Archive for December, 2014

• The Santa Claus Rally
  Eddy Elfenbein, December 23rd, 2014 at 9:12 am

  We’re right at the historically best time of the year for stocks. Actually, that’s an understatement. Historically, this is the best time of year by far. Over the last 118 years, one-third of the Dow’s annual gain has come in the next half a month.

  Let me be clear: I don’t think there’s any useful trading information in these historical seasonal patterns. I would never make an investment decision based on the calendar. Plus, if you run enough data, some oddball pattern will emerge. That doesn’t mean it’s real.

  But I do think these patterns are interesting for their own sake. My guess is that the ending of each year brings forth some optimism for the new year.

  Now let’s dig into the numbers. Crunching 118 years’ worth of data we find that from December 21 to January 6, the Dow has gained an average of 2.83%. That’s 16 days and trading is always closed on New Year’s Day. That’s 38.4% of the Dow total annual price gain (dividends aren’t included) coming in 4.4% of the year. What’s also interesting is how meager the gains have been for the rest of the time.

  Here’s how the Dow has historically performed at this time of year. To make it more readable, I’ve set the index to 100 as of December 10.

  

  Here’s what the average year looks like:

  

• Morning News: December 23, 2014
  Eddy Elfenbein, December 23rd, 2014 at 7:08 am

  Christmas Rally Enters Sixth Day in Europe

  Putin Has One Weapon to Protect the Rouble – He Must Use It Wisely

  North Korea Loses Its Link to the Internet

  Nicaragua Breaks Ground With $50 Billion Canal

  Investors Say ‘Bye,’ But Not ‘Ciao’ to Stock Pickers

  Forget Inflation: Gold Is No Longer a Hedge Against Price Rises

  Oil Prices Rally on China Data

  Billionaire Harold Hamm Slashes 2015 Drilling On Low Oil Prices

  Southwestern Energy Completes Acquisition Of Southwest Marcellus And Utica Assets

  Nutreco Shares Suffer After Cargill Ends Bid FIght

  Biggest Arctic Gas Project Seeking Route Around U.S. Sanctions

  And 2014’s Worst Currency Was…Bitcoin

  Bank Leumi Hit With $400 Million U.S. Fine

  Howard Lindzon: 125 Things EVERYONE Should Know About Investing

  Joshua Brown: This Changes Everything for Biotech

  Be sure to follow me on Twitter.

• Gasoline Prices at Five-Year Low
  Eddy Elfenbein, December 22nd, 2014 at 11:28 am

  Not much to add to this chart:

• Express Scripts Shakes Up the Hep C Market
  Eddy Elfenbein, December 22nd, 2014 at 11:17 am

  This will probably be a slow week for trading since the market closes early on Wednesday and is shut all day on Thursday. But we get the big GDP revision tomorrow which I’m looking forward to. This morning’s report on existing home sales came in very light. So far, the market is basically flat.

  Shares of Oracle ($ORCL) are down slightly after the company announced that it’s buying Datalogix which is an advertising analytics company. Terms weren’t disclosed but we believe it involved a great deal of money.

  Express Scripts ($ESRX) shook up the market today. The company is making AbbVie’s ($ABBV) hep C treatment its exclusive option for patients, instead of Gilead’s ($GILD). The WSJ says:

  The decision will quickly change the calculus for one of the most closely watched markets in the pharmaceutical industry, since other payers will now look for similar deals. Some Wall Street analysts expect worldwide sales of hepatitis C treatments, led by a pair of medications sold by Gilead Sciences, to reach as much as $20 billion in revenue next year thanks to pent-up demand for new treatments.

  Gilead is currently down 13% today.

• Barron’s: Bed Bath & Beyond Hits the Web
  Eddy Elfenbein, December 22nd, 2014 at 10:50 am

  Shares of Bed Bath & Beyond (BBBY) are over $74 this morning, which is an 11-month high. The home furnishings store was featured in this weekend’s Barron’s, “Bed Bath: Moving Beyond Bricks & Mortar.” The company has been rightly criticized for its slow move to the Internet. Barron’s says they’re catching up fast.

  Bed Bath & Beyond is the best place to start. Sales from the Web still generate only a small fraction of the 1,500-store chain’s revenue—just 5% to 6% this year, according to Barclays analyst Alan Rifkin. But the company’s conservative management team is finally embracing the Internet: E-commerce sales jumped 50% in the most recent quarter. Even so, the stock continues to be valued like that of a fading retailer.

  “They are significantly accelerating the portion of capex [capital expenditures] devoted to e-commerce,” says Rifkin, who has covered the company for 20 years. “They have four times the number of people working on IT today that they did four or five years ago.”

