Archive for June, 2013

• Strange NICK Trades on Friday
  Eddy Elfenbein, June 30th, 2013 at 10:31 pm

  

  Just a quick note on some bizarre trading activity for Nicholas Financial ($NICK) on Friday morning. Apparently, a few trades on very light volume went off over $16 per share. The high was $16.96.

  There was no news on the stock, and I hope nobody got too excited. These were probably some bad trades that slipped through. Once trading volume returned, the stock went back to its previous territory in the low $15 range. The stock did 101,000 in volume on Friday.

  My apologies for the excessive volatility — and this is yet another reason why I stay far away from day-trading. But make no mistake, NICK is a very good stock.

• First-Half Buy List Summary
  Eddy Elfenbein, June 28th, 2013 at 7:25 pm

  The first half of the year is on the books. Let’s look at how well our Buy List has done.

  Not including dividends, the Crossing Wall Street Buy List is up 15.33% to the S&P 500’s 12.63%.

  Including dividends, our Buy List is up 16.25% to the S&P 500’s 13.82%. The Buy List’s annualized return from dividends is tracking at 1.60% compared with 2.14% for the S&P 500.

  The “beta” of the Buy List is 0.9819.

  

  Eighteen of our 20 stocks are up for the year. CA Technologies ($CA) is the #1 winner with a 30.21% gain (32.75% with dividends). Microsoft ($MSFT) is just behind at #2 with a 29.33% gain.

  The only two losers are Oracle ($ORCL) which is down at -7.83%, and Cognizant Technology Solutions ($CTSH) which is down at -15.21%.

  Stock	Ticker	YTD Gain
  CA Technologies	CA	30.21%
  Microsoft	MSFT	29.31%
  Bed Bath & Beyond	BBBY	26.90%
  Moog	MOG-A	25.59%
  Medtronic	MDT	25.48%
  DirecTV	DTV	22.89%
  Nicholas Financial	NICK	21.94%
  Wells Fargo	WFC	20.74%
  JPMorgan Chase	JPM	20.06%
  Ross Stores	ROST	19.82%
  Ford Motor Company	F	19.46%
  Stryker	SYK	17.99%
  FactSet Research Systems	FDS	15.76%
  CR Bard	BCR	11.19%
  Fiserv	FISV	10.60%
  AFLAC	AFL	9.41%
  WEX Inc.	WEX	1.76%
  Harris Corporation	HRS	0.59%
  Oracle	ORCL	-7.83%
  Cognizant Technology Solutions	CTSH	-15.21%

  The combined seven-and-a-half year gain for the Buy List is 88.68% to the S&P 500’s 50.97%. Note that that would include rebalancing each year.

• CWS Market Review – June 28, 2013
  Eddy Elfenbein, June 28th, 2013 at 6:48 am

  “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
  – Sam Walton

  After last week’s temper tantrum from the stock, bond and gold markets, officials at the Federal Reserve spent much of this past week trying to calm everyone down. The good news is that it’s worked. Or at least, it has thus far.

  But the Fed is merely trying to save itself from yet another Fed-induced problem. They’re CYA-ing in a big way. While the FOMC’s policy statement was pretty much as expected, the after-meeting presser by Ben Bernanke was surprisingly hawkish. The markets responded quickly. At its recent low, the Dow was 991 points below its May high, and the yield on the 10-year Treasury got as high as 2.66%. That’s a full 1% increase in less than two months. Check out the down-and-up of the S&P 500 over the last few days:

  

  So what’s going on?

  In this week’s CWS Market Review, I’ll take a closer look at the market’s latest hissy fit. I also want to highlight the good earnings report from Bed, Bath & Beyond ($BBBY). It’s hard to believe BBBY was going for $57 just four months ago. It’s at $70 today. Our Buy List continues to hold up very well, and stocks like Wells Fargo ($WFC) have broken out to new highs. But first, let’s look at the latest song and dance from the Federal Reserve.

  Bernanke’s Just a Guy Thinking about the Future and Stuff

  At his June 18th press conference, Ben Bernanke said:

  If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear.

  The financial markets interpreted this to mean that QE would start to taper later this year (probably starting in September) and would end by this time next year. The back story is the belief that the Fed’s policies are the main reason why the bull market has been so strong. In my opinion, Bernanke and Friends have clearly helped, but it doesn’t follow that once the Fed pulls back—or takes its foot off the gas, in Bernanke’s analogy—the market will suddenly collapse.

