Archive for January, 2015

• The Euro Falls to Nine-Year Low
  Eddy Elfenbein, January 5th, 2015 at 9:46 am

  The euro (aka the German peso) has fallen to a nine-year low against the dollar. The currency dropped down to $1.1924. Today we learned that German inflation is at its weakest since 2009. Brent crude just dropped below $55 per barrel, and West Texas is below $52.

  

• Explaining Our Methodology
  Eddy Elfenbein, January 5th, 2015 at 9:24 am

  I wanted to make a few comments about our Buy List’s methodology. As I’ve found out, if you have a publicly-available free Buy List that’s done very well, some unpleasant people will call you a fraud or a liar. They’ll question your math or a bunch of other things.

  There’s not much you can do about cranks, but I’ve always gone out of my way to make our Buy List as transparent as possible. The set-and-forget rules are about as simple as you can get. I even take the extra step of making my new buys public two weeks before the changes take effect. You’d think that would mollify some people. Not so.

  Long story short, it’s a good time to restate what my goal is with the Buy List. I want to show regular investors that a disciplined approach can prosper and even beat the market. That’s why I do a few other things with my Buy List that I don’t often highlight. For example, I try to make sure that the Buy List is easy to replicate. This characteristic doesn’t get as much attention as it should. We don’t select any oddball foreign stocks or trade in unusual commodities or currencies. We don’t use margin, options or ETFs. There’s no shorting. Nor do we speculate on the North Bulgarian exchange in New Zealand pesos or anything like that. Around here, we keep it straightforward.

  Also, nearly all our companies are at least mid-caps, and many are large-cap blue-chip names. We don’t dabble in IPOs or thinly traded pink sheets. I always have the average investor in mind. The companies on our Buy List also have pretty standard operations. And of course, we keep our trading to a minimum.

  At the beginning of each year, I assume the Buy List is equally weighted among the 20 stocks. I also treat each year’s Buy List as a separate entity. In other words, we start over again at 0% at the start of each year. Here I can understand how some people might disagree with this decision.

  My rationale is this: if I treated the Buy List as one never-ending unit, I could show that we’ve made huge long-term gains in a stock like Fiserv, but very few blog readers have been following us the entire time. It’s a question of making things as comprehensible as possible for as many folks as possible. (Honestly, I can see tracking the Buy List either way, but I think the separate year-by-year approach is the easiest and fairest.)

  Occasionally I list our full nine-year total returns, but that means an investor rebalanced the portfolio at the end of each calendar year. I don’t think it’s wrong to do this, but I want to make it clear what it means.

  Every so often, we’ve had spin-offs or buyouts. I try to deal with these as best I can. Years ago, we got cash for our Biomet shares. I distributed that cash into the 19 remaining Buy List stocks. When Golden West Financial was bought out, we got shares of Wachovia, and that became a new member of the Buy List.

  I’ve always been careful to detail on the blog how all the calculations are made. Later this year, eBay will hopefully spin off PayPal. If all goes well, we’ll get the shares, and I’ll decide what to do with them in December. As always, the decisions I make are designed to make investing as easy as possible for average investors.

• Morning News: January 5, 2015
  Eddy Elfenbein, January 5th, 2015 at 7:02 am

  German Savers Brace for $2.3 Trillion ECB Question on QE

  Germany Should Not Scoff At Greece

  China Eases Export Controls on Rare Earths After Losing WTO Case

  China Stocks Start 2015 With a Bang

  Japan December Final Manufacturing PMI Shows Sustained Growth

  Oil Extends Decline From 5 1/2-Year Low as Glut Persists

  Nissan Exceeds Analyst Estimates to Finish Best U.S. Year

  BMW to Pay $820 Million in Subsidies to China Dealers Amid Slowdown

  American Airlines Pilots’ Union Agrees to 23% Pay Rise

  Amazon Sellers Sold Record-Setting More Than 2 Billion Items Worldwide in 2014

  Berkshire Soars as Buffett Shifts Focus From Stocks to Takeovers

  PlayStation 4 Faces Resurgent Rivals in Xbox One and Wii U

  Target CEO $47 Million Retirement Illustrates 401(k) Gap

  Jeff Miller: Time For the “January Effect”?

