Archive for January, 2013

  • Morning News: January 14, 2013
    , January 14th, 2013 at 6:45 am

    Euro Leaders Declaring Worst Is Over Turn to Economy Woes

    Euro-zone Output Falls Most in Three Years

    Government, Bank of Japan to State 2% Inflation Target in Nonbinding Agreement

    Mainland China Stock Index At 6-Month High

    India Wholesale Inflation Slows to 3-Year Low

    Ugly Choices Loom Over Debt Clash

    Retailers Fear Payroll Tax Will Cut Consumer Spending

    Google Gains From Creating Apps for the Opposition

    UPS Adandons TNT Express as EU Moves to Reject Takeover

    Ardagh Offers $1.7 Billion For Verallia NA: Saint-Gobain

    Swatch Buying Harry Winston Luxury Brand In $1 Billion Deal

    Cable & Wireless Sells Macau Stake For £465 Million

    Equities Bear Brunt of Wall Street Job Cuts on Volume

    Stone Street: Indecent Proposal for SuperValu?

    Jeff Miller: Weighing the Week Ahead: Time To Focus On Expectations?

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  • The Godfather: All Deleted Scenes
    , January 13th, 2013 at 6:50 pm

  • The Aggregate Spread
    , January 12th, 2013 at 6:11 pm

    Jeff Miller of “A Dash of Insight” has a fascinating post on the economic forecasting model of Robert F. Dieli. The model is based on what Dieli’s calls the “Aggregate Spread,” which is the unemployment rate plus the long-term Treasury yield minus the inflation rate and the Fed Funds rate. Any time the Aggregate Spread is less than 2% (or 200 basis points), it forecasts a recession in nine months.

    Jeff and Bob have a few videos which track the model’s results over the decades. For now, the model says we’re safe from a recession.

    Here I tried to reconstruct the model at the St. Louis Fed’s database.

    fredgraph01122013

  • Cognizant Technology Hits 52-Week High
    , January 11th, 2013 at 11:06 am

    In addition to the record earnings from Wells Fargo ($WFC), more good Buy List news is that Cognizant Technology ($CTSH) is at a new high this morning thanks to strong earnings from one its rivals. Generally, good news from one stock in a sector helps everyone in the sector. Infosys (INFY) beat earnings expectations and the shares are currently up 17% today. CTSH is up about 4% and it’s due to report earnings in another month.

    In other Buy List news, Ford Motor ($F) announced that it’s hiring 2,200 white collar workers. This is the biggest such increase in over a decade. The stock broke $14 this morning. The last time Ford was over $14 was July 7, 2011.

  • Wells Fargo Reports Record Earnings
    , January 11th, 2013 at 10:47 am

    This morning, Well Fargo ($WFC) reported record quarterly earnings of 91 cents per share which was two cents more than Wall Street’s consensus. Profits rose 24% to $5.1 billion.

    Wells Fargo, unlike many of its rivals, has been able to steadily increase its revenue. The first bank to release fourth-quarter earnings, Wells Fargo reported $21.95 billion in revenue in the fourth quarter, up 7 percent from a year earlier.

    Much of the revenue gains stemmed from the bank’s consumer lending business, as borrowers jumped on record low interest rates to refinance their mortgages. Wells Fargo, which dominates the market as the nation’s largest mortgage lender, notched $125 billion in mortgage originations, up from $120 billion in the fourth quarter of 2011. Refinancing applications accounted for nearly 75 percent of that total.

    The big profit in the group came from the extra money that Wells Fargo makes bundling the mortgages into bonds and selling them to the government. In the fourth quarter, the bank reported $2.8 billion of so-called net gains on its mortgages activities, up 51 percent from the previous year.

    Under the tenure of its chief executive, John G. Stumpf, Wells Fargo has aggressively expanded into the mortgage market, a strategy that might help the bank surpass its rivals in profits, notably JPMorgan Chase.

