Archive for May, 2014

• The Midday Market
  Eddy Elfenbein, May 14th, 2014 at 12:02 pm

  Here are some quick items I wanted to pass along.

  The government reported that April producer prices were up 0.6% compared with a 0.5% rise in March. The CPI report comes out tomorrow. I want to make sure I don’t overstate this, but it appears that some modest increase in inflation is headed our way. It’s not much, and the evidence is thin, but it’s real. Overall, I’d like to see a little higher inflation.

  I’m not a fan of price targets but I’ll note two of our Buy List stocks had their price targets raised. UBS raised their price target on McDonald’s ($MCD) from $107 to $120, and Deutsche Bank raised their price target on Qualcomm ($QCOM) from $86 to $90 per share.

  Also, two of our Buy List stocks reiterated their full-year earnings guidance. I like to see this happen. eBay ($EBAY) reiterated their full-year guidance of $2.95 to $3 per share. Express Scripts ($ESRX) reiterated theirs which is $4.82 to $4.94 per share. Too many investors dismiss these announcements as not being news, but it’s nice to hear that a business plan is still working.

  IBM ($IBM) reiterated their forecast of 2015 earnings of at least $20 per share. The Street seems pretty skeptical. The current consensus is at $19.71 per share.

  Ford ($F) reported a 6.6% rise in April sales in Europe. This is the fifth-straight month that Ford has increased its market share.

  Here’s a good article: Why AT&T Wants to Acquire DirecTV.

  The 10-year yield looks to be making a run at 2.5%. It’s at its lowest yield in more than six months.

  

• Morning News: May 14, 2014
  Eddy Elfenbein, May 14th, 2014 at 6:45 am

  Focus on BoE, Highlights Contrast With Dovish ECB

  Carney Says U.K. Has Moved Closer to Needing BOE Rate Increase

  British Official Unemployment Rate Drops to 6.8%

  Anti-China Protesters in Vietnam Damage Taiwanese Businesses

  Citizens Bank Faces a Stormy Spinoff

  Recession-Baby Millennials Scarred by U.S. Downturn Spurn Stocks

  Sony Unexpectedly Forecasts Loss Amid PC Restructuring Costs

  Telecommunications Future in Flux as AT&T Mulls DirecTV

  Lawmakers Mistrust a Marriage Offer Pfizer Won’t Abandon

  BitPay Is Headed To The Moon And Richard Branson Is On The Spaceship

  Report Highlights Child Labor on US Tobacco Farms

  Tech Star Is Leaving Goldman Sachs to Join Hedge Fund

  Glaxo’s Ex-China Chief Accused of Ordering Staff to Commit Bribery

  Cullen Roche: Three Things I Think I Think

  Roger Nusbaum: AdvisorShares Weekly Market Review – Week Ending 5/9/2014

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• WSJ: DTV/AT&T Could Happen in Two Weeks
  Eddy Elfenbein, May 13th, 2014 at 2:52 pm

  I meant to get to this earlier, but late yesterday, the WSJ reported that AT&T (T) and DirecTV (DTV) are close to a deal that would value DTV at nearly $50 billion. The stock spiked to $91 per share in the after-hours market, though it’s come back down in today’s trading. It’s currently at $87 per share. According to the article, a deal could happen within two weeks. They also say that the deal would involve cash and stock. I’m assuming that any deal would value DTV somewhere in the mid-$90’s.

  It’s easier for a company to pay for a company with stock rather than cash, so it’s like printing your own currency. There’s a drawback for higher-yielding stocks, which AT&T certainly is. More shares mean more dividend checks. AT&T currently yields 5%.

• S&P 500 = 1,900
  Eddy Elfenbein, May 13th, 2014 at 10:18 am

  Yesterday, the stock market closed at a new all-time high of 1,896.65. That’s a stunning climb of 180% in 62 months. The Dow has gained 10,148 points.

  Since the low on March 9, 2009, the S&P 500 Total Return Index, which includes dividends, has gained 213%. On average, that’s 1% compounded every 16.5 days.

  The market is up again this morning, and the S&P 500 briefly pierced 1,900. The government reported on retail sales this morning. For April, retail sales rose by 0.1%, and are up 3.8% in the last year. The increase for March was revised upward to an increase of 1.5% from the original number of 1.1%.

  

• Morning News: May 13, 2014
  Eddy Elfenbein, May 13th, 2014 at 6:57 am

  Euro Bonds Lose Sway in Blow to Draghi Stimulus Plan

  German ZEW Investor Confidence Falls in May

  Pfizer Urges AstraZeneca to Talk as UK Lawmakers Slam Offer

  Dow Average and S&P 500 Hit New Highs

  AT&T Courts Satellite TV With an Eye on Growth

  Hillshire Brands Buying Pinnacle Foods

  Allergan Formally Rejects Valeant’s $46 Billion Bid

  Airbus Q1 Core Earnings Down 5%, Confirms Targets

  Despite Tech Stock Turbulence, Anaplan Raises $100 Million For Planning Software

  Tesla Model S Comes in China With a License Plate Worth 15K

  Facebook Looks to Open China Office to Boost Ad Sales

  IBM CEO Faces Skeptics on Wall Street as Growth Proves Elusive

  Lehman Trade a Gift That Keeps Giving for Paulson to King Street

  Joshua Brown: The Distribution of Bubble Losses Matters

  Howard Lindzon: State of Markets – Sold in May…But Why?

