Archive for December, 2012

  • Nike Gets Ready to Split
    , December 21st, 2012 at 1:18 pm

    Next week, Nike ($NKE) will split 2-for-1 for the fifth time since 1990. This stock has been an amazing performer. Shortly after the 1987 Crash, shares of NKE got as low as 80 cents. Today the stock is at $104.

    Still, I have to say that I think Nike is very overpriced. Nike should be going for about $70.

  • Fiscal Cliff Talks Dampen Market
    , December 21st, 2012 at 11:40 am

    The stock market is down so far this morning, although the futures action signaled that it could have been much worse. After the dissolution of John Boehner’s attempt to bridge the Fiscal Cliff, the futures dropped down to 1,391. Fortunately, the S&P 500 is currently around 1,426 which is a loss of about 1.3%. That’s still higher than where we were when the market closed last Friday.

    The government reported that consumer spending rose by the most in three years:

    The Commerce Department said on Friday inflation-adjusted consumer spending rose 0.6 percent, and after-tax income climbed 0.8 percent when adjusting for inflation.

    The department gave no indication super storm Sandy, which slammed the East Coast in late October and kept many people out of work for weeks, had impacted the data or its collection in November.

    Spending before taking into account changes in prices rose 0.4 percent. Economists polled by Reuters had expected nominal consumer spending would rise 0.3 percent last month.

    The rise in real spending was the largest increase since August 2009 and suggested purchases by consumers were not taking the hit many expected due to growing fears the economy could slip into recession next year.

    The bad news this morning is the consumer sentiment dropped to a five-month low.

    The Thomson Reuters/University of Michigan consumer sentiment index decreased to 72.9, the weakest since July, from 82.7 in November. Economists projected a final reading of 75 for December, according to the median of 66 estimates in a Bloomberg survey. Today’s figure was lower than a preliminary report earlier this month.

  • CWS Market Review – December 21, 2012
    , December 21st, 2012 at 9:48 am

    Let’s jump right into the main event of this week’s issue. Here are the 20 stocks for my 2013 Buy List:

    AFLAC ($AFL)

    Bed Bath & Beyond ($BBBY)

    CA Technologies ($CA)

    Cognizant Technology Solutions ($CTSH)

    CR Bard ($BCR)

    DirecTV ($DTV)

    FactSet Research Systems ($FDS)

    Fiserv ($FISV)

    Ford ($F)

    Harris Corporation ($HRS)

    JPMorgan Chase ($JPM)

    Medtronic ($MDT)

    Microsoft ($MSFT)

    Moog ($MOG-A)

    Nicholas Financial ($NICK)

    Oracle ($ORCL)

    Ross Stores ($ROST)

    Stryker ($SYK)

    Wells Fargo ($WFC)

    WEX Inc. ($WXS)

    There are five new stocks, and five stocks I’m removing. The five new stocks are Cognizant Technology Solutions ($CTSH), FactSet Research Systems ($FDS), Microsoft ($MSFT), Ross Stores ($ROST) and Wells Fargo ($WFC). I’ll have more to say about the new buys in upcoming blog posts.

    The five stocks I’m removing are Hudson City Bancorp ($HCBK), Johnson & Johnson ($JNJ), JoS. A Bank Clothiers ($JOSB), Reynolds American ($RAI) and Sysco ($SYY). I don’t necessarily consider the stocks I’m removing to be Sells.

    Note that we’re turning over just one-fourth of our Buy List. You don’t have to go madly in and out of stocks to beat the market.

    For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided into 20 positions of $50,000 each. The “initial price” will be the closing price on December 31, 2012. The market will be closed on New Year’s Day, and the new list will take effect once trading starts on Wednesday, January 2nd.

    As usual, this list is locked and sealed, and I can’t make any changes for the next 12 months. I may have to make adjustments along the way for any buyouts or mergers that may occur. If I do, I’ll be sure to explain exactly what’s happening.

