Archive for July, 2013

• Morning News: July 9, 2013
  Eddy Elfenbein, July 9th, 2013 at 6:41 am

  China Faltering Demand Underscored as Producer Prices Sink

  Latvia Upbeat On Euro-Zone Entry, Despite Tough Environment

  U.K. Factory Output Puts Damper on Recovery

  Munich Re Sees Insured Market Loss Caused By CEE Floods Above EUR3B

  Consumers Boost Borrowing

  Nomura: Storm Clouds Are Gathering in Spain Again

  The Most Profitable Two Seconds on Wall Street

  S&P Raises Puffery Defense Against U.S. Ratings Case

  Alcoa Sees Aluminum Demand Growth; Markets Tightening

  Barnes & Noble Edges Closer to Breakup as CEO Quits Amid Losses

  Energy Giant Shell Names Ben van Beurden As New Chief

  Big Seal of Approval for Dell Founder’s Buyout Bid

  The Twinkie Returns, With Less Baggage

  Cullen Roche: Warren Buffett’s Father Was a Raging Gold Bug

  Credit Writedowns: Much Ado About Nothing

  Be sure to follow me on Twitter.

• Stocks and Bonds Become Friends
  Eddy Elfenbein, July 8th, 2013 at 3:25 pm

  Here’s an interesting change that’s happened recently in the market. Stocks and bonds used to move in opposite directions. Here’s a look at the S&P 500 ETF ($SPY) along with the Long-Term Treasury ETF ($TLT). This chart covers April 12th to May 21st:

  

  But after May 21st, things suddenly changed as stocks and bonds moved together.

  

  The correlation coefficient went from -0.90 to +0.85. To be fair, this relationship is no stranger to big swings but I’m not aware of one so dramatic in such a short period in several years.

  I cut Friday off the chart because that was a reversion to the negative correlation — stocks did well and bonds did not. Today seems to be more of that.

  So what does this mean? It’s hard to say exactly, but my guess is that financial markets went from arguing one point — strong economy, yes or no; to hashing out another point — are we having a financial crisis, yes or no.

  Now, apparently, we’re back to discussing the strength of the economy, and the bulls are winning (for the moment).

• BBBY = $73.87
  Eddy Elfenbein, July 8th, 2013 at 10:23 am

  Bed Bath & Beyond ($BBBY) is up to $73.87 which is a new high. Remember this stock was at $57 in March.

  This looks to be another good day for the Buy List. Wells Fargo ($WFC) got up to $42.73, and WEX Inc. ($WEX) hit $82.03. Ford ($F) just got to within seven cents of $17.

• IBM Is Looking Cheap
  Eddy Elfenbein, July 8th, 2013 at 10:06 am

  One thing investors hate is stocks with high nominal prices. This is a fear they should learn to overcome. With the advent of discount brokers, acquiring a small number of shares in a high-priced stock is hardly a burden.

  I’m beginning to like IBM ($IBM). Despite its $195 stock price, IBM is quite reasonable. The stock is currently going for less than 11 times next year’s earnings estimate. IBM was punished earlier this year after the company missed earnings for the first quarter.

  IBM has largely sat out the phase of the rally that began in October 2011. Over that time, the S&P 500 is up 49% while IBM is up just 12%. Check out this chart below and notice how IBM’s P/E Ratio (the bottom box) has trended downward while the rest of the market’s valuation has risen.

  

• Dollar Rises to Three-Year High Ahead of Bernanke
  Eddy Elfenbein, July 8th, 2013 at 9:11 am

  The stock market had an odd reaction to Friday’s strong jobs report. The S&P 500 opened higher, then lost ground, gained back some territory and rallied into the close. The index finished at 1,631 which is the highest close since June 18th. That was the day before Bernanke said that the Fed would start tapering, assuming the economy meets the Fed’s forecast.

  A number of Wall Street firms said that due to the jobs report, they expect the Fed to start tapering its bond buying at their September meeting. I had previously said this was unlikely, so I need to walk that back.

  According to the futures, the stock market looks to go higher this morning. Alcoa will kick off earnings season when it reports today. On Thursday, our big bank stocks, JPMorgan and Wells Fargo, are due to report. This Thursday, we’ll get a look at the minutes from the Fed’s meeting last month. The dollar, however, is getting a jump on the news by rising to a three-year high.

  This earnings season will be very important for the markets and the economy. Bloomberg notes that earnings growth for the S&P 500 rose 1.8% last quarter which was down from the 8.7% growth that has been expected six months ago.

  What’s interesting is that while Wall Street has been lowering earnings estimates, price targets have actually been rising. That translates to higher multiples which is often a function of confidence. If the Fed does in fact taper in September, they’ll only do it on the expectation that the economy will do well in 2014. Even after a furious four-year rally, valuations are still rather tame.