    (…)

    Wells Fargo is the reigning titan in the mortgage industry, generating roughly a third of all the mortgages across the United States. Mortgage originations continued to climb, up 4 percent to $125 billion.

    Adding to its mortgage-related profit, Wells Fargo reported a $926 million profit from its servicing business, in which the bank collects payments from homeowners. That’s up roughly 6 percent from a year earlier.

    Alongside the consumer loan business, Wells Fargo had gains in its wealth management business, a particular focus for the bank to defray the impact of federal regulations that dragged down profits elsewhere.

    This was a solid earnings report. Wells is doing many of the right things. I think the bank will raise its dividend at some point, but the Feds need to sign off on that first. The stock is currently down in today’s trading about 1.5%.

  • CWS Market Review – January 11, 2013
    , January 11th, 2013 at 7:42 am

    “The key to making money in stocks is not to get scared out of them.” – Peter Lynch

    I’ll sum up this market up in four words: Fear is melting away. Wall Street continues to rally as the fear that gripped the market so intensely slowly fades away. This has been great news for the broader market—and especially for our new Buy List.

    On Thursday, the S&P 500 closed at its highest level in more than five years. What’s even more impressive is that the Volatility Index ($VIX), also known as the Fear Index, recently dropped to its lowest level in five-and-a-half years. After seven days of trading, our Buy List is already up 4.34% for the year, which is 1.12% ahead of the S&P 500.

    Earnings season is about to start, and we’ve had a flurry of good news this week. Both Stryker ($SYK) and Medtronic ($MDT) raised the low end of their full-year guidance. DirecTV ($DTV) rallied after the company said it had added 100,000 new subscribers in Q4.

    How about Nicholas Financial ($NICK)? The little powerhouse came close to breaking through $14 per share. On Thursday, Oracle ($ORCL), Fiserv ($FISV) and Stryker ($SYK) all made fresh 52-week highs. (Is it me, or didn’t Oracle just break $30 a few weeks ago—and it’s already closing on $35?)

    Perhaps the best news of all came from Ford ($F). The automaker said it’s doubling its dividend. In the CWS Market Review from a month ago, I said it is possible Ford could sweeten its dividend, but honestly, I was expecting something minor. Not doubling! This is an excellent sign of confidence from Ford. The stock got as high as $13.94 on Thursday, which is an 18-month high.

    The End of the Fear Trade

    Before we get too carried away, I want to warn you that this is a tricky market. Last week, I mentioned that we’re witnessing a “high-beta rally,” which means that a lot of bad stuff is getting pulled along with the good stuff. Fortunately, we have the good stuff.

    What’s interesting is that the most-hated stocks on Wall Street, meaning those that are “shorted” the most, have been doing the best. The folks who have been short this market have been getting squeezed. This means they have to cover their shorts, and that’s propelling those hated stocks even higher.

    I’ll explain what’s going on with a simple example. Let’s say you have two stocks that are perfectly equal in every way. Same industry, same finances, same logos, you name it, they’re exactly alike. Both are expected to earn $1 per share this year. However, there’s one difference. Stock A is expected to earn $1 per share, plus or minus two cents per share, while Stock B is expect to earn $1 per share, plus or minus 30 cents per share.

    So which stock is going to be worth more? The answer is that in most cases Stock A will be worth more. It’s not entirely logical, but investors are more scared of the downside than they are optimistic for the upside.

    But here’s the important part investors need to understand: While Stock A will usually be worth more than Stock B, that gap will fluctuate a lot. Sometimes, the crowd turns fearful and the A/B gap will open wide. But other times, when folks are more confident, that gap will narrow. The A/B gap will move according to the crowd’s fear level.

    Now let’s bring our thought exercise back to the real world. What happened over the past few years is that the whole world got terrified. The A/B gap opened to ridiculous levels. Any investment that wasn’t a surefire guarantee got dumped. It wasn’t just stocks: we saw it in bonds as well. High-grade corporates lagged Treasuries, and junk bonds lagged high-grades.

