Archive for January, 2015

• WSJ Looks at Bed Bath & Beyond
  Eddy Elfenbein, January 8th, 2015 at 2:10 pm

  Bed Bath & Beyond ($BBBY) is due to report earnings after today’s close. In the WSJ, Spencer Jakob takes a closer look at the home furnishings store:

  In the past 10 quarters, the stock has dropped sharply seven times during the trading session following results releases—by an average of nearly 9%. But revenue growth hasn’t faltered during that time and those instances have mostly been good short-term buying opportunities. Whether the market will serve up another one after Thursday’s fiscal third-quarter report remains to be seen. Either way, Bed Bath & Beyond looks attractive despite rebounding by over 30% in the past six months.

  For the fiscal quarter in question, which ended in November, the company had said it expected earnings per share between $1.17 and $1.21, compared with $1.12 a year earlier. Analysts at Nomura forecast sales during the period were strong, while Canaccord Genuity thinks online sales—Bed Bath & Beyond got a slow start in e-commerce—rose to more than 10% of revenue.

  One concern: This expansion has gone hand in hand with a big rise in capital expenditure. Some perspective is warranted. Even with the higher depreciation associated with a big investment in e-commerce, operating margins over the past 12 months were slightly higher than what the company has managed over the past 15 years, on average.

  Meanwhile, the price investors are willing to pay for the company, adjusted for net cash, as a multiple of earnings before interest, taxes, depreciation and amortization, is less than three-quarters of its average over the same period.

  Bed Bath & Beyond, which doesn’t pay a dividend, has been a good steward of shareholders’ cash by generating a return on invested capital far above peers. A recent sale of debt and an expanded stock buyback should enhance that as long as the underlying business holds up. For patient investors, that provides a plush cushion against bouncing margins.

• Morning News: January 8, 2015
  Eddy Elfenbein, January 8th, 2015 at 6:37 am

  German Factory Orders Plunged in November

  Greek Crisis Jolts QE Juggernaut as ECB Ponders Deflation

  China’s Xi Woos Latin America With $250 Billion Investments

  China Wants Taxes Paid by Citizens Living Afar

  Why The Coal India Strike Should Never Have Happened in The First Place

  Global Inflation Rates Fall as Oil Prices Drop

  Federal Reserve Officials Say Drop in Oil Prices Probably Will Boost U.S. Growth

  Brent Bounces Around $51 as Traders Fish For Bottom

  Private Employers Added More Than 2.5 Million Jobs in 2014

  Samsung Electronics’ Turnaround On Track

  Standard Chartered Axes Equities Business, Retail Jobs in Cost Cut Push

  Gross’s Fund Got $700 Million From Adviser’s Brokerage

  Joshua Brown: AdvisorHUB is the Most Important Site in Finance

  Howard Lindzon: The ‘All-Time High’ and Why It is My Favorite Market Indicator

  Howard Lindzon: The All-Time Low List – Look Away

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• Forbes Names Signature Bank as America’s Best Bank
  Eddy Elfenbein, January 7th, 2015 at 8:36 am

  From Forbes:

  The top U.S. bank this year is New York-based Signature Bank SBNY -1.17%. The full-service commercial bank started in 2001 and has grown to $26 billion in assets with 27 private client offices throughout the New York-metro area. “There is a lot of runway in the New York metro area for us to grow,” says CEO Joe DePaolo in extolling the NYC market. There are $1.4 trillion in deposits in New York banks, almost three times the next biggest metro of Philadelphia.

  Signature focuses primarily on the needs of privately owned businesses with at least $20 million in revenue. But DePaolo says the bank will also target a law firm with $2 million in billings because it has a $35 million escrow account. “This is where we thrive because that client gets lost with the big institution,” he says. Signature’s attention to law firms helped it get named Best Business Bank by the New York Law Journal this year in their annual reader survey.

  Signature has racked up an impressive financial performance. It has posted 20 straight quarters of record earnings. Return on average equity of 13.8% over the last 12 months ranks fifth among the 100 largest banks. The bank also ranks in the top five for nonperforming assets as a percent of total assets (0.1%), nonperforming loans (NPLs) as a percent of total loans (0.15%) and reserves as a percent of NPLs (634%). While many banks are struggling to increase revenue, Signature posted growth of 21% over the past year. Wall Street recognizes the level of Signature’s asset quality and performance, as the stock trades at 2.5 times book value, third most expensive among the 100 biggest banks.

