Archive for April, 2013

• CWS Market Review – April 5, 2013
  Eddy Elfenbein, April 5th, 2013 at 7:20 am

  “There is only one side of the market, and it is not the bull
  side or the bear side, but the right side.” – Jesse Livermore

  Let me give you the briefest summation of Wall Street over the last six months: Investors worry about something that’s unlikely to happen, the financial media amplifies said worry, calming voices are ignored, the markets trends downward, the financial media then calls for civility and public-spiritedness to address the needless worry they just promoted, incredibly the world doesn’t end, the worries fade away, volatility falls and the market quietly rallies.

  We’ve repeated this dance so many times I’m beginning to lose count. There was the Fiscal Cliff, the debt ceiling (remember the $1-trillion coin), the elections in Italy, the fiasco in Cyprus and the Great Rotation out of bonds. The latest worry is war rumblings from North Korea. While the rhetoric is disturbing, the reality is that Pyongyang’s bark is far worse than its bite.

  

  What’s interesting is that the market has so far ignored the threats from North Korea. I suspect that we’re going through Apocalypse Fatigue. Michael Gayed has suggested we’re in a Honey Badger market: Whatever latest worry comes our way, stock market don’t care. I suspect he’s on to something.

  There are, however, stealth movements occurring within the market that we need to pay attention to. Since the middle of March, the market has become more defensive. A lot more defensive. The more-conservative sectors have led the more-aggressive sectors. In a few cases, the divergence has been rather stunning. The Healthcare ETF ($XLV), for example, has beaten the S&P 500 for the last 12 days in a row. Both Utilities ($XLU) and Consumer Staples ($XLP) have been recent leaders as well.

  The move towards defensive stocks is telling us something. Coupled with the recent drop in gold, this suggests that investors are finally shying away from risk. The price of gold actually fell below the S&P 500 for the first time since May 4, 2010 (see chart above). I won’t go so far as to say this portends a bear market, but it may spell an end to the market’s appetite for risk.
  
  What to do now: Investors should remain calm and make sure they own high-quality stocks such as the ones on our Buy List. Dividends are especially important right now. A 3% yield might not seem like a lot, but traders will swim to those lifeboats if things get rough. Earnings season starts next week, and I expect that the gap between winners are losers will grow even wider. Patience and discipline are our keys.

  Updates on Every Buy List Stock

  This week, I want to do something a little different. Since there hasn’t been much news lately, and since earnings season is about to begin, I thought I’d offer a brief update for every stock on the Buy List.

  AFLAC ($AFL) broke above $53 earlier this week before pulling back. Later this month, we’ll find out how much the weaker yen has been biting away at AFL’s bottom line. After showing a little strength recently, the yen plunged again on Thursday. Yen or not, I still like AFLAC’s market position. The shares are a buy up to $54.

  Bed Bath & Beyond ($BBBY) will report fiscal Q4 earnings on April 10th. On the last earnings call, BBBY said to expect Q4 earnings to range between $1.60 and $1.67 per share. The Street had been expecting $1.75, so the stock got spanked. The good news was that the stock became a very good bargain, and I sounded the alarm in mid-February. The stock has rallied very nicely since then. I’m going to keep our Buy Below at $65. I suspect BBBY will earn about $1.70 per share, give or take, but I’m more interested in hearing their outlook for the rest of 2013. Stay tuned.

  CA Technologies ($CA) got off to a great start this year but has pretty much stagnated ever since. In January, I predicted the company would beat earnings, and that’s exactly what happened. On the surface, CA appears to be a dull company, but don’t let that fool you. The stock currently yields just over 4%. CA is a good buy up to $27.

  Cognizant Technology Solutions ($CTSH) has drifted lower in recent weeks. If you don’t own CTSH, this is a good opportunity. The IT outsourcer soundly beat earnings in January and guided higher for Q1 and the entire year. CTSH said it sees full-year 2013 earnings of at least $4.31, which means the stock is going for 17.3 times earnings. Buy up to $82.