    As the fear is slinking away, the fear gap is closing up. As a result, the Stock Bs of the world are outperforming the Stock As. Meaning that anything that’s seen as carrying higher risk has been doing well. In the real world, we can see that in the fact that small-cap indexes like the Russell 2000 ($RUT) and S&P Small-Cap 600 (^SML) have recently hit all-time highs, even though the S&P 500 still has a way to go to match its all-time high. Even the Mid-Cap 400 (^MID) is at a new high. Last week, I showed you how well the High-Beta ETF ($SPHB) has performed.

    This chart shows you that since mid-November, small-caps have done the best, followed by the mids, followed by large. Performance has been perfectly ordered by size (or risk, B to A).
    big.chart01112013

    Let me caution investors not to be too impressed by some of the stocks that they’ll see rally. Facebook ($FB), for example, is back over $30. FB is horribly overpriced, and there are lots of stocks rallying that are even worse. Don’t chase them. Instead, investors should stick with high-quality stocks like the names you’ll find on our Buy List. Now let’s look at some of the recent good news from our stocks.

    Stryker and Medtronic Raise Guidance

    Even though earnings season hasn’t begun yet for our Buy List, two of our stocks got ahead of the game by raising their full-year guidance forecasts. I should add that I like stocks that provide full-year forecasts. Companies aren’t required to do this, so it’s nice to see firms give more information to the public.

    On Monday, Medtronic ($MDT) raised its full-year forecast to a range of $3.66 to $3.70 per share. That’s an increase of four cents per share to the low end. Medtronic has stuck by its original forecast since May, which is commendable. The increase is due to a research tax credit.

    Note that Medtronic’s fiscal year ends in April, so Q3 earnings are due in about six weeks. For the first six months of this fiscal year, Medtronic earned $1.73 per share. That means we can expect $1.93 to $1.97 for the back end. Medtronic earned $3.46 per share last year. Medtronic remains a good buy up to $44 per share.

    On Wednesday, Stryker ($SYK) raised the low end of their full-year guidance by one penny per share. The company now sees full-year earnings ranging between $4.05 and $4.07 per share. Stryker also said that sales for Q4 rose by 5.5%, while the Street had been expecting an increase of 2%. For 2013, Stryker reiterated its full-year forecast for earnings of $4.25 to $4.40 per share. Wall Street is expecting $4.30 per share. Earnings are due out on January 22nd. The shares closed Thursday at $58.84, which is a new 52-week high. I’m raising my Buy-Below on Stryker to $62.

    Ford Doubles Dividend

    After the South Sea Bubble went ka-blamo in the early 18th century, Sir Isaac Newton famously said, “I can predict the movement of heavenly bodies, but not the madness of crowds.” Ike, my man, I feel you.

    Long-term readers of CWS Market Review know how much I like Ford ($F). When the stock dropped below $9 last summer, I thought either Wall Street or I had lost our marbles. Possibly both.

    The numbers said Ford was cheap, and we stuck to our guns. Today, suddenly Ford is one of the hottest stocks on Wall Street. The stock got another big boost this week when the automaker said that it’s doubling its quarterly dividend from five cents to ten cents per share. The dividend hasn’t been this high in seven years. Going by Thursday’s close, Ford yields 2.89%. The stock jumped to an 18-month high. I rate Ford an excellent buy up to $15.

    New Buy Below Prices

    Thanks to our Buy List’s strong performance, I want to adjust several of our Buy Below prices. Remember, these aren’t price targets; they’re guidance for what’s a good entry point. This week, I’m raising Oracle’s ($ORCL) Buy Below by $2 to $37 per share. As I mentioned earlier, I’m raising Stryker ($SYK) to $62. I’m also raising Fiserv ($FISV) to $88 and WEX ($WXS) to $82. Quiet, unassuming Moog ($MOG-A) is our third-best performer this year, with a 7.24% YTD gain. Moog’s new Buy Below is $46. I’m raising CR Bard ($BCR) to $108.