  Traders are capable of anything, but even I was surprised by their skittishness. Considering how many macho people there are in finance, the market as a whole can be one big fraidy cat. In four trading days (last Wednesday to Monday), the S&P 500 lost 5%. I think the folks inside the Fed were genuinely shocked by the market’s strong reaction.

  This week, one Fed official after another stressed that no plans are set in stone, and the Fed will alter policy as needed. If you want to hang with the popular kids, the term for this is “data dependent.” In fact, this week’s GDP report was pretty weak, and it most likely will give ammo to folks who think QE needs to go on awhile longer.

  Binyamin Appelbaum, the New York Times reporter, got it exactly right when he tweeted, “‏The Fed’s new message seems to be that Bernanke was just a guy who happened to be thinking out loud about the future and stuff.” Scary, but that’s how they’re acting. The minutes from this past meeting are due out on July 10th, and I think a lot of folks are very curious to hear what was said. But for now, the good news for investors is the Fed realizes how damaging their words can be.

  What’s the Fallout?

  The Fed did indeed calm the market down. The three-day rally on Tuesday, Wednesday and Thursday caused the S&P 500 to gain more than 2.5%. The Dow once again jumped to over 15,000. Perhaps the most dramatic impact was seeing the Volatility Index ($VIX) drop from nearly 22 on Monday to less than 17 by the end of the day on Thursday.

  What investors need to understand is that the Fed is watching the economy, and they’re not about to shut off the spigots while the flow is still needed. The lower rates have greatly helped the interest-rate-sensitive areas of the market. I’ve spoken of this before as the magic equation: any place where consumer spending intersects with finance has been a winner. Examples of this include credit-card companies like Mastercard ($MA) and American Express ($AXP). The homebuilding stocks have also done very well. On our Buy List, the magic equation can be seen in stocks like Ford ($F) and JPMorgan Chase ($JPM).

  Since the Fed has its hand in interest rates, it can obviously help those rate-sensitive areas. The question is whether the economy is strong enough that it can go along without the Fed’s help. The big clue for this will be second-quarter earnings season, which begins soon. Almost without anyone’s noticing, Q1 earnings growth was positive, and that didn’t happen in either Q3 or Q4 of last year. In other words, earnings growth is reaccelerating, meaning the rate of growth is itself increasing. We want to see that continue in Q2. Wall Street expects to see earnings growth ramp up pretty quickly in Q3 and Q4. If that does indeed happen, a lot of the Fed’s worries will go away.

  I suspect that the S&P 500 will stay at or below its 50-day moving average for a while longer (the 50-DMA is currently at 1,620.42). Our Buy List has held out very well over the last two months, and it will continue to lead the market as investors seek out high-quality names. Please pay close attention to my Buy Below prices on our Buy List.

  The key area to watch won’t be the stock market but rather the bond market and its close cousin, the gold market. In fact, gold has been getting crushed lately. On Thursday, the Midas metal dropped below $1,200 per ounce for the first time in nearly three years. The drop in gold is really a rise in short-term real interest rates, meaning the rates after inflation. I think gold is acting as an early warning signal, and within a few months, the interest-rate-sensitive areas will start to lag the market. We’re already seeing signs of this with the Homebuilding Sector ($XHB), thanks to higher mortgage rates. The commodity stocks have also been very poor performers. The Energy Sector ETF ($XLE) and the Materials Sector ETF ($XLB) have badly lagged the market.

  A major trend for next year may be consumer staples stocks, but we’re far too early to see that kind of rotation. For now, investors should continue to focus on high-quality names. One stock on our Buy List that looks particularly attractive at the moment is Cognizant Technology Solutions ($CTSH). The shares got beat up in April, but now the dust has settled. CTSH is a very good buy up to $70 per share.

  Bed Bath & Beyond Is a Buy up to $73 per Share

  After the market closed on Wednesday, Bed Bath & Beyond ($BBBY) reported fiscal Q1 earnings of 93 cents per share. That hit Wall Street’s forecast square on the nose. On the conference call back in April, the home furnisher told us to expect Q1 earnings between 88 and 94 cents per share. I said in last week’s issue that I was expecting them to come in near the high end of that range, and that proved to be the case.

  Let’s look at the numbers. BBBY earned 89 cents per share for last year’s Q1. For this year, quarterly sales rose 17.8%, to $2.612 billion. But the most important metric for retailers is comparable-store sales, and that rose a healthy 3.4% last quarter.