• Morning News: July 8, 2013
  Eddy Elfenbein, July 8th, 2013 at 6:46 am

  IMF’s Christine Lagarde Says May Trim Global Growth Forecast

  Japan’s Strong Bank Lending Can’t Mask Economic Challenges

  Quebec Rail Disaster Shines Critical Light On Oil-By-Rail Boom

  Oil Prices Higher in Asian Trade

  Losing $317 Billion Makes U.S. Debt Safer for Mizuho to HSBC

  Compliance Deadlines Loom for U.S. Global Tax Evasion Law

  Perry Capital Sues U.S. Treasury Over Fannie Mae Takeover

  SoftBank Cut to Junk by S&P After FCC Approves Sprint Deal

  Shazam Announces $40 Million Investment by America Movil

  Dell’s Leveraged Buyout With Silver Lake Backed by ISS

  A New Tool Aims to Help Facebook Users Dig Deep

  Glaxo Probes Complaint on China Sales of Botox

  Douglas J. Dayton, Target Stores’ Founding President, Dies at 88

  Jeff Miller: Weighing the Week Ahead: Will Earnings Measure Up?

  Howard Lindzon: Alpha in Your Eyes and Your Feet…

  Be sure to follow me on Twitter.

• June NFP = 195K, Unemployment Rate 7.6%
  Eddy Elfenbein, July 5th, 2013 at 8:34 am

  The June jobs report is out. The economy created 195,000 jobs last month. That beat estimates by 30,000. Positive revisions for April and May totaled 70,000. Private payrolls rose by 202,000.

  The unemployment rate stayed at 7.6%.

  

• CWS Market Review – July 5, 2013
  Eddy Elfenbein, July 5th, 2013 at 8:08 am

  “Do you know the only thing that gives me pleasure?
  It’s to see my dividends coming in.” – John D. Rockefeller

  This will be an abbreviated issue of CWS Market Review. Trading this week was shortened due to Independence Day, and most of the fat-cat Wall Streeters are relaxing at their cribs in the Hamptons.

  Don’t fear, my friends. My vigilant team and I are still on the watch, protecting you from whatever mayhem comes our way. The good news is that our Buy List continues to do very well. Through Wednesday, our Buy List is up 16.18% for the year compared with 13.27% for the S&P 500. That’s our widest lead all year.

  

  In this week’s CWS Market Review, I’ll discuss the recent good news from Moog and Ford. Both stocks have been big winners for us lately. I’ll also talk about the upcoming Q2 earnings season. JPMorgan Chase and Wells Fargo will be our first stocks to report on Thursday, July 11th. But first, let’s look at why Ford just broke out to a new two-year high.

  Good News for Ford and Moog

  On Wednesday, shares of Ford ($F) closed at $16.43, which is the automaker’s highest close in 29 months. The catalyst for the move was a very strong sales report for June. Ford reported that sales were up 13% last month. The best news was that sales of F-150 pickups, which are a key moneymaker for Ford, jumped 24%. Ford said that sales in China are up 44% from last year. In May, China sales were up 45%. Ford has been busy playing catch up to GM in China.

  Ford is due to report Q2 in a few weeks. The current estimate on Wall Street is for earnings of 36 cents per share, which would be a 20% increase over last year’s Q2. I should add that Ford has been creaming its estimates lately. I like this stock a lot. Ford remains a very solid buy up to $18 per share.

  In last week’s CWS Market Review, I raised our Buy Below on Moog ($MOG-A) to $55 per share. That was pretty good timing! This week, Moog said that it’s looking at strategic options for its medical-devices division. That’s Wall Street-ese for “we’re looking to sell it.” I like when companies sell off units, and usually, so do investors. The stock broke $54 on the news, which is an all-time high.

  The medical devices unit comprises just 5.7% of Moog’s overall business, but sales were down last year. As much as the market responds to the financial benefits of the divestiture, I think the market appreciates management’s willingness to shake things up. The company is due to report earnings at the end of the month. Wall Street currently expects earnings of 89 cents per share. Moog remains a good buy up to $55 per share.

  Second-Quarter Earnings Season Begins Next Week

  We’ve heard a lot of talk of how well companies should be doing, but beginning next week, we’ll finally see hard evidence of how well companies have performed. Earnings season is Judgment Day for Wall Street, and we’ll soon learn who’s been pulling their weight and who hasn’t. Fifteen of the 20 stocks on our Buy List ended their quarter on June 30th. This means that three-fourths of our portfolio will report earnings over the next month.