    JPMorgan Chase ($JPM) is due to report earnings next Wednesday, January 16th. The Street currently expects earnings of $1.20 per share. My numbers say that’s too low. For now, I’ll raise my Buy Below to $47 per share, which is just above the current price. Let’s see how the earnings shake out before we make a larger move.

    That’s all for now. Earnings season starts to heat up next week. Remember JPM reports on Wednesday. We’ll also get important reports on inflation and industrial production. 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: January 11, 2013
    , January 11th, 2013 at 6:37 am

    Japan’s Abe Unveils 10.3 Trillion Yen Fiscal Stimulus

    China’s Inflation Accelerates as Chill Boosts Food Prices

    Bats Blaming Market Rules as Calls of Overhaul Grow

    China Car Sales Set to Surge in 2013

    UK Industrial Production Growth Weaker Than Forecast

    Why Natural Gas Will Stay Cheap in 2013

    Trade Gap in U.S. Probably Narrowed as Fuel Costs Declined

    Geithner’s Tenure Defined by Financial Crisis

    Bank Deal Ends Flawed Reviews of Foreclosures

    Ford Plans 2,200 Salaried Hires in Biggest Increase Since 2001

    FAA to Launch Review of Boeing’s 787 Dreamliner

    Chevron Strikes Optimistic Note for Quarterly Earnings

    Nokia Has Some Good News After Two Years of Gloom

    Edward Harrison: Review: How My Ten Surprises for 2012 Fared

    Jeff Carter: Are You Connected?

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  • Ford Doubles Dividend
    , January 10th, 2013 at 11:28 am

    Excellent news from Ford ($F) today. The company is doubling its quarterly dividend from five cents to 10 cents per share. The dividend is now at a seven-year high.

    Ford last paid a 10-cent dividend in June 2006. Shortly after that, the company reduced and later suspended its dividend as it struggled to avoid bankruptcy. It restored dividends in March 2012.

    “We had thought that a dividend increase was likely but this announcement is larger than we expected,” RBC Capital Markets analyst Joseph Spak said.

    “Today’s announcement shows strong confidence in their outlook, balance sheet and liquidity.”

    Everything is moving in the right direction for Ford. Going by yesterday’s close, Ford yields 2.97%. The stock has been as high as $13.94 today which is an 18-month high. Look for a good earnings report soon.

  • Morning News: January 10, 2013
    , January 10th, 2013 at 6:58 am

    Draghi Spared as Confidence Swing Quells Rate-Cut Talk

    Spain Kicks Off Tough 2013 With Strong Bond Sale

    China Exports Rebound But 2013 Outlook Remains Murky

    Obama Picking Lew for Treasury Fuels Fight on Budget

    Rules Set for Home Lenders

    A Trillion-Dollar Coin Brings a Jackpot of Jests

    Arcelormittal Fundraising Upped To $4 Billion

    Deep Cuts Raise Questions About Morgan Stanley

    Chinese Firm Buys U.S. Solar Start-Up

    CEO Akerson Sets Goals for a Revitalized GM

    Housing Rebound May Drive Year of the Truck for Detroit

    Public Goals, Private Interests in Debt Campaign

    NYC Firm Hit Hard on 9/11 Gives $10 Million in Sandy Aid

    Phil Pearlman: Its Official: Jeff Bezos Won the Internet

    Howard Lindzon: Herbalife or Herbadeath?….and Social Markets are Here to Stay!

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  • Good Day for Our Buy List
    , January 9th, 2013 at 6:11 pm

    Today was an outstanding day for our Buy List. The portfolio gained 1.12% compared with 0.27% for the S&P 500. Thirteen of our 20 stocks outperformed the broader market.

    As I mentioned earlier, Stryker ($SYK) had a good day. The stock gained 2.47% in today’s session. Nicholas Financial ($NICK) was very strong. The shares jumped 6.44% and came close to breaking $14 per share. DirecTV ($DTV) rallied 2.77% on news of subscriber growth.

    After just six trading days this year, our Buy List is up 3.70% to the S&P’s 2.44%.