  With a company like BBBY, I’m not too concerned about their missing or beating expectations by a few pennies per share. That’s no big deal. What’s important to me is that the general trend is upward.

  If you remember, the shares got pummeled last year (a few times actually). But here’s the thing: yes, the company had some minor short-term issues, but this is a very well-run outfit, and they’ve worked to correct that. The stock dropped to $57 earlier this year, and in the February 15 issue, I said BBBY had become a very good buy.

  For Q2, Bed Bath & Beyond sees earnings ranging between $1.11 and $1.16 per share. Wall Street had been expecting $1.15 per share, so this was in range. For the entire year, BBBY sees earnings between $4.84 and $5.01 per share (they made $4.56 per share last year). That number for the low end is way too low. Wall Street had been expecting $5.01 per share. I had said I was expecting $5 per share.

  As you’ve probably heard me say many times before, I’m not a big fan of share buybacks. However, BBBY does it in a way that actually reduces share count, so I’ll give them credit for that. Their balance sheet is rock solid, with no debt and lots of cash. We have a nice 25% YTD profit in this stock. BBBY is an excellent buy up to $73 per share.

  Moog Is a Buy up to $55 per Share

  Before I go, I’m raising the Buy Below price on Moog ($MOG-A) to $55 per share. The stock has been holding strong lately, above $50 per share. The company had a good earnings report for Q1, and the CEO said business should improve for the second half of the year. Moog is a solid buy.

  There’s also one small item about DirecTV ($DTV). The satellite-TV operator overstated the number of subscribers it has in Brazil. This appears to be an honest mistake. The stock dropped sharply at the open on Thursday, but rallied back as the day wore on. DTC continues to be a good buy up to $67 per share.

  That’s all for now. Next week will be a rather unusual week in that the stock market will close early on Wednesday, July 3rd and will be closed all day on July 4th. There will only be three full trading days over a nine-day stretch. Despite the limited exchange hours, the ISM report will come out on Monday. The ADP report comes out on Wednesday, and finally the big jobs report is due out on Friday, July 5th. Traders will definitely be monitoring the progress of the labor market. 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: June 28, 2013
  Eddy Elfenbein, June 28th, 2013 at 6:34 am

  Japan Business Mood Seen Turning Positive: BOJ Tankan

  Why Penalizing Bangladesh Isn’t the Answer

  China’s Sinovel Charged by U.S. With Stealing Trade Secrets

  Vatican Official Arrested In Alleged Plot To Bring Millions Into Italy

  P.M. Kitco Roundup: Gold Drops to Nearly 3-Year Low in Strong Sell-Off Late; Sell Stops Hit

  Fed Officials Intensify Effort to Curb Surge in Interest Rates

  A Bill Allowing More Foreign Workers Stirs Tech Debate

  Research in Motion Reports First-Quarter Loss

  Men’s Wearhouse Turns Target With or Without Founder

  Square’s Website for Small Businesses Takes on E-Commerce Giants

  ConAgra Rises Most Since September as Profit Tops Estimates

  CDW Shares Gain 8% on First Day of Trading

  Ferrari-Fueled Maserati at $65,600 Lures Bored BMW Buyers

  Cullen Roche: Goldman: Markets Overreacted to Fed Talk, Buy Stocks

  Joshua Brown: Why Behavior is Half the Battle

  Be sure to follow me on Twitter.

• Morning News: June 27, 2013
  Eddy Elfenbein, June 27th, 2013 at 7:56 am

  Euro Zone Economic Mood Rises to 13-month High in June

  Europe Strikes Deal to Push Cost of Bank Failure on Investors

  Portuguese Stage General Strike Against Relentless Austerity

  Burma Awards Lucrative Mobile Phone Contracts

  Malaysia’s SapuraKencana Wins $2.7 Billion Contract from Petrobras

  Bernanke Was Clear, Fed’s Crystal Ball Is Cloudy

  Stanford Economist Musters Big Data to Shape Web Future

  Cost of Public Projects Is Rising, and Pain Will Be Felt for Years

  Bed Bath & Beyond’s Sales Rise, Profit Falls

  The Deal: Dish Hangs Up On Clearwire

  Microsoft Seeks End to Dinosaur-Era Software Upgrade Cycle

  Two Apple Executives Sold $15 Million Worth Of Stock

  The Deal: Catch the Men’s Wearhouse Sale Before Its Board Does

  Jeff Carter: Selling Your Product

  Edward Harrison: Fed’s Lacker: Growth Sluggish, Fine With Tapering

  Be sure to follow me on Twitter.

