Archive for November, 2014

• Signature Bank (SBNY)
  Eddy Elfenbein, November 13th, 2014 at 2:06 pm

  One of the most overlooked, and successful, stories in banking recently has been the emergence of Signature Bank ($SBNY). This new kid on the block is turning banking on its head.

  Shortly after their meeting, Signature Bank was launched by Chief Executive Joseph DePaolo, a former senior audit manager at accounting giant KPMG, and Chairman Scott Shay, a former mergers-and-acquisitions specialist at Salomon Brothers. Under their leadership, Signature has proved to be one of the most successful startups in banking over the past 20 years.

  The institution now sports 27 branches, $22 billion in assets and a market value of $5.5 billion. Since going public in 2004, Signature’s stock has returned about 650%, or nearly 10 times that of the S&P 500 and double that of the next-best-performing bank, SVB Financial Group, the parent of California’s Silicon Valley Bank.

  Yet it remains almost unknown. No street signs proclaim the existence of its branches, which are tucked away in office buildings. It doesn’t advertise because management doesn’t think its clientele of small and midsize businesses would work with a bank based on how catchy its jingle is. About the only time Signature made news came when Ivanka Trump joined its board in 2011 before leaving last spring.

  “It’s true we aren’t in the headlines [much],” Mr. DePaolo said. “I don’t mind.”

  Signature’s success stems from management recruiting groups of experienced business bankers, from rivals like Citibank and HSBC, who bring clients with them. Famed wedding-dress retailer Kleinfeld, for instance, became a customer when its longtime banker, Zoe Koutsoupakis, joined a Signature branch in Brooklyn last year after 34 years at other institutions.

  (…)

  The formula has worked. Only 0.25% of Signature’s $14 billion in loans, or one-tenth the industry average, are more than 90 days delinquent. Overhead is low, with Signature spending 36 cents to generate each dollar in revenue, 40% below the industry average. Returns are high, with the bank’s 14% return on equity 4 percentage points above the industry average. What’s more, Signature has secured a reputation in its field as a place where seasoned bankers want to work.

  Here’s the stock chart. I’ve included the EPS and P/E Ratio below.

  

• Morning News: November 13, 2014
  Eddy Elfenbein, November 13th, 2014 at 6:47 am

  China Property Investment Slows Further, But Slump In Sales Shows Signs Of Easing

  India Reaches Breakthrough With U.S. on Global Trade Pact

  The Forex Debacle – A Scandal to End All Scandals

  CFPB to Propose New Rules for Prepaid Debit Cards

  Is the Fed Using a 1937 Monetary Debacle to Keep Rates Low?

  DP World to Pay $2.6 Billion for Operator of Industrial Parks

  Hasbro Said to Be in Talks to Buy DreamWorks Animation

  Comcast Says Time Warner Deal Going ‘Full Steam Ahead’

  Monsanto to Pay $2.4 Million to Farmers Over 2013 GMO-Wheat Scare

  Cisco’s CFO is Out as Sales Nudge Forward but Profits Dip

  Churchill Downs to Buy Big Fish Games for Up to $885 Million

  Yahoo Buys Video Ad Service BrightRoll for $640 Million

  Allergan is in Merger Talks With Irish Pharmaceutical Firm Actavis

  Jeff Carter: Is the Internet a Utility? Part I, Part II

  Joshua Brown: Here There Be Monsters

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• Gasoline Prices at Four-Year Low
  Eddy Elfenbein, November 12th, 2014 at 11:59 am

  Energy stocks have been doing terribly of late. Thanks to the strong dollar, commodity prices are down. Gas prices have plunged over the last three months. The chart below, via GasBuddy, shows that prices at the pump are at a four-year low.

  

• When Will the Nasdaq Make a New High?
  Eddy Elfenbein, November 12th, 2014 at 10:31 am

  Yesterday, the Nasdaq Composite made another new 14-year high. The index got as high as 4,661.23. Actually, it’s not far from topping that today.

  The refrain “14-year high” has been heard an awful lot lately, because the high established in March 2000 was so amazingly high. The peak of the Nasdaq Bubble was so far removed from any rational valuation that it’s taken us years to get back to it. Almost every major tech stock is trying to pierce its “14-year high.”

  On March 9 and 10, 2000, the Nasdaq Composite had back-to-back closes over 5,000. On the 9th it closed at 5,046.86. The next day, it was at 5,048.62. Less than 18 months before, it was at 1,343.87, and less than 18 months later, it was at 1,387.06.

  The peak was truly extraordinary. At its peak, the Nasdaq’s nominal price was 3.6 times the S&P 500. Now it’s 2.3 times the S&P 500. The Nasdaq has to rally another 8% to match its all-time high. I think that’s certainly possible over the next few months, but I’m wary of making any prediction.

  Bear in mind, though, things have taken longer. The Dow Jones didn’t break its September 3, 1929 high until November 23, 1954. A gap of 25 years.