    I’ll also periodically adjust my Buy Below prices. Please note that these aren’t “price targets.” They’re guidance for optimal entry prices. The reason we do this is so no one chases after one of our stocks and gets a lousy price.

    Earnings from Oracle and Bed, Bath & Beyond

    The new Buy List is the big news this week, but I also wanted to touch on the earnings reports from Oracle ($ORCL) and Bed, Bath & Beyond ($BBBY). As I told you last week to expect, Oracle easily topped its earnings expectations. For its fiscal Q2, Oracle earned 64 cents per share, which was three cents better than Wall Street’s consensus.

    This was a solid report for Oracle. New software license and subscription sales rose by 17%. That’s usually a good indicator of future revenue. Hardware is still very weak, but the company has indicated that that’s ready to turn a corner. Here’s a good video of Mark Hurd discussing the earnings report.

    The market was very pleased with Oracle’s results: the stock broke out to a new 52-week high and is now a 32.32% winner on the year for us. For fiscal Q3 (which is December, January and February), Oracle said it expects earnings between 64 and 68 cents per share. The Street had been expecting 62 cents per share, so that’s good news. Oracle remains a very good buy any time it’s below $35 per share.

    After the close on Wednesday, Bed Bath & Beyond reported fiscal Q3 earnings of $1.03 per share. The Street had been expecting $1.02 per share. These results were pretty good: sales rose 15.3% to $2.702 billion. The key metric to watch for with retailers is comparable-store sales. For Q3, that rose by 1.7%. The company estimates that Hurricane Sandy knocked 0.9% off comparable-store sales growth. Overall, Q3 was a nice comeback from the poor results for Q2. Bed Bath & Beyond also announced a $2.5 billion share repurchase program. Personally, I’d much rather they had a dividend.

    Now let’s look at guidance. For a retailer like BBBY, Q4 is extremely important. For Q4, the company sees earnings ranging between $1.60 and $1.67 per share. Wall Street had been expecting $1.75, so this was a disappointment, and the stock got cracked for 6.5% on Thursday. The shares are now about where they were at November’s low.

    The problem is that the company faces some higher operational costs, plus they’ve become overly reliant on coupons in order to get people in the door. That was understandable during the housing bust, but they need to wean themselves off that strategy. I’d much prefer to see BBBY hit comparable-store sales growth of 4%, and I think they can do that. Despite the soggy guidance, BBBY is still putting up some impressive numbers, and that’s why I’m sticking with them for 2013. This is a very well-run company, and I’m not going to be rattled by short-term jitters. For now, I’m adjusting my Buy Below price to $60.

    What Happened With Nicholas Financial

    I want to make sure everyone is clear on what happened this week with Nicholas Financial ($NICK). Tuesday was the last day you could buy shares in order to quality for the big dividend. That’s why the stock fell on Wednesday. Of course, shareholders didn’t lose any value, since they’re getting the $2-per-share dividend.

    On Wednesday’s trading, NICK lost $2.29 per share, so that was $2 due to the dividend and 29 cents as a part of regular trading. Understand that we’re still way ahead. When the big dividend was first announced, NICK was at $13.35, so the stock has only lost 89 cents per share. In effect, the stock gained $1.11 per share before we adjust for the $2 dividend.

    Before I go, I want to raise my Buy Below price on AFLAC ($AFL) to $57. I’m also raising WEX Inc.’s ($WXS) to $77 per share.

