Archive for November, 2014

• My Post-Thanksgiving Post
  Eddy Elfenbein, November 28th, 2014 at 1:27 pm

  I hope everyone had a lovely Thanksgiving. I’m spending the holiday with my family in Palm Springs, CA.

  Just a reminder that there’s no newsletter today, but it will return next week.

  The stock market is open today but will close early. This is usually the slowest day for trading all year.

• Morning News: November 28, 2014
  Eddy Elfenbein, November 28th, 2014 at 7:03 am

  Euro-Area Inflation Slows as Draghi Tees Up QE Debate

  Brazil Recovers From Recession at Slower-Than-Forecast Pace

  Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale

  OPEC Decision Spells Trouble for Russia

  OPEC Decision Eases Pain for Japanese Airlines and Importers as Oil Prices Drop

  Malaysian Airline System Third-Quarter Loss Widens

  Swiss to Vote on Massive Gold-Buying Plan

  Canada’s Expansion Tops Forecasts as Exports Lead Growth

  U.S. Lodges New Appeal at WTO in Meat Labeling Dipute

  Shoppers Line Up for Black Friday Deals

  On Black Friday, Americans Confront the Walmart 1 Percent: Pay Employees a Living Wage

  5 Things NOT To Buy on Cyber Monday

  Shopping on a Phone Is Still Uncommon but Growing Fast

  Ben Carlson: 7 Simple Things Most Investors Don’t Do

  Joshua Brown: The American Winship Goes On and On

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• Morning News: November 27, 2014
  Eddy Elfenbein, November 27th, 2014 at 7:45 am

  ECB Could Start Buying Government Bonds in 1Q 2015, Top Official Says

  German Jobless Rate at Record Low as Confidence Improves

  Philippines Economy Slows Sharply in Third Quarter

  As OPEC Members Meet, Outcome Remains Unclear

  Lackluster Consumer Income and Spending Point to a Slowing Economy

  GoPro to Release Consumer Drones Next Year, Report Says

  Alibaba Chief Jack Ma Ready For Bigger Play in India’s e-Commerce

  The Coca-Cola Company, SABMiller and Coca-Cola Sabco to form Coca-Cola Beverages Africa

  Sizing up What Apple’s $700 Billion Market Cap Could Buy

  Hormel Foods Sales Rise 9.5%

  China Pain Hits Remy Cointreau’s First-Half Profit

  Cullen Roche: The 1970s Are Not a Good Proxy For a Bond Bear Market

  The Epicurean Dealmaker: His Dark Materials

  Cullen Roche: When Gurus Say Strange Things

  Joshua Brown: The Death of the A Share (and nobody cares)

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• Morning News: November 26, 2014
  Eddy Elfenbein, November 26th, 2014 at 7:16 am

  ECB To Decide On QE In First Quarter

  EU Unveils Giant $392 Billion Jobs Plan

  Merkel Said to Reject Ukraine’s NATO Bid Over Rousing Tension

  Saudis Signal No Push For Oil Cut As Market to ‘Stabilize Itself’

  What’s Wrong With Oil Transport by Rail

  US Economy Posts Even Stronger Growth in Q3

  Opening Stores on Thanksgiving Doesn’t Boost Sales

  Black Friday, Cyber Monday Sales Data Mislead Investors

  Microsoft Hit With $140 Million Tax Evasion Bill in China

  Deere 2015 Outlook Misses Estimates as Tractor Sales Fall

  Rich Americans Come to Tiffany’s Rescue

  Joshua Brown: The New Skyline

  Cullen Roche: The NY Fed Declares the End of the Deleveraging

  Cullen Roche: When Gurus Say Strange Things

  Joshua Brown: The Death of the A Share (and nobody cares)

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• Q3 GDP Growth Revised to +3.9%
  Eddy Elfenbein, November 25th, 2014 at 12:05 pm

  This morning, the government revised higher its report for Q3 economic growth. They now say the economy expanded by 3.9%, after inflation, for the third quarter. Economists were expecting a downward revision.

  For the last two quarters, the economy has grown by 4.2% annualized. That’s the strongest two-quarter growth rate since 2003.

