.

  

• CWS Market Review – October 5, 2012
  Eddy Elfenbein, October 5th, 2012 at 8:12 am

  “The best stock to buy may be the one you already own.” – Peter Lynch

  I’m writing today’s CWS Market Review early on Friday morning so I don’t have the results of September’s jobs report (be sure to check the blog for complete coverage). The jobs report will probably be out by the time you’re reading this. But I can say that Wall Street has very modest expectations. The consensus is for a gain of 115,000 jobs. While that’s better than nothing (or a loss), it’s not very robust growth. The rule of thumb is that you need at least 150,000 new jobs each month to bring down the unemployment rate. The ADP report on Wednesday was better-than-expected so that may be a positive omen for today’s report.

  The stock market seems, for the time being, to have regained its footing. The S&P 500 has rallied all four days this week, and on Thursday, the index closed at its highest level since September 14th. The stock market is a mere 0.3% away from closing at a 57-month high. A good jobs report could carry us across the line.

  Unfortunately, I can’t sound the “all clear” siren just yet. We still have an election to get through, plus more drama in Europe, and most importantly, third-quarter earnings season is only a few days away. I still believe that we’re in for a few bumpy weeks, and I urge investors to be especially cautious right now. But there is some good news to report: Analysts on Wall Street had spent much of this year paring back their earnings forecasts, which the market has mostly ignored, but estimates have stopped trending downward recently. That’s good to see.

  In this issue of CWS Market Review, I want to say a few words about politics and its impact on the stock market. I don’t like to write about politics but I will discuss mistakes investors make, and a biggie is letting your political views interfere with a sound investment strategy. I’ll also let you know which stocks on our Buy List look especially attractive right now. (Here’s a preview: Expect to see a very impressive earnings beat from JPMorgan next week.) But first, let’s look at why elections aren’t so important in the eyes of your stock portfolio.

  Don’t Let Politics Interfere With Your Investing

  You wouldn’t know it from reading much of the financial commentary but the stock market has had an amazing run. In one year and one day from the 2011 low, the S&P 500 has gained nearly 32% while the Dow has added a cool 2,920 points. That’s more than the whole thing was worth 25 years ago.

  I’m also happy to report that our Buy List has continued to thrive. Over the last nine weeks, our Buy List has gained 10.65% compared with just 7.06%. And on Thursday, Buy List standouts Fiserv ($FISV), Medtronic ($MDT) and Hudson City ($HCBK) all hit fresh 52-week highs. Plus, Sysco ($SYY) and Harris ($HRS) made news highs earlier this week. If you recall from last week’s newsletter, I urge you to focus on high-yielding Buy List stocks.

  I was amused this week when I heard market pundits attribute Thursday’s rally to Mitt Romney’s debate performance. Sure, that could be the reason, but honestly, I doubt it. For one, this theory conveniently skips over the fact that the market opened slightly on Thursday. The rally continued throughout the day, well after the market had the opportunity to digest the outcome of the debate.

  This argument beings me to a mistake that too many investors make—they let their political opinions seep into their investing strategy. I like to call this the “Larry Kudlow Fallacy,” after the CNBC pundit and former Reagan official who can always find his political views confirmed by whatever happened on Wall Street that day.

  Don’t mistake me as saying that the market doesn’t care about policy. Public policy can have a major impact on the financial markets. But the market is surprisingly indifferent to the standard back-and-forth bickering of partisan politics. Stock prices are chiefly concerned with earnings and interest rates, and very little else.

  The stock market has performed well under Republicans and Democrats. The market has performed poorly under both as well. And of course, just because one party controls the executive mansion doesn’t mean that they have absolute power. Presidents routinely find their agendas frustrated by Congress or the courts or even public opinion. Any investor who bailed out when President Obama took office missed one of the greatest rallies in history.

  I’ll give you an example of a small story that’s probably far more important to stocks and bonds than anything discussed at the debates. The minutes from the FOMC’s September meeting indicate that several members believe the Fed ought to tie their interest rate policy to some economic metric. The minutes didn’t specify which metrics were discussed. If they mean employment, that probably means that short-term rates will stay low for quite some time. This would be a huge benefit for dividend-paying stocks, and companies like Nicholas Financial ($NICK) that rely on short-term funding.

  In fact, a bigger event for U.S. stock prices may not even be happening in this country. Over the past few days, the Iranian currency has completely fallen apart. The Iranian rial plunged 59% in one week. I won’t even try to guess what the fallout will be.

  Let’s remember the important lesson: The key for being a successful investor is being disciplined. You need to be disciplined in the stocks you select. Disciplined in when you sell. And most importantly, you must be disciplined in holding on during lousy markets. All of these involve holding your emotions at bay, and people can be very passionate about politics. Don’t let the elections rattle you or change your strategy of investing in high-quality stocks. Once the election passes, I see a strong year-end rally forming especially for our stocks on the Buy List.

  Expect an Earnings Beat from JPM

  Here are a few notes on some of our Buy List stocks. I continue to like Ford ($F) a lot. If you can get it below $10 per share, then you’ve gotten a very good deal. Truck sales at Ford are pace for their best year since 2007. Ford is a buy up to $12.

  The fraud suit brought against JPMorgan Chase ($JPM) made a lot of news this week, but there’s less there than meets the eye. I think this was a bit of political grandstanding before the election. Plus, all this happened with Bears Stearns which the government pleaded with JPM to buy.