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• Understanding Just How Small Small-Caps Are
  Eddy Elfenbein, May 12th, 2014 at 2:57 pm

  Earlier I touched on the break in small-cap stocks which hasn’t been matched (yet) by a drop in large-cap stocks. There’s an important aspect of small-cap stocks that’s difficult to fully explain, but it’s how truly small small-caps are. The overall value of the stock market is greatly influenced by a small number of very, very, very large companies. Everyone else is puny by comparison.

  The Russell 3000 is an index of 3,000 of the largest stocks on Wall Street. Russell further divides that index into the Russell 1000 which is the 1,000 largest in the Russell 3000, and the Russell 2000 which is 2,000 smallest in the Russell 3000. So there’s no overlap between the Russell 1000 and Russell 2000, and combined they make up the Russell 3000.

  Now look at this long-term of the Russell 1000 and Russell 3000. Yes, there are indeed two separate lines there but it’s nearly impossible to tell.

  

  Even though the Russell 1000 contains one-third the number of stocks of the Russell 3000, the performance is quite nearly identical.

• The Small-Cap Correction
  Eddy Elfenbein, May 12th, 2014 at 11:20 am

  Since early March, the Russell 2000 is down nearly 10%, while the big caps have been doing just fine.

  

  Michael Batnick adds some context:

  This is small caps’ 36th peak-to-trough decline of at least 10% since 2000, with an average decline of 17.1%. Of the first thirty-five corrections, every one of them were accompanied by large-caps also falling, until now (an average decline of 12.8%). The thing that has people scratching their heads is why large-caps have been blessed with impunity while small-caps have begun to roll over. The Russell 2000 is 10% off the recent highs and the S&P 500 up 0.12% over the same period.

• The S&P 500 Makes Another Run at 1,890
  Eddy Elfenbein, May 12th, 2014 at 9:57 am

  The stock market is up again today. On Friday, the Dow closed at an all-time high, but the S&P 500 hasn’t been able to. At least, not yet. So far this morning, the index is up to 1,887 which is very close to the all-time closing high. We’ve made a few runs at it recently but haven’t been able to bust through.

  Every stock on our Buy List is up today except for DirecTV (DTV) which is down slightly. Of course, DTV has been a huge winner for us lately. In the latest CWS Market Review, I raised our Buy Below to $89 per share, and on Friday, the stock got as high as $88.94.

  McDonald’s (MCD) is up to a new 52-week high this morning. On Twitter, I had mistakenly said it was a new all-time high, but that has been reached just outside of a year ago. Still, we’re less than $1 away from an all-time high for MCD. Also, note that this is a Dow stock that’s over $100 per share, and that’s part of the reason why the Dow is at a high while the S&P 500 is just shy of one.

  Shares of Moog (MOG-A) finally hit $70 per share today. In December, it got to $69.97 before failing to $57 by February. Moog has now made back everything it lost.

  We have earnings later this week from CA Technologies (CA). That’s the last earnings report for this cycle (meaning, quarters that ended in March). We have two Buy List stocks, Medtronic (MDT) and Ross Stores (ROST), whose quarters ended in April. They’ll report earnings next week.

  So far, this has been a decent earnings season. In the S&P 500, 453 stocks have reported earnings so far. Of that, 76% have beaten on earnings and 53% have beaten on sales. Profits are up 7.2% while sales are up 4%. Of course, estimates were cut back before the start of earnings season.

• Our Buy List So Far
  Eddy Elfenbein, May 12th, 2014 at 9:35 am

  We’re half-way through Q2 so here’s an update on our Buy List. Through Friday, our Buy List is up 1.18% for the year compared to 1.63% for the S&P 500. Those numbers don’t include dividends (the S&P 500 yields a bit more than our Buy List, but it’s not a very big factor).

  On April 1, we were leading the S&P 500 by 1.37%. That quickly changed and by April 30, we were trailing the index by 1.92%. Bear in mind that in the aggregate, our Buy List tracks the market pretty closely. We need to watch it several months before truly meaningful differences are apparent.

  For the month of April, our Buy List lost 2.04% while the S&P 500 gained 0.62%. Most active managers would shrug that off, it’s not a very big gap, but that’s an unusually wide underperformance for our Buy List. Fortunately, May has been much better for us.

  As usual, I don’t get too concerned about the day-to-day moves of our Buy List, or even the week-to-week moves. Our Buy List stocks are still strong and I’m confident that 2014 will be our eighth year in a row of beating the stock market.

  

• Morning News: May 12, 2014
  Eddy Elfenbein, May 12th, 2014 at 7:11 am

  China Stocks Rise Most in Seven Weeks on Market Access Measures

  ECB’s Nuoy: ECB on Track to Publish Asset Quality Review Results by October

  IMF: Ukraine Crisis Could Have ‘Severe’ Economic Consequences For Europe

  A Memoir From the Eye of a Financial Storm

  Pfizer Presses AstraZeneca Case as CEO Faces UK Grilling

  Nissan Says Full-year Profit Jumps 14.0% to $3.8 Billion

  BskyB Confirms Talks To Buy Sky In Germany And Italy

  Lonmin Profit Plunges on South Africa Platinum Strike

  Allergan Set to Reject Valeant Takeover Offer as Soon as Monday: FT

  IBM Poised for Growth, Chief Says

  Dougan’s Reign Tested as Credit Suisse Tax Charge Looms

  Piketty’s Wealth Tax Isn’t a Joke

  The Most Interesting Number of the Day is 61 Percent

  Jeff Miller: Weighing the Week Ahead: Should We Fear Market Divergences?

  Epicurean Dealmaker: The Plural of Anecdote Is Bullet Point

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