• Morning News: November 25, 2014
  Eddy Elfenbein, November 25th, 2014 at 7:05 am

  OECD: Euro Area May Be In ‘Persistent Stagnation Trap’

  ECB’s Coeure Says Officials Won’t Rush as They Debate All Assets

  Germany Relies on Consumers for Growth as Investment Declines

  Grand Central: The Internal, External Limits Facing BOJ Gov. Kuroda

  China Won’t Consider Further Rate Cuts, Easing Until After Fourth Quarter

  Santander Names New CEO As Chairwoman Botin Injects New Drive

  United Technologies Replaces CEO Amid Growth Challenges

  Redbox Price Hike Shows DVDs Aren’t Dead

  Finra Fines Citigroup Over Acts by Analysts

  Nuance Profit Tops Estimates as Healthcare Sales Rise

  Kinder Morgan: Is There A Multi-Billion Dollar Elephant In The Room?

  Honda Failed to Report Defects’ Full Human Toll

  FBI Files Say Hedge Fund Analyst Made Millions on Tips From Dell Insider

  Pragmatic Capitalism: In Energy Revolution, Bond Investors Must Keep Their Heads

  Joshua Brown: The Death of the A Share (and nobody cares)

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• Morning News: November 24, 2014
  Eddy Elfenbein, November 24th, 2014 at 6:48 am

  China Stocks Rise After Surprise Rate Cut, Yuan Drops

  Draghi’s Feint

  Greece to Negotiate Stalled Review With Troika in Paris

  Germany Surprises, Helps Euro Tick Up

  The $31 Billion Bet Against Brazil’s New Finance Minister

  Thanksgiving In Vienna: OPEC Meeting – Is The World Oil Price Managed?

  White House Threatens to Put Brakes on Alternative Fuels

  Jets Are Out, Televisions In as U.S. Growth Benefits Spread

  Bidding in Government Auction of Airwaves Reaches $34 Billion

  BT Says It Is in Talks to Acquire 02

  RenaissanceRe Holdings To Acquire Platinum Underwriters In $1.9 Billion Deal

  BioMarin to Pay Up to $840 Million for Prosensa

  Tesla Says in Talks With BMW Over Car Batteries, Parts

  Jeff Miller: Weighing the Week Ahead: Are Investors Too Complacent?

  Epicurean Dealmaker: Regrets, I’ve Had a Few

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• Strong Open for Ross Stores
  Eddy Elfenbein, November 21st, 2014 at 9:50 am

  It’s looking very good for Ross Stores ($ROST) this morning. The stock is currently up over 6% today.

  

• CWS Market Review – November 21, 2014
  Eddy Elfenbein, November 21st, 2014 at 7:08 am

  “Become more humble as the market goes your way.” – Bernard Baruch

  Before I get into this week’s CWS Market Review, I have two announcements. The first is that there will be no newsletter next week. It’s Thanksgiving, and I’m taking a little break. The second is that I’ll be unveiling next year’s Buy List in the CWS Market Review on December 19, 2014, which is four weeks from today.

  As always, I’ll be adding five stocks and deleting five stocks. The 2015 Buy List won’t take effect until the start of trading in January. I like to announce the names a few days ahead of time so no one can claim the positions are somehow manipulated. Later on in today’s newsletter, I’ll give you a list of some stocks I’m thinking about adding or deleting.

  Now…about this lethargic stock market. The recent market hasn’t merely been slow; it’s been one of the sleepiest markets in history. Every day, it seems, the indexes climb higher, but only microscopically. The S&P 500 just closed out a five-day run where it didn’t close higher or lower by more than 0.1%. That hasn’t happened in 50 years.

  

  The S&P 500 hasn’t had a meaningful down day in nearly a month. The last time the index dropped by more than 0.3% (which isn’t that much) was on October 22. The S&P 500 has closed higher 19 times in the last 26 sessions, but most of those were very small increases. The index has now closed above its five-day moving average for an amazing 25 straight days. That’s the longest streak since 1986. On Thursday, the market closed at yet another all-time high.