  Look for another good earnings report from JPM next Thursday, October 11. Wall Street currently expects earnings of $1.21 per share. My numbers say that JPM will easily beat that. JPMorgan is a good buy up to $43 per share.

  One of the best values on our Buy List is Moog ($MOG-A). At $38, the stock is a very strong buy. I rate Moog a strong buy up to $45.

  Before I go I want to say that I was impressed by this week’s ISM report which finally ticked back over 50. The report came in at 51.5. Any number above 50 means that the manufacturing sector is expanding. This was the best report since May.

  That’s all for now. We’ll get some early earnings reports next week. The first Buy List stock to report will be JPMorgan which reports on Thursday. Look for a big earnings beat. I’ll also be curious to see the Fed’s Beige Book which comes out on Wednesday. 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

• Morning News: October 5, 2012
  Eddy Elfenbein, October 5th, 2012 at 5:10 am

  Spain Bailout Seen as Not Imminent as Deficit Doubts Mount

  Top Spanish Banker Says Private Investors Won’t Back Bad Bank

  Japan Political Shifts Expose BOJ to Demands for Action

  Japan Stocks Rise on ECB Bond Pledge, U.S. Economic Data

  FDI In Insurance: CPI(M) Flays Indian Government’s Move To Raise Cap

  Coal Producers Nervous As South Africa Strikes Spread

  Fed’s Bullard Warns Inflation Won’t Ease US Debt Burden

  Weak U.S. Labor Market Looms Ahead Of Elections

  California Gas Stations Shut as Oil Refiners Ration Supplies

  When Job-Creation Engines Stop at Just One

  Hit Machine Fading, Zynga Warns Again

  Facebook Flirts With Local Geeks in Battle for Russia

  Facebook Investor IPO Lawsuits Sent to New York Judge

  Stone Street: Bassmasters, It’s A Fishing Show

  Howard Lindzon: A Socially Loved Trend Ignored by the Old Guard…3D Printing

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• Looking at the 2/10 Spread
  Eddy Elfenbein, October 4th, 2012 at 12:36 pm

  Here’s another look at the spread between the 10-year and 2-year Treasuries. I like to check in on this metric every so often because it has a decent track record of going negative before a recession starts.

  There are many indicators that tell us if we’re currently in a recession but it’s hard to find a good one that’s a leading indicator. Note how often the 2/10 spread has gone negative before the grey bars (which are official recessions).

  

  The spread is still over 140 basis points which is far from the danger area. In fact, the spread has been rising recently.

  Of course, not all metrics are perfect including one like this which has done so well from the last 30 years. The problem is that the 2/10 spread may not work so well in an era of zero short-term interest rates. The two-year is currently going for about 0.25% so it’s hard for the 10-year to fall below that.

• Morning News: October 4, 2012
  Eddy Elfenbein, October 4th, 2012 at 5:49 am

  Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting

  France’s LBO Firms Predict ‘Death’ From Hollande’s 75% Carry Tax

  Cyprus Said to Seek 11 Billion Euros in Fifth European Bailout

  China’s Slowdown Reverberates as ADB Cuts Forecasts

  Japan Political Shifts Expose BOJ to Demands for Action: Economy

  P.M. Kitco Metals Roundup: Gold Ends Higher, Notches Fresh 7-Mo. High as Bulls Remain in Firm Command

  How to Play This Range-Bound Oil Market

  Manufacturing in U.S. Expands Unexpectedly as Orders Rise

  U.S. Companies Add Jobs In September, Service Sector Expands

  3M Dropping Office Unit Deal Leaves Avery Seeking Buyer

  Netflix is Loved Again – Stock Surges 11%

  Vanguard FTSE Switch to Boost China as Korean Stocks Sold

  H.P. Shares Fall as Chief Sees Trouble

  Edward Harrison: Why QE Will Fail, Dissonant Voices Edition

  Phil Pearlman: Talking Landholding Companies with Todd Sullivan for ReutersTV

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• Hewlett-Packard Plunges
  Eddy Elfenbein, October 3rd, 2012 at 2:45 pm

  Shares of Hewlett-Packard ($HPQ) plunged as low as $15.15 today as Meg Whitman projected a profit next year between $3.40 and $3.60 per share. Wall Street has been expecting $4.18 per share.

  This stock has been absolutely clobbered. Earlier this year, HPQ got to $30 and in 2010 it got as high as $49. Two years ago, when the stock was at $42, I was warning investors to stay away from HPQ. I reiterated that advice again, again and again.

  As an investor, whenever you hear the words “growth through acquisition” — run!

  

• The Dow Is Up 2,800 Points in the Past Year
  Eddy Elfenbein, October 3rd, 2012 at 2:16 pm

  One year ago today, the S&P 500 hit its closing low for the year at 1,099.23. It was the first time the index dropped below 1,100 in nearly 13 months. The next day, the index got down to its intra-day low of 1,074.77.

  From the close of October 3rd to right about now, the S&P 500 has gained close to 32%. Of course, you wouldn’t know it from reading many blogs or following the financial news that stocks have done so well. It was about this time one year ago that crank Alessio Rastani gained notoriety by telling the BBC that the world economy was toast. The Dow has added over 2,800 points in the past year..