  CR Bard ($BCR) has been rather sluggish this year. In January, the company warned that this year will be rough, but 2014 should be very good. The stock isn’t in my doghouse just yet, but I want to hear better things from them before I’m willing to raise my Buy Below price. For now, Bard is a buy up to $102.

  DirecTV ($DTV) has been one of our best performers of late. Last week, I raised DTV’s Buy Below to $59 after it beat earnings by 42 cents per share. This is an excellent stock, but I think the shares may take a breather for a bit around $55 since it’s run up so quickly.

  FactSet Research Systems ($FDS) has found a base around $90 per share. If you recall, the stock took a beating after reporting decent earnings. At least, I thought they were decent. Traders, however, seemed to disagree. Don’t let the sell-off scare you: FactSet is a very good company. FDS remains a buy below $95.

  Fiserv ($FISV) made a new 52-week high on Monday. Fiserv is as solid as they come. Q1 earnings are due out on April 29th. Fiserv is a buy up to $88.

  Ford Motor ($F) had a good sales report for March. Earnings should be out around the middle of the month. The Street currently expects 39 cents per share, which is flat from a year ago. Ford is doing well, but Europe may still be an anchor. Ford is a buy up to $15 per share.

  Harris Corp. ($HRS) may be the single-best value on our Buy List right now. The stock took another hit after Oppenheimer said that Harris is running below its full-year revenue forecast. For now, I trust Harris’s record more than Oppenheimer’s. Earnings are due out at the end of the month. Harris is a buy up to $53 per share.

  JPMorgan Chase ($JPM) will report Q1 earnings on Thursday, April 11th. Wall Street expects $1.38 per share. Hopefully, Jamie Dimon won’t shoot his mouth off on the earnings call. JPM has pulled back over the past few weeks. Don’t let that rattle you. JPM remains a solid buy up to $52.

  Medtronic ($MDT) is another good example of a stock that fell after its earnings report but has since gained back everything it lost. Like Stryker, Medtronic has ridden the healthcare rally this year. Look for good earnings next month and another dividend increase in June. Buy below $48.

  Microsoft ($MSFT) is due to report earnings on April 17th. Wall Street’s consensus is for 77 cents per share. The last earnings report was pretty good. On Wednesday, the shares hit a five-month high. If volatility makes you nervous, this is an excellent low-vol stock. Microsoft is a buy up to $30.

  Moog ($MOG-A) lowered the upper end of their full-year guidance by 10 cents per share in January. The CEO said they’re off to a slow start this year. After a strong rally in December in January, the shares have pulled back recently. Moog is a buy up to $50.

  Nicholas Financial ($NICK) still yields a rich 3.23% even after its recent price surge. I haven’t heard any news about the buyout offer, but I wouldn’t be surprised if others are interested in NICK. The fact is that with rates so low, big investors are looking at non-traditional places to get yield like used car loans. NICK is a good buy up to $16.

  Oracle ($ORCL) got hit after a lousy earnings report. I have to apologize for this one. I thought Oracle would do much better. But never count Oracle out. I’m going to drop my Buy Below down to $35.

  Ross Stores ($ROST) had a good earnings report two weeks ago and the shares have rallied. ROST is a solid buy up to $62.

  Stryker ($SYK) is our second-best performer this year. But don’t chase it. Earnings are due out on April 23rd. They didn’t give a Q1 forecast, but said to expect $4.25 to $4.40 per share for all of 2013. That’s probably too low. Buy SYK anytime you see it below $66.

  Wells Fargo ($WFC) remains a solid buy up to $40. Look for a strong earnings report around the middle of the month.

  WEX Inc. ($WXS) announced that on April 15th, they’re changing their ticker symbol to WEX. Frankly, I like this move. I hate it when ticker symbols don’t match the name. Let me add that I kept the Buy Below on WEX at $75 despite the market price being above $75. I did this because I don’t want investors to chase this one. As disciplined investors, we wait for good stocks to come to us. Well, on Wednesday and Thursday, the stock fell below $75 during the day. WEX remains a buy up to $75 per share.