  I’m pleased to note that our Buy List continues to do well. We had two very good earnings reports this week. Medtronic jumped nearly 5% on Tuesday after it reported good earnings. Then on Thursday, Ross Stores handily beat Wall Street’s earnings consensus, and the shares are poised to move much higher. I’ll give the details on those in just a bit, but first let’s look at some ideas I’m considering for the 2015 Crossing Wall Street Buy List.

  Potential Changes for Next Year’s Buy List

  According to the rules of our Buy List, I select 20 stocks each year. The portfolio is then locked and sealed, and I can’t make any changes for the next 12 months. (This set-and-forget rule has probably helped me more than I realize, since it’s prevented me from dumping good names at the first sign of trouble.) Each year, I swap out five names, which means my annual portfolio turnover is just 25%.

  Right now, the five names I’m considering for deletion are CA Technologies ($CA), DirecTV ($DTV), IBM ($IBM), McDonald’s ($MCD) and Medtronic ($MDT). This is just a preliminary list: there’s no guarantee that these will be the ones to be cut when I make the big announcement next month.

  Let me run through some thoughts on each of the names.

  We did very well with DirecTV ($DTV), and I was happy to have it on our Buy List. But now it’s time to say goodbye. If all goes according to plan, the company will soon be bought out by AT&T. I like AT&T, but I’d rather not have it on our Buy List.

  Medtronic ($MDT) is in a similar position. The medical-device stock has done very well for us, and particularly well lately (I’ll discuss this week’s earnings report in a bit). But Medtronic is about to become a very different company from the one we originally bought. The Covidien deal is a gigantic undertaking. They’re basically doubling in size, and there will need to be a lot of cost-cutting. If all goes well, Medtronic will soon take the name Medtronic PLC and will be incorporated in Ireland.

  IBM ($IBM) and McDonald’s ($MCD) are also problematic. I simply made a mistake with both stocks. I thought both stocks were turning around, but the problems are more serious than I imagined. I think the prospects for McDonald’s could improve, but it’s too early to say. Their sales are flat, while competitors like Chipotle are cranking same-store-sales growth of 20%. IBM made a series of errors, and I think there need to be some changes at the top. Frankly, I think the two companies share a trait: they aren’t sure what kind of business they want to be.

  CA Technologies ($CA) may be the weakest of the bunch. Their sales are in a tailspin. I should have pulled the plug a long time ago. As an investor, I always need to be frank about my mistakes, and I missed how serious the problems were at CA.

  Ten Possible Additions for Next Year’s Buy List

  Here are ten stocks I’m strongly considering for next year’s Buy List:

  Alliance Data Systems ($ADS)

  Babcock & Wilcox ($BWC)

  Cardtronics ($CATM)

  Colgate-Palmolive ($CL)

  FactSet Research Systems ($FDS)

  Howard Hughes Corporation ($HHC)

  SEI Investments ($SEIC)

  Signature Bank ($SBNY)

  Tupperware Brands ($TUP)

  Westinghouse Air Brake Technologies ($WAB)

  I reserve the right to change my mind over the next four weeks, but I can say that these ten stocks are under serious consideration for next year’s Buy List. I don’t want to go into more detail, though, until I’ve made my final decision. Now let’s look at some recent earnings news.

  Medtronic Is a Buy up to $76 per Share

  In last week’s CWS Market Review, I said that I didn’t expect a big earnings beat from Medtronic ($MDT), and I was right. On Tuesday, the medical-device maker reported fiscal Q2 earnings of 96 cents per share. That met expectations right on the nose. For comparison, the company earned 91 cents per share for last year’s Q2.

  The important news is that Medtronic continues to do well. The company also took the opportunity to reiterate that the Covidien ($COV) deal is on track. They hope to close the deal by the beginning of next year. At that time, Medtronic will reincorporate in Ireland, and its new name will be Medtronic PLC. The deal is up for a shareholder vote on January 6. I think it will pass easily.