  Wall Street is clearly nervous going into this earnings season. The analyst community currently expects index-adjusted earnings of $26.40 for the S&P 500. In the past year, that estimate has been revised downward by $2.50, including more than $1 in the last three months. Citigroup recently noted that negative pre-announcements have been outrunning positive ones by a ratio of 6.5 to 1. That’s the worst ratio since 2009, back when the world was falling apart.

  I actually think the pessimists have gotten ahead of themselves here. While earnings expectations did need to come down, I suspect that growth is ramping up in several sectors. I especially think the damage from Europe won’t be as bad as is feared. The big trend recently has been share buybacks. For Q1, buybacks were up 17% from the year before. I think that will continue to be a major theme this year.

  Our first two Buy List stocks to report this earnings season will be both of our big banks, JPMorgan Chase ($JPM) and Wells Fargo ($WFC). This is fortuitous for several reasons. First, both are excellent stocks. They’re also good bellwethers for the rest of the financial sector. Also, both banks made a decision recently to go all in on the mortgage business, which has been a huge winner for them. Both stocks are 20% winners for us this year.

  JPMorgan had an insanely good first quarter. As much as Jamie Dimon annoys me, I have to admit that the bank still gets it done. Q1 earnings came in at $1.59 per share, which was 20 cents more than the Street’s consensus. There was some pushback from traders’ saying that the earnings beat was solely due to a tax benefit and some accounting adjustments.

  But don’t let the bears scare you. JPM is doing very well. Wall Street expects Q2 earnings of $1.43 per share, and I think they’ll have little trouble beating that. Thanks to a pullback from the May high of $55.90, JPM is going for just 9.2 times this year’s earnings estimate. Jamie also recently raised the dividend by 26.7% to 38 cents per share. JPM currently yields 2.88%. The stock is an excellent buy up to $56 per share.

  The business at Wells Fargo tends to be more stable than what we see at JPMorgan, and by extension, it tends to be more predictable. For Q1, Wells saw its earnings rise 22%, and they beat expectations by four cents per share. Their community banking division has been especially strong. Wells rewarded shareholders with a 20% dividend boost. Interestingly, the current yield is 2.91%, which is nearly the same as JPM.

  For Q2, the Street expects 92 cents per share for Wells. That sounds about right, maybe a penny or two too low. The important thing for us to see is that business is continuing to improve. I also like that Wells and JPM took advantage of low rates to raise tons of cash from investors. Wells Fargo is a good buy up to $46 per share.

  New Buy Belows for WEX and BBBY

  I’m again going to raise my Buy Below on WEX Inc. ($WEX). The stock has taunted us long enough! WEX did dip below our $75 Buy Below recently, and it’s started to run up again. I’m raising our Buy Below to $80 per share.

  I’m also raising Bed Bath & Beyond ($BBBY) to $75 per share. The stock has responded well to its recent earnings report, and I don’t want it to run away from us. BBBY remains a very good buy.

  That’s all for now. I told you this would be a short one. Don’t forget: earnings season kicks off next week. The stock and bond markets are still recuperating from the last Fed meeting. On Wednesday, we’ll finally get a look at the minutes from that meeting. I suspect that these minutes will confirm the view that the Fed is in no rush to shut off the money spigots. 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: July 5, 2013
  Eddy Elfenbein, July 5th, 2013 at 7:31 am

  Rand Climbs Second Day Against Euro on ECB, BoE Stimulus Signals

  U.K. Business Leaders Reject EU Alternatives as Lawmakers Vote

  Pakistan, IMF Reach Bailout Agreement

  Pepsi, Coca Cola And Other Soft Drink Makers Struggle As Early Indian Rains Dampen Peak Sales Season

  IRS BOLOs: What’s the Problem?

  Fedspeak: Complex Monetary Policy Spawns Flights of Metaphors

  Here’s The Worst Case Scenario For Markets in Today’s Jobs Report

  Warren Mosler, a Deficit Lover With a Following

  Samsung Faces More Downgrades as Earnings Miss Estimates

  SEC Suspects Insider Trading in Onyx Shares

  Exco to Buy Chesapeake Oil and Gas Assets for $1 Billion

  Nokia Debt Rating Cut Further Into Junk by S&P on Siemens Buyout

  SAC Capital’s Steven Cohen Expected to Avoid Criminal Charges

  John Hempton: Fraud/Promote Shorts Versus Valuation Shorts

  Roger Nusbaum: Understanding the Drop in Gold

  Be sure to follow me on Twitter.

• Happy July 4th
  Eddy Elfenbein, July 4th, 2013 at 1:48 pm

  The stock market is closed today. I hope everyone is enjoying a pleasant Independence Day afternoon.