• Looking Ahead to Friday’s Jobs Report
  Eddy Elfenbein, January 7th, 2015 at 8:14 am

  The big December jobs report is due out on Friday morning. The government will release several key figures regarding the employment situation including nonfarm payrolls, labor force participation and the unemployment rate.

  This report will be one of the first times in a long time that I’m not so concerned about non-farm payrolls. Those have been growing at a steady clip for several months, and I expect that to continue. What I’m looking for now is to see an increase in average hourly earnings (AHE).

  Until now, workers haven’t seen much of an increase in their wages. In fact, AHE has largely tacked 2% growth which is basically inline with inflation. The AHE for November wasn’t too bad. I’ll be very curious to see if there was more in December.

  The other number to see will be hours worked. This is one of those reports that sounds counter-intuitive. You might think you’d want to see fewer hours worked, but in terms of the macro economy, we want to see more. More hours and at higher wages.

  While inflation is still quite modest, an increase in wages will probably foreshadow an increase in consumer prices. As long as oil and other commodities are plunging, inflation isn’t a problem. The strong dollar has probably given the Fed a few more months to forego raising rates, but any sign of inflation will change that.

  During the recession, the U-6 unemployment rate got a lot of attention. This is the regular unemployment rate plus part-time for economic reasons and marginally attached workers. This was considered a broader and more accurate gauge of the jobs market. In April 2010, it hit 17.2%%. It’s been dropping and for November, the U-6 was 11.4%. It’s taken a while but the jobs market is beginning to get back to something vaguely normal.

• Morning News: January 7, 2015
  Eddy Elfenbein, January 7th, 2015 at 7:06 am

  Paris on Terrorism Alert After 11 Killed in Magazine Attack

  Deflation Hits Eurozone as Energy Prices Fall

  Bank of England Minutes Underscore Turbulence of Financial Crisis

  Unemployment at Record Low in Germany, Record High in Italy

  Deal-Maker Macron Woos Vegas by Pledging France Can Change

  Greece 10-year Borrowing Rate Tops 10% on Eurozone Exit Fears

  Iran Accuses Saudis of Oil Conspiracy

  How $50 Oil Changes Almost Everything

  Solutions Needed in India For A Better Society

  J.C.Penney Proves Skeptics Wrong With A Holiday Sales Surprise

  Boeing Reports Record Orders, Deliveries to Airlines in 2014

  Intel Budgets $300 Million for Diversity

  Why Your Cable Bill Is Going Up Again in 2015 – Sports

  Cullen Roche: The Austerity That Never Happened

  Roger Nusbaum: How Can The Bond Bull Keep Going?

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• The 10-Year Is Back Below 2%
  Eddy Elfenbein, January 6th, 2015 at 3:24 pm

  Another strange trading day. The S&P 500 dropped as low as 1,992.44 which was a loss of 1.39%, but it’s recovered some since then. The major banks have been hit especially hard. The Financial Sector was down the most, although our own Wells Fargo ($WFC) was one of the better banks, meaning down the least. Small-caps are also feeling the pain.

  But the real action has been in the bond pits. I used to think there was no way that bond yields would come back to their July 2012 lows. Those were multi-decade lows. Now I’m not so sure. The 10-year yield is back below 2%. The 10-year got as low as 1.89% today. The 30-year got down to 2.47%. The spread between the 10- and 30-year is now less than 60 basis points which it hasn’t been in five years. My favorite indicator, the 2-10 spread, is at a two-year low (but still far from pre-recession levels).

  Crude oil is down yet again. The black stuff for February delivery got down to $47.55 per gallon.

• Morning News: January 6, 2015
  Eddy Elfenbein, January 6th, 2015 at 7:02 am

  Euro Area Menaced by Relapse Risk as ECB Weighs Action

  Samaras Faces Greek Voters Skeptical of His Euro-Exit Warnings

  Japan’s Big Firms Celebrate Cheaper Crude

  As Oil Drops Below $50, Can There Be Too Much of a Good Thing?