  That’s all for now. Earnings season kicks off next week. Remember: We’ll see earnings reports next week from JPMorgan Chase and Bed Bath & Beyond. On Wednesday, the Fed will release the minutes from their March 29-30 meeting. This might actually be newsworthy, depending on how much they talked about ending their bond purchases. 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: April 5, 2013
  Eddy Elfenbein, April 5th, 2013 at 6:51 am

  Money Funds Meet Zero Yields by Breaking Buck Taboo

  ECB’s Coeure Sees Euro Zone Inflation Straying Off Course

  BOJ Ripples Felt in Europe as Government Bonds Rise

  Kim Vows Increased Climate-Change Role to Help Ease Poverty

  Finland Turns to Venture Funds to Rescue Economy

  Yellen: Fed Should Focus On Jobs, Even If Inflation Edges Past Target

  The Market Is In A Tug-O-War The Likes Of Which Hasn’t Been Seen In Three Decades

  Regulators Probing Alleged Mortgage Insurance Kickback Scheme

  Samsung Sees Big Profit Boost From Smartphones

  Freeh Says Corzine’s Risky Strategy Helped Fell MF Globals

  Shake-Up On Hewlett-Packard Board

  Texas Refinery is Saudi Foothold in U.S. Market

  Facebook Software Puts It Front and Center on Android Phones

  Howard Lindzon: Don’t Be Stubborn…Retail is NOT Dead

  Stone Street: Put Me in Coach!

  Be sure to follow me on Twitter.

• Real Long-Term Returns
  Eddy Elfenbein, April 4th, 2013 at 10:59 am

  Today we’re looking at real, meaning after inflation, long-term total returns. Inflation has averaged 3% per year since the mid-1920s and that adds up to take a big bite out of returns.

  According to the Ibbotson Yearbook, real long-term total returns for large-cap stocks have increased 275-fold since 1925. Annualized, that comes to 6.67%. That means that your real investment in large-cap stocks has doubled, on average, every 10.75 years.

  

  Long-term government bonds have averaged 2.64% per year. Note that 10-year TIPs currently yield -0.68%. Long-term real Treasury bills have averaged a scant 0.55% per year.

  From the chart above, you can see that the market has swung wildly from its long-run averages. In 1981, both real bills and real bonds had shown negative returns since 1925. After 1981, both started to take off, but bills turned negative starting in 2002.

  As of December 2012, the real return of large-cap stocks was below its peak from 2000. That’s not unprecedented. Large-cap stocks also had a real negative return from August 1963 to July 1982, and from August 1929 to June 1949. Those are pretty long stretches.

• Morning News: April 4, 2013
  Eddy Elfenbein, April 4th, 2013 at 6:33 am

  Draghi Considers Plan B as Sentiment Dims Post Cyprus Fumble

  BOJ Doubles Bond Purchases in First Kuroda Easing Salvo

  Bank Of England Set To Keep Policy Steady Despite New Remit

  Moscow Tries to Reinvent Itself as Financial Hub

  Blame Abounds Over a Flawed Foreclosure Review

  As Web Search Goes Mobile, Competitors Chip at Google’s Lead

  Monsanto Raises Forecast as Profit Tops Estimates on Corn

  ConAgra’s Post-Less Deal Still Looks Good

  Mortgage Gamble Pays Off for Wells

  China Mobile And Vodafone Team Up For Myanmar License

  Delta Sues Ex-Im Bank Over Loan Guarantees For Foreign Airlines

  Bond Traders Club Loses Cachet in Most Important Market

  RICHARD KOO: I Worry About The Recent Moves In The Currency Markets

  The Reformed Broker: 361 Capital Weekly Research Briefing

  Phil Pearlman: The Consumer Staples Bubble

  Be sure to follow me on Twitter.

• Looking at Long-Term Returns
  Eddy Elfenbein, April 3rd, 2013 at 1:55 pm

  Here’s more from the Ibbotson Yearbook. This chart shows the long-term total return (meaning dividends included) of small stocks, large stocks, corporate bonds, government bonds, T-bills and inflation since 1925.

  

  After 87 years, small stocks were the winner at 11.95% annualized. Large-caps came in second at 9.85% annualized. Close together were long-term corporates at 6.11% and long-term government bonds at 5.69%. Treasury bills had a 3.54% annualized return. Finally, inflation was annualized at 2.97%.