  This year, Bed Bath & Beyond will spend roughly $175 million on technology alone, a big number for a company whose total capex bill has averaged $210 million a year since 2000, according to FactSet. So far, investors are taking a short-term view, and the spending is weighing on sentiment. The shares are down 8.5% in 2014, and trade at a below-market 13.6 times forward earnings. Just five of the 23 analysts surveyed by FactSet rate the stock a Buy.

  Contrarians can find opportunity in the doubt. In its deal for PetSmart (PETM), BC Partners paid nine times earnings before interest, taxes, depreciation, and amortization. At a similar multiple, Bed Bath & Beyond would be worth $87—19% above a recent price of $73.

  Barron’s notes that BBBY’s share count is down 14% in the last year.

  

• Morning News: December 22, 2014
  Eddy Elfenbein, December 22nd, 2014 at 7:21 am

  South Korea Cuts 2014 Growth Forecast, Warns on External Risks

  Cyber Drills in South Korea Amid Threat

  Asia’s Largest IPO May Flounder on Debut

  Uber Business Model Faces Legal Scrutiny in Taiwan, Chinese Mega City

  China Offers Russia Help With Currency Swap Suggestion

  Russian Central Bank to Bail Out Trust Bank With Up to $530 Million

  Draghi Starts Squaring QE Circle in Month of Persuasion

  Age of Plenty May Be Over for Gulf Arabs as Oil Tumbles

  History Holds Hard Lesson on Cheap Energy

  Oil Prices Stage New Rally

  The $6.3 Trillion Frenzy That Vanquished Treasury Bears

  Hacking at Sony Over ‘The Interview’ Reveals Hollywood’s Failings, Too

  Consumer Interest In The Apple Watch Has Been Steadily Declining Since September

  Jeff Carter: Your First Hires

  Jeff Miller: Time for the 2015 Pundit Forecasts!

  Be sure to follow me on Twitter.

• Every Buy List Stock
  Eddy Elfenbein, December 19th, 2014 at 2:52 pm

  I’ve always been meaning to assemble this chart. So here it is — all 63 Buy List stocks and which years they’ve made the cut

  Stocks	’06	’07	’08	’09	’10	’11	’12	’13	’14	’15
  ABT						X
  AFL	X	X	X	X	X	X	X	X	X	X
  APH		X	X	X
  BAX				X	X
  BBBY	X	X	X	X	X	X	X	X	X	X
  BCR							X	X	X	X
  BDX				X	X	X
  BER/WRB		X	X
  BLL										X
  BMET	X	X
  BRO	X
  CA							X	X	X
  CLC			X
  CTSH				X				X	X	X
  DCI	X	X	X	X
  DELL	X
  DHR	X	X	X	X
  DLX						X
  DTV							X	X	X
  EBAY									X	X
  ESRX									X	X
  EV				X	X
  EXPD	X
  F						X	X	X	X	X
  FDS	X	X	X	X				X
  FIC	X	X
  FISV	X	X	X	X	X	X	X	X	X	X
  GDW/WB	X
  GGG		X
  GILD					X	X
  HCBK							X
  HD	X
  HOG	X	X	X
  HRL										X
  HRS							X	X
  IBM									X
  INTC					X
  JNJ					X	X	X
  JOSB		X	X	X	X	X	X
  JPM						X	X	X
  LLY				X	X
  LNCR			X
  LUK			X	X	X	X
  MCD									X
  MDT	X	X	X	X	X	X	X	X	X
  MOG-A			X	X	X	X	X	X	X	X
  MSFT								X	X	X
  NICK		X	X	X	X	X	X	X
  ORCL						X	X	X	X	X
  QCOM									X	X
  RAI					X	X	X
  RESP	X	X
  ROST								X	X	X
  SBNY										X
  SEIC	X	X	X	X	X
  SNA										X
  SYK			X	X	X	X	X	X	X	X
  SYY	X	X	X	X	X	X	X
  UNH	X	X	X
  VAR	X	X
  WAB										X
  WFC								X	X	X
  WXS/WEX					X	X	X	X

  Thank you to Andrew Ottoson for helping me assemble this table.

• CWS Market Review – December 19, 2014
  Eddy Elfenbein, December 19th, 2014 at 7:09 am

  “Other guys read Playboy. I read annual reports.” – Warren Buffett

  Ladies and gentlemen, here’s the 2015 Crossing Wall Street Buy List:

  AFLAC ($AFL)

  Ball Corp. ($BLL)

  Bed Bath & Beyond ($BBBY)

  Cognizant Technology Solutions ($CTSH)

  CR Bard ($BCR)

  eBay ($EBAY)

  Express Scripts ($ESRX)

  Fiserv ($FISV)

  Ford Motor ($F)

  Hormel Foods ($HRL)

  Microsoft ($MSFT)

  Moog ($MOG-A)

  Oracle ($ORCL)

  Qualcomm ($QCOM)

  Ross Stores ($ROST)

  Signature Bank ($SBNY)

  Snap-on ($SNA)

  Stryker ($SYK)

  Wells Fargo ($WFC)

  Westinghouse Air Brake Technologies ($WAB)

  The five new stocks are Ball Corp. ($BLL), Hormel Foods ($HRL), Signature Bank ($SBNY), Snap-on ($SNA) and Westinghouse Air Brake Technologies ($WAB). I’ll have more to say about the new buys in upcoming issues.