  Free Money in Bond Markets Shows Global Economy Still Struggling

  Goldman Sachs Says JPMorgan Chase Should Be Broken Up

  Verizon Is Said to Approach AOL for Possible Takeover, Venture

  Amazon Again Emphasizes Sellers’ ‘Record-Setting Year’ But Fails To Open Kimono

  Hyundai Motor to Spend $74 Billion Over 4 Years on Facilities, R&D

  Dish Network Unveils Sling, a Streaming Service to Rival Cable (and It Has ESPN)

  Coach to Buy Luxury Shoe Maker Stuart Weitzman

  Hackers Steal $5 Million From Major Bitcoin Exchange

  Why New Credit Cards May Fall Short on Fraud Control

  Jeff Carter: When Will US Companies Scream About The Dollar?

  John Hempton: A Comment on Current Chinese Vs. WWII Iron Ore Demand

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• Oil Drops Below $50
  Eddy Elfenbein, January 5th, 2015 at 10:18 pm

  It’s not over yet for oil. Spot West Texas closed below $50 per barrel today. The close was $49.95. This is the first time oil has closed below $50 in five-and-a-half years.

  

  It was a rough day for stocks as well. The S&P 500 dropped for the fourth day in a row, something it had not done all of last year.

  The S&P 500 lost 1.83% today but the losses were heavily concentrated in energy. The Energy Sector of the S&P 500 lost 3.99% today. In contrast, Consumer Staples were down just 0.77% and Healthcare was down 0.61%. This is, of course, why they’re called defensive sectors.

  There are also renewed worries that Greece might leave the euro. As an interesting historical side note, in the mid-19th century, there was an attempt at monetary union among several European countries.

  The Latin Monetary Union grew to include France, Belgium, Italy, Switzerland, Spain, Greece, Romania, Bulgaria, Venezuela, Serbia and San Marino. In 1908, Greece was temporarily kicked out of the union for diluting its gold coins.

• Dividends Rose 10% in Q4
  Eddy Elfenbein, January 5th, 2015 at 1:08 pm

  I often tell investors that dividends are easily the most important and most overlooked part of investing. Dividends tend to grow and reinvesting those dividends gets you more shares which begets you still more dividends. The effect may be small each week, but it adds up. Consider that in the last 20 years, the S&P 500 price index is up 348%. But the Total Return Index, which includes dividends, is up 555%.

  The numbers are in for the fourth quarter and dividends paid out by companies in the S&P 500 rose by 9.96% over last year’s Q4. That’s actually the second-slowest growth rate in the last 16 quarters. The slowest was Q4 of 2013 which came one year after the big dividend surge in late 2012 to pay out dividends before the tax rate went up. In the last four years, dividends paid out by the S&P 500 are up more than 73%.

  For the year, the S&P 500 paid out $39.44 in index-adjusted dividends. That’s an increase of 12.72% over 2013. But here’s what interesting: The S&P 500 price index rose 11.39% last year. In other words, dividends grew faster than prices. That means the S&P 500 ended the year with a slightly higher dividend yield than it started the year. Despite all the talk of a stock bubble, at least one measure of the market’s valuation moved lower.

  As I’ve pointed out before, for most of the last 12 years, the S&P 500 hasn’t strayed very far from a trailing dividend yield of 2%. The only exception was during the worst of the financial crisis, but once the storm passed, the market quickly moved back to 2%. It’s also interesting that the dividend payout ratio (the percent of profits being paid out as a dividend) has hovered near 33% for the last two years.

  

• Ford Down 3.5% Today
  Eddy Elfenbein, January 5th, 2015 at 10:28 am

  Shares of Ford are down 3.5% after the stock was downgraded by an analyst at Citigroup. The analyst kept the price target the same at $17 per share but lowered Ford to “neutral” from “buy.” Ford also reported December sales growth of 1%.

  Ford Motor posted its best December sales figure since 2005. Ford’s U.S. sales rose 1% to 220,671 vehicles. But overall 2014 sales were flat vs. a year ago at 2.48 million vehicles on a planned 15% reduction in daily rental sales.

  (…)

  “Demand for the all-new F-150 also is very high, and it now is the fastest-turning vehicle in Ford showrooms, averaging just five days on dealer lots in December,” said John Felice, Ford vice president, U.S. Marketing, Sales and Service in the release.

  F-Series sales total 74,355 vehicles in December and 753,851 vehicles for 2014 as lower gas prices helped boost demand for larger trucks and SUVs.