  This means the large-cap stocks have, on average, doubled every 7.38 years. Let me be clear that I think it’s a big mistake for investors to use these historical numbers to set future expectations. Large-cap stocks were down from August 1929 to December 1944, from January 1966 to December 1974 and from July 1997 to February 2009. For an individual investor, those time periods must have seemed pretty long-term.

• WEX IS Changing Its Ticker to…WEX
  Eddy Elfenbein, April 3rd, 2013 at 10:12 am

  First, Wright Express changed its name to WEX Inc. but kept its ticker at WXS. Now that is changing too. On April 15, the new ticker symbol for WEX Inc. will be WEX.

• ADP Jobs Report = 158,000
  Eddy Elfenbein, April 3rd, 2013 at 10:01 am

  The private payroll firm, ADP, reported this morning that 158,000 jobs were created last month. That’s causing the market to be down slightly this morning. The big report, however, will come on Friday when the government releases its numbers.

  The ADP number was actually the smallest gain in five months and it came in just below Wall Street’s expectations. ADP revised its figures for February higher by 39,000 but January was revised lower by 38,000.

• Morning News: April 3, 2013
  Eddy Elfenbein, April 3rd, 2013 at 6:43 am

  Cyprus, IMF Reach Bailout Agreement

  Canada Seen Beating U.S. in $150 Billion Asia LNG Race

  The Bernanke Fed’s Printing Press Explosion Now Exceeds Two Trillion Dollars

  A Debate in the Open on the Fed

  SEC Approves Using Facebook, Twitter for Company Disclosures

  Americans Seize Second Chance Post-Foreclosure

  Apple Conviction Sinks At Goldman Sachs

  Hewlett-Packard Falls on Goldman Downgrade

  Pay-As-You-Weigh Airfares The ‘Next Step’

  Bitcoin Goes On Insane Move Overnight As It Surges To $145 And Then Plunges To $126

  Report Urges Barclays To Make Pay Realistic

  Algorithms Play Matchmaker to Fight 7.7% U.S. Unemployment

  J.C. Penney Slashes Pay of Its Chief

  Jeff Carter: What Would You Tell A Law School Student About Startups?

  Cullen Roche: Understanding the Modern Monetary System – Part 1 Part 2a Part 2b

  Be sure to follow me on Twitter.

• Ford’s Sales Rose 6% Last Month
  Eddy Elfenbein, April 2nd, 2013 at 2:18 pm

  Shares of Ford ($F) are back over $13 on news of strong sales:

  Ford Motor reported a healthy March sales gain of 6% as buyers embraced its redesigned Fusion sedan, Escape SUV and its truck models.

  Fusion and Escape both had their best month of sales and best quarter ever, Ford said.

  Explorer SUV was up 33% from a year ago, posting its best month since the redesign in 2010.

  F-series truck boomed, up 16%, tallying the best first quarter since 2007, when the auto slump began.

  Wall Street analyst Ryan Brinkman at J.P. Morgan noted that “sales were particularly strong for several of Ford’s more profitable models, including the Explorer and F-series.”

  Ford-brand vehicles sold well enough to outweigh a disastrous showing by Ford’s upmarket Lincoln brand. It was down 22.5%, mustering a minuscule 6,825 sales.

  Ford is trying to revive the brand by pitching it as the Lincoln Motor Co., but so far the marketing move has no traction.

  Lincoln had no gainers. Every model fell considerably. Together, Lincoln cars — MKZ and MKS — were off 31.1%. SUVs — MKX, MKT and Navigator — dropped 22.5%

  Overall, Ford said car sales were about even with a year ago, trucks were up 6% and SUVs rose 14%.

• The Trannies are In Charge
  Eddy Elfenbein, April 2nd, 2013 at 12:31 pm

  I’ve been very impressed by the surge in transportation stocks. Check out the performance of the Dow Transports compared with the S&P 500.

  

  Since September 21, the Dow Transports are up 25%. If the Dow Industrials had done the same, they’d be closing in on 17,000 today. I think the strength of the trannies indicates good things for the economy.