  The five deletions are CA Technologies ($CA), DirecTV ($DTV), IBM ($IBM), McDonald’s ($MCD) and Medtronic ($MDT).

  To recap, I assume the Buy List is equally weighted among the 20 stocks. The “buy price” for each stock will be the closing price as of December 31, 2014. The new Buy List goes into effect on January 2, 2015, the first day of trading of the new year.

  The Buy List is now locked and sealed, and I won’t be able to make any changes for the entire year. I’ll have a complete recap of 2014 at the end of the year. I’ll also have more to say about our new buys, plus I’ll give you new Buy Below prices.

  As far as this year’s Buy List goes, there are only eight trading days left in 2014, and it appears that our Buy List will lose to the broader market for the first time in eight years. But it will be close. Through Thursday, our Buy List is up 10.06% YTD, compared with 11.52% for the S&P 500 (not including dividends).

  I’m disappointed to lose to the market, but we’re still making a good profit. Our low-turnover, long-term strategy continues to serve us well. I’m excited for 2015, and I’m confident we’ll see more profits next year. Now let’s look at what happened on Wall Street this week.

  Janet Yellen Says the Fed Can Be Patient

  This was a dramatic week for world finance. The Russian ruble crashed. Oil managed to drop even lower, and the 10-year Treasury got near 2%. Then on Wednesday, everything seemed to reverse course. Oil nearly hit $59 per barrel. Between the Tuesday low and Wednesday high, the Russian ETF ($RSX) soared 27%.

  But on Wednesday afternoon, the Federal Reserve released its latest policy statement which gave the bulls a lot more faith. On Wednesday, the S&P 500 had its best day in 14 months. Then on Thursday, it did even better. For the first time in five years, the index rallied more than 2% on consecutive days.

  The investing world wanted to see if the Fed would keep its language that it would wait a “considerable time” between the end of its bond-buying program and its first rate increase. The Fed said, “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” The market took the “it can be patient” part to mean that the Fed is in no hurry to raise rates. In her post-meeting presser, Janet Yellen stressed that there’s been no change in policy. The difference is that we’re closer to Rate Hike Day, and that’s no longer a “considerable time.”

  The Fed also released updated forecasts for interest rates. Of the 17 members of the FOMC (not all are voting members), 15 think interest rates will rise before the end of next year. Only two members see the first rate increase coming in 2016.

  Personally, I think a 2016 increase is a realistic scenario, though not a probable one. The Fed has consistently over-estimated the strength of the economy, and by extension, the timetable for a rate increase. I hope they’re right, but the futures market isn’t on their side. At the end of 2016, two years from now, the consensus at the Fed sees rates at 2.5%. The futures market thinks they’ll be at 1.5%. When in doubt, I side with the market.

  The outlook is far from certain, but as long as interest rates remain low, it’s a good environment for stocks. It’s just that simple. Until there’s a pickup in inflation, the Fed is in no hurry to raise rates, and that’s good for us. Now let’s look at a place where inflation is about to get much worse.

  The Ruble Gets Crushed

  In last week’s CWS Market Review, I criticized the Russian Central Bank for not taking the threat to the ruble seriously. I wrote:

  The Russian Fed raised interest rates again this week, but the forex market just laughed at them. I don’t blame them. Despite a lot of talk, the Bank of Russia simply isn’t serious about defending the ruble. The BOR raised rates by 1% to 10.5%. Please. If they’re serious, they would have raised rates by 2% or 3%. That’s what needs to be done.

  Perhaps I have some readers inside the Kremlin, because the Russian Central Bank responded with a dramatic 6.5% rate increase. They jacked up short-term rates from 10.5% to 17%. This was an attempt to prevent Russians from yanking their cash out of their local bank and exchanging their rubles for dollars. Once a panic gets going, it’s hard to stop.

  

  Instead of rallying, the big rate increase caused panic selling. All over the world, traders were dumping rubles. At one point, the ruble dropped as low as 1.3 cents. Three weeks ago, it was at 2.2 cents. What a mess! Russia’s budget is balanced when oil is at $100 per barrel. Vladimir Putin warned that oil could go as low as $40. So far, Russia has spent $87 billion to prevent the ruble from collapsing. All of it failed.