  For Q2, quarterly sales came in at $4.37 billion, which was a shade more than the consensus of $4.36 billion. Medtronic also reiterated its full-year earnings outlook of $4.00 to $4.10 per share. Their fiscal year ends in April, and Medtronic has already made $1.89 for the first two quarters of this year. That means they see earnings ranging between $2.11 and $2.21 per share for the last six months of this fiscal year. Medtronic earned $2.03 for the back-half of FY 2014.

  Omar Ishrak, Medtronic’s CEO, said, “Revenue growth was at the upper end of our full-year revenue outlook and within our mid-single digit baseline goal, reflecting the strong execution of our global organization.”

  

  The shares popped 4.7% on Tuesday and reached a new all-time high price. In the last three years, Medtronic has gained more than 116% for us, compared with 72% for the S&P 500. As I said before, there’s a good chance that Medtronic won’t be on next year’s Buy List, but that’s due to the deal, and not to any business failure. This week, I’m raising my Buy Below on Medtronic to $76 per share.

  Ross Stores Beat Earnings

  In last week’s CWS Market Review, I wrote, “For Q3, Ross said it expects earnings to range between 83 and 87 cents per share. Oh, please. That’s almost certainly too low.” I was right again. The deep discounter earned 93 cents per share for its fiscal third quarter.

  I wish I could say this was due to my supernatural powers to divine the future. I’m sad to say that I was simply looking at the numbers, and the math said Ross is doing just fine. Quarterly sales rose 8% to $2.599 billion. Same-store sales, which is the key number for retailers, were up by 4%. Ross continues to deliver.

  The CEO said, “We are pleased with the better-than-expected sales and earnings we achieved in the third quarter. These results were driven by our ongoing ability to deliver compelling bargains to our customers, which drove above-plan sales gains and strong merchandise gross margins. Operating margin for the quarter grew 55 basis points due to a 40-basis-point improvement in cost of goods sold and a 15-basis-point decline in selling, general and administrative expenses.”

  Now let’s look at their guidance. For Q4, which is the all-important holiday shopping season, Ross forecasts earnings between $1.05 and $1.09 per share. Ross earned $1.02 for last year’s Q4. For the entire year, Ross sees earnings ranging between $4.28 and $4.32 per share. That’s an increase of 10% to 11% over last year.

  Ross Stores is an excellent example of our style of investing. The stock had a miserable first half of 2014. By July, shares of ROST had dropped below $62. The shares were down more than 17% on the year. But the numbers still looked good, and we held on. ROST has rallied strongly ever since. The shares are now up more than 11% for the year, which is just ahead of the S&P 500.

  The stock looks to open higher on Friday morning. This week, I’m raising our Buy Below on Ross Stores to $91 per share.

  That’s all for now. The stock market will be closed next Thursday for Thanksgiving. The market will close at 1 pm on Friday. This is usually the slowest trading day of the year. There’s not much reason for the market to be open, but the NYSE hates to have the exchange closed four days in a row. The only interesting economic report will come on Tuesday when we get the first revision to Q3 GDP. The initial report said that the economy grew by 3.5% for Q3. 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: November 21, 2014
  Eddy Elfenbein, November 21st, 2014 at 6:51 am

  Euro-Area Bonds Advance as Draghi Says Willing to Broaden Buying

  Greece Expects Primary Budget Surplus for 2015

  China Cuts Interest Rates to Revive Slowing Economy

  Gold Reverses Losses After China Lowers Benchmark Interest Rates

  Malaysia to End Petrol and Diesel Subsidies

  Stung By Criticism, Fed Will Review How It Supervises Large Banks

  Amazon’s Pricing Strategy Makes Life Miserable For The Competition

  Amazon Vows to Run Its Cloud Entirely on Renewable Energy

  Intel: All Is Not Well In Mobile, But We’re Not Embarrassed

  Gap Cuts Profit Forecast As Demand Slows for Old Navy Brand

  Japan Orders Takata to Investigate Flawed Airbags

  Ebola Becomes Latest Stock Scam, SEC Says

  TV Streaming Service Aereo Files For Bankruptcy

  Cullen Roche: 3 No-Brainer Policies Our Government Won’t Implement

  Ben Carlson: Avoiding The Recency Bias in Foreign Stock Markets

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