• Morning News: November 12, 2014
  Eddy Elfenbein, November 12th, 2014 at 6:53 am

  Bank of England Report Backs Mood to Delay Rate Rises

  Bank of England Dismisses Chief Forex Trader Over ‘Serious Misconduct’

  Yen Advances Amid Denials Abe to Delay Sales Tax Increase

  Fossil Fuels With $550 Billion Subsidies Hurt Renewables

  Fed’s Plosser Says Strong Dollar No Big Risk to Inflation

  5 Big Banks Fined $3.3 Billion in Foreign Exchange Scandal

  Alibaba Says Singles Day Sales Reach $9.3 Billion

  Yahoo Pays $640 Million for BrightRoll in Video Advertising Push

  Wal-Mart Spreads ‘Black Friday’ Over Five Days

  Dubai’s Emirates Reports 8% Rise in Half Year Profits

  Xiaomi to Buy Stake in Youku Tudou as Part of Online Video Push

  Apax Joins Bain in $8.8 Billion Oi Portuguese Asset Bid

  Should Domino’s and Papa John’s Fear Pizza Hut’s Big Menu Changes?

  Cullen Roche: The Myth of Passive Investing Begins to Unravel…

  Credit Writedowns: Zero Rates, Resource Misallocation, and Shale Oil

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• The 20-Year Bull Market
  Eddy Elfenbein, November 11th, 2014 at 3:41 pm

  The first decade of the 21st century was very unusual for the stock market. We had two once-in-a-generation crashes within nine years of each other. That’s not supposed to happen, yet it did.

  I’ve often seen this offered as proof as to why the stock market is a bad deal. However, if we adjust out starting points just a bit, we can see much better results.

  We’re coming up on the 20th anniversary of an important low point for the stock market. On December 8, 1994, the market began its huge run that characterized the latter 1990s. Technically, December 8th wasn’t the low for the year, but after that is when things really heated up. It was also a few weeks after the GOP took control of Congress for the first time in decades.

  From December 8, 1994 to yesterday, the Wilshire 5000 Total Return Index is up 588.93%. That’s more than 10% annualized. Meanwhile, the CPI is up by 59.16% over the last 20 years, or 2.35%.

• Stepan: 47 Consecutive Dividend Increases
  Eddy Elfenbein, November 11th, 2014 at 12:50 pm

  I forgot to mention this, but a few weeks ago, Stepan ($SCL) raised its dividend for the 47th year in a row. It’s not much of an increase. The quarterly dividend is going from 17 to 18 cents per share. That gives the stock a yield of 1.64%.

  What do they do? This is from Stepan’s corporate profile:

  Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries. Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds. The Company is also a leading supplier of Polyurethane polyols used in the expanding thermal insulation market, and C.A.S.E. (Coatings, Adhesives, Sealants, and Elastomers) industries.

  Sexy, no? I often talk about how seemingly boring business can be very profitable.

  Frankly. I think Stepan is keeping their dividend payout low so they can keep the streak alive. Ideally, I’d like to see companies pay out about one-third of their profits as dividends.

  Stepan has had a rough year and the stock is down. SCL is currently down 35% from its 52-week high.

• Earnings Update
  Eddy Elfenbein, November 11th, 2014 at 11:03 am

  Earnings season is just about done, so let’s look at where we stand.

  Of the 445 companies in the S&P 500 that have reported so far, 332 beat expectations, 73 missed and 40 met.

  For Q3, the S&P 500 is on track to report operating earnings of $29.83 per share. That’s an index-adjusted number. That’s an increase of 10.8% over last year’s Q3. (These numbers are from S&P and they sometimes differ from other news sources.) At the start of the year, Wall Street had been expecting $30.89 for Q3. The estimates gradually fell as the year wore on.

  Over the last four quarters, the S&P 500 has earned $114.74 per share, so the index is going for 17.8 times that. Wall Street currently expects Q4 earnings to come in at $31.13 per share. That would be an increase of 10.2% over last year’s Q4.

  Interestingly, the estimates for Q4 had been fairly stable for much of the year. At the beginning of 2014, Wall Street was expecting $32.17 for Q4. On September 30, the estimate had increased by a tiny bit to $32.24. Only recently have the numbers come down.

  If the current Q4 estimate is accurate, then it would bring full-year earnings to $117.62. That would be an increase of 9.6% over last year. Yesterday was the first time that the S&P 500 closed up over 10% for the year. In other words, the S&P 500 has largely kept pace with earnings this year. Valuations haven’t changed.

• Ford Starts Production on the New F-150
  Eddy Elfenbein, November 11th, 2014 at 10:15 am

  Today’s the big day for Ford ($F). The car maker is starting production on its aluminum-bodied F-150 pickup trucks.

  It’s Ford Motor Co.’s biggest bet in decades: an aluminum-sided F-150 that could set a new industry standard — or cost the company its pickup truck crown.

  Ford was scheduled to start production of the 2015 F-150 Tuesday at its Dearborn Truck Plant, four miles from the company’s headquarters. It will arrive at U.S. dealerships next month.

  Ford thinks a truck that is lighter and more fuel efficient, but even more capable, will win buyers while its competitors struggle to catch up. Aluminum — which is lighter than steel but just as strong — isn’t new to the auto industry, but this is the first time it will cover the entire body of such a high-volume vehicle. Ford made 647,697 F-150 pickups at its two U.S. plants last year; that’s one every 49 seconds.

  Here’s the CEO on CNBC:

• Bed Bath & Beyond Breaks $70
  Eddy Elfenbein, November 11th, 2014 at 9:56 am

  It took a while, but shares of Bed Bath & Beyond ($BBBY) finally broke $70.