  I’m afraid the pain in Russia is just beginning, but I’m concerned about potential spillover effects. For example, Carlsberg, the Danish brewer, took a 6.6% hit earlier this week. One-third of their profits come from Russia. Google ($GOOGL), a 16-year-old company, now has a larger market value than the entire Russian stock market.

  Any spillover effect from Russia on the U.S. economy will be slight. Russia makes up just 1% of our trade volume. Instead, my concern has to do with any hidden financial fallout. For example, did some bank or insurance company load up on Russian debt? Or did they loan money to a rogue trader who did that? I suspect this might be an issue for some German banks. Until this week, I had no idea that BP ($BP) owns 20% of Rosneft. “Only when the tide goes out do you discover who’s been swimming naked.”

  There’s been some talk that lower oil prices will curtail demand for Ford’s new line of cars and trucks. The aluminum bodies are more fuel-efficient, but for now, I doubt that will have a significant impact. It’s something to key an eye on, and lower oil probably caused some of the recent weakness in Ford. But don’t get rattled. Ford is a solid stock.

  So far, no one is willing to hold back production of oil. Not OPEC, and not here. As for American drillers, they’ve already spent their money, so they might as well produce. ExxonMobil ($XOM), the biggest energy company on the planet, plans to increase production next year. Last year, it cost Exxon $12.72 to extract a barrel of oil. In other words, this ain’t over. Oil can go much lower from here.

  Oracle Soars 10%

  After the closing bell on Wednesday, Oracle ($ORCL) reported fiscal Q2 earnings of 69 cents per share. That beat Wall Street’s estimate by a penny. This was their first earnings beat in a year. On Thursday, the shares rocketed 10% higher to $45.35 per share. That’s Oracle’s highest close in 14 years, and it’s not far from the all-time high close of 46.31 per share.

  Three months ago, Oracle told us to expect earnings between 66 and 70 cents per share. In last week’s issue, I said that’s about right. Overall, this was a solid quarter for Oracle. I should add that this is the first one since Larry Ellison stepped down as CEO (his current role is Chief Technology Officer). Quarterly revenue came in at $9.6 billion, which also topped Wall Street’s consensus of $9.51 billion.

  

  Oracle is doing especially well with its cloud business. That division saw its revenue rise 45% last quarter. Critics have claimed that Oracle has been lagging behind with its cloud service. But the company has responded aggressively. Over the last ten years, Oracle has spent more than $50 billion to buy 100 businesses.

  Larry Ellison said that Oracle is on track to pull in $1 billion in new cloud subscriptions next year. He added, “We’re catching up to them, and catching up very quickly.” Yes, you are. This week, I’m raising Oracle’s Buy Below to $48 per share.

  That’s all for now. The stock market will close at 1 p.m. on Wednesday and will be closed all day on Thursday for Christmas. Friday will be a full workday, but don’t expect a lot of trading. Despite the shortened schedule, there will be a few important economic releases next week, such as Durable Goods and GDP (on Tuesday). 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. I hope everyone has a wonderful holiday season!

  – Eddy

• Morning News: December 19, 2014
  Eddy Elfenbein, December 19th, 2014 at 7:00 am

  Why Germany’s Having a Merrier Christmas

  China’s GDP Revision Adds Output Equal to Malaysian Economy

  BASF, Gazprom Call Off Asset Swap Amid Political Tensions

  Oil Rebounds From Five-Year Low as Saudi Comments Add Volatility

  BOJ Keeps Record Easing as Oil Price Tumble Challenges Kuroda

  Fed Grants Volcker Reprieve in Banks’ Second Big Win This Month

  Yellen’s Inflation Lessons: Targets Matter, Oil Shocks Dissipate

  In Hollywood, Sony Hack’s Chilling Effect On Movie Pipeline Is Already Being Felt

  Amazon Offers One-Hour Shipping in Manhattan

  Ford Recall of Takata Airbags to Extend Nationwide

  Uber Suspends Portland Service While Seeking Clearance

  A Humbled Janus Capital is Betting on Bill Gross for It’s Turnaround

  Unilever Pulls Lawsuit Against Just Mayo Maker Hampton Creek

  Cullen Roche: “Do You Want to Be Right Or Do You Want to Make Money?

  RealVision TV and Stocktwits…Financial Market Videos on Demand

  Be sure to follow me on Twitter.

• Best Back-to-Back Days in Five Years
  Eddy Elfenbein, December 18th, 2014 at 7:38 pm

  Yesterday was the best day for the S&P 500 in 14 months, and today was even better. This was the first time the S&P 500 rose more than 2% on consecutive days since March 2009, shortly after the bull market began. We haven’t done it for three straight days since August 2002.

  The big winner today was Oracle ($ORCL) which soared more than 10% in today’s session. The stock touched a 14-year high and is close to making a new all-time high. The current all-time high was set in July 2000.