    That’s all for now. The market closes at 1 p.m. on Monday and will be closed all day Tuesday. 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: December 21, 2012
    , December 21st, 2012 at 5:30 am

    If You Bought Greek Bonds in January You Earned 80%

    S&P Cuts Cyprus Rating

    UK Told To Add Break-Up Threat To Bank Reform

    Japan’s Abe Offers Olive Branch To Seoul

    Boehner’s “Fiscal Cliff” Plan Fails

    Swaps ‘Armageddon’ Lingers as New Rules Concentrate Risk

    Exchange Sale Reflects New Realities of Trading

    Third-Quarter U.S. Growth Revised Higher

    Sales of Existing U.S. Homes Climb to Three-Year High

    GE to Buy Avio’s Aviation Parts Business for $4.3 Billion

    Arcelor Takes $4.3 Billion Write Down on Europe

    Lilly to Pay $29.4 Million to Settle SEC Allegations

    Instagram Does an About-Face

    Crossing Wall Street Stock Picks (2012)

    Howard Lindzon: Howie’s Life Lessons

    Jeff Miller: Fiscal Cliff Notes – Plan B Edition

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  • S&P 500 Futures
    , December 20th, 2012 at 11:50 pm

    It’s the “down” part of the graph that has people worried.

  • Futures Down Big
    , December 20th, 2012 at 8:29 pm

    Futures for the S&P 500 are trading down big right now after John Boehner pulled his tax bill because he doesn’t have enough votes. Boehner had been pushing his Plan B bill to counteract the president.

    A move like this isn’t completely unexpected. Both sides need to prove to their bases that they’ve done all that they can do. They’re both willing to use the market as the one who vetoes their pretend standoff. On Tuesday, I tweeted:

    In the next two weeks the S&P 500 will drop 2% in a day as someone is accused of undermining the good vibes from the Cliff negotiations.

    Two weeks? More like two days.

  • “Market Experts’ Advice for 2013”
    , December 20th, 2012 at 6:34 pm

    Roben Farzad of BloombergBusinessWeek was kind enough to include me in his round-up of “Market Experts’ Advice for 2013.”

  • 2012…Now in Chart Form
    , December 20th, 2012 at 3:45 pm

    Matt O’Brien of The Atlantic asked a bunch of folks, including me, for their “charts of the year” for 2012.

    If you’re a chartophile, like me, then this is a quick and easy way to see the important trends that defined 2012.

    So check out “Everything You Need To Know About the Economy in 2012, in 34 Charts.”

  • Q3 GDP Revised Up to 3.1%
    , December 20th, 2012 at 10:52 am

    The stock market is mostly flat this morning. The government revised the third-quarter GDP report up to 3.1%. That’s the third-best growth number of the last 21 quarters. The number for Q4, however, most likely won’t be nearly as good. The weak spot in today’s economic news is that jobless claims rose for the first time in five weeks. Despite the rise, we’re very close to making a five-year low.

    From our Buy List, coming off its good earnings report, Oracle ($ORCL) announced it’s buying Eloqua for $811 million. The dud on the Buy List this morning is Bed Bath & Beyond ($BBBY). The stock is down about 9% after its weak forecast for Q4. I thought the stock wouldn’t be down today as much as it was after-hours. Such is not the case.

  • Morning News: December 20, 2012
    , December 20th, 2012 at 7:20 am

    Foreign Exchange Outlook Splits Banks

    U.K. Retail Sales Stall as Consumer Weakness Persists

    Rajoy Drives Spanish Revolution With Low-Cost Manufacture

    Leniency Denied, UBS Unit Admits Guilt in Rate Case

    Libor Banking Scandal May Have Cost U.S. Mortgage Agencies $3 Billion

    Obama Proving $418 Billion Bailout No Failure as GM Buys Shares

    AMT Will Hit 100M People, Warns IRS Commissioner

    Fed’s $4 Trillion Rescue Helps Hedge Fund as Savers Hurt

    FedEx Maintains Full-Year Forecast Amid Economic Concerns

    Ericsson to Take $1.2 Billion Charge on Writedown of Cellphone Venture

    Knight Takes Higher Price in Getco Sacrifices Cash Certainty

    Google to Sell Motorola Home to Arris for $2.35 Billion

    N.Y.S.E. Is in Talks for Merger

    Joshua Brown: Investment Fads and Themes by Year, 1996 – 2012

    Cullen Roche: What is FedEx Telling Us About The Global Economy?

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