• Morning News: June 26, 2013
  Eddy Elfenbein, June 26th, 2013 at 7:50 am

  Draghi Says ECB Ready to Act, Calls for Investment Over Tax

  Reinfeldt Calls Krona Sell-Off Export Relief as Traders Exit

  Chinese Investors Pursue U.S. Property Deals

  China Should Bail Out its Shadow Banks, U.S. Style

  The Rupee Keeps Diving

  UBS Unit Fined $13 Million, Reprimanded by French Regulator

  Senators Launch Effort to Replace Fannie Mae and Freddie Mac

  Sprint Sets Sights on Verizon, AT&T as Deal Fight Recedes

  Biggest Banks’ Wind-Down Plans Seen Failing to Cut Risks

  New Nook Strategy Takes Barnes & Noble Head on With Amazon

  Smith & Wesson 4th-Quarter Profit Surges As Strong Demand Boosts Sales, Margins

  Jon Corzine’s Last Act: Fighting Federal Regulators

  Marc Rich, Fugitive Commodities Trader in 1980s, Dies at 78

  Joshua Brown: 361 Capital Weekly Research Briefing

  Cullen Roche: Money and Happiness

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• The Price of Gold Adjusted for Inflation
  Eddy Elfenbein, June 25th, 2013 at 1:34 pm

  I have to confess that I don’t have a major point with this post. I was simply curious as to what a chart of the price of gold divided by the CPI looks like. Here it is. What’s interesting is that the recent inflation-adjusted top is fairly close to the top from 1980.

  

  The drop in gold since the summer of 2011 has been pretty dramatic. Going by gold’s recent history, the metal seems to move in very long bullish or bearish cycles. Was 2011 the end of the bull cycle? I don’t know.

  But if it were, I guess it would look like this.

• Strong Durable Goods Report
  Eddy Elfenbein, June 25th, 2013 at 10:22 am

  More positive economic news:

  Durable goods orders increased 3.6 percent as demand for goods ranging from aircraft to machinery rose, the Commerce Department said on Tuesday. Orders for these goods, which range from toasters to aircraft, had increased by a revised 3.6 percent in April.

  Economists polled by Reuters had expected orders to rise 3.0 percent after a previously reported 3.5 percent increase the prior month.

  Orders excluding transportation rose 0.7 percent after advancing 1.7 percent in April.

  Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.1 percent. Orders for the so-called core capital goods had increased 1.2 percent in April and economists had expected a 0.3 percent gain last month.

  The durable goods report is interesting to watch. Notice how sharply it fell during the recession.

  

• Markets Rally on Strong Housing Report
  Eddy Elfenbein, June 25th, 2013 at 9:38 am

  After a few unpleasant days, the S&P 500 looks to gain back some lost ground today. There’s been growing concern about the credit bubble in China, but the Chinese now seem determined to keep rates reasonable. While the reaction to the Fed’s news from last week has hurt our market, the pain has been much greater in emerging markets. The U.S. market has been the safe haven.

  Today’s Case-Shiller report showed that home prices rose more than expected in April. A recovering housing market is obviously good news. The issue for the Fed is that housing is one area of the economy where lower rates can help, but what about other sectors?

• Morning News: June 25, 2013
  Eddy Elfenbein, June 25th, 2013 at 7:38 am

  PBOC Ling Says Rise in China Money-Market Rates Temporary

  HSBC Considers Quitting Iraq by Selling Dar Es Salaam Bank Stake

  Walking Back Bernanke Wished on Too Much Information

  Two Fed Presidents Emphasize Stimulus to Persist After QE Taper

  Exit from the Bond Market is Turning Into a Stampede

  Samsung in Talks to Settle EU Antitrust Case

  Microsoft Joins Oracle in Cloud-Computing, Rivalry Thaws

  Dell Buyout Battle: Icahn, Southeastern Hit Back Against Michael Dell

  Heathrow Flight Showdown Looms as Delta-Virgin Targets NYC Route

  CML HealthCare to Sell Itself in Canadian $1.22 Billion Deal

  Dallas-based Neiman Marcus Takes the First Step Toward IPO

  Western Digital to Buy SSD Maker Stec for $340 Million

  Mass Layofffs at a Top-Flight Law Firm

  Roger Nusbaum: Fast Declines

  Phil Pearlman: Markets Correct & People Freak Out

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