  Epicurean Dealmaker: Nerd Intersectionality

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• Super Dollar
  Eddy Elfenbein, January 2nd, 2015 at 2:08 pm

  The Great Greenback Rallies continues. The U.S. dollar just hit an 11.5-year high.

  

  Note that this is the WSJ Dollar Index, which is a bit different from DXY, which is the more-cited dollar index.

• December ISM = 55.5
  Eddy Elfenbein, January 2nd, 2015 at 12:19 pm

  The ISM report for December came in a bit light this morning at 55.5 versus the expected 57.6. But the important thing is that it’s still higher than 50 which it has been for 65 of the last 66 months.

  The ISM is a dispersion index which means that any reading greater than 50 means the manufacturing sector of the economy is expanding.

• Morning News: January 2, 2015
  Eddy Elfenbein, January 2nd, 2015 at 7:24 am

  Merkel Ally Urges ECB Not to Buy Struggling States’ Bonds

  Euro Falls Against Dollar as European Central Bank Hints of Stimulus

  Euro Forecasters See More Pain After Worst Year Since 2005

  To Rescue Economy, Japan Turns to Supermom

  Macau Gambling Revenue Suffers First Full-Year Fall

  Russia Oil Output Hits Post-Soviet High, Small Firms Help

  Crude Oil Trades Near 5 1/2-Year Low Amid Manufacturing Weakness

  Sterling Sinks to 16-month Low After UK Manufacturing Miss

  Walgreen-Alliance Boots Deal is Complete

  Hyundai-Kia Sees Slowest Sales Growth in 12 years in 2015

  Giving Chickens Breathing Room Will Cost Consumers

  DARPA Plans Autonomous ‘Flying Insect’ Drones With Skills to Match Birds of Prey

  Hotels Make Internet Free, But Tighten Cancellation Policies

  Joshua Brown: Good Times Teach Only Bad Lessons

  Cullen Roche: 2014 Portfolio Review – What Strategies Worked & Didn’t Work

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• CWS Market Review – January 1, 2015
  Eddy Elfenbein, January 1st, 2015 at 7:42 am

  Happy New Year!

  The 2014 trading year is officially on the books. It was another profitable year for our Buy List. I want to thank everyone for their support. We again showed that a set-and-forget portfolio of high-quality stocks can do well.

  Here are the final numbers. For the year, our Buy List gained 10.26%. Including dividends, we were up 11.80%.

  Unfortunately, we were beaten out by the S&P 500, but it was close. For 2014, the S&P 500 gained 11.39%—13.69% when you include dividends. For those who care about such things, the Buy List’s “beta” was 0.9361.

  Nine of our Buy List stocks were up more than 20%. There was nearly a four-way tie for our top-performing stocks of the year. Ultimately, Medtronic ($MDT) edged out Ross Stores ($ROST), 25.81% to 24.80%, while DirecTV ($DTV) and Stryker ($SYK) were right behind, tied at 25.54%. Fifteen of our 20 stocks made money last year. The biggest loser was IBM ($IBM), which lost 14.46%.

  Over the nine-year history of our Buy List, our total compounded gain, including dividends, is 151.28%. For the S&P 500, the nine-year total return is 99.64%.

  Details of Last Year’s Buy List

  The chart below details the Buy List’s performance. I’ve listed each stock, along with the number of shares and the starting and ending prices. For tracking purposes, I assume the Buy List is a $1 million portfolio that starts equally divided among the 20 stocks.

  Stock	Shares	12/31/2013	Beginning	12/31/2014	Ending	Profit/Loss
  AFL	748.5030	$66.80	$50,000.00	$61.09	$45,726.05	-8.55%
  BBBY	622.6650	$80.30	$50,000.00	$76.17	$47,428.39	-5.14%
  CA	1,485.8841	$33.65	$50,000.00	$30.45	$45,245.17	-9.51%
  CTSH	990.2952	$50.49	$50,000.00	$52.66	$52,148.95	4.30%
  BCR	373.3015	$133.94	$50,000.00	$166.62	$62,199.50	24.40%
  DTV	724.0081	$69.06	$50,000.00	$86.70	$62,771.50	25.54%
  EBAY	911.2448	$54.87	$50,000.00	$56.12	$51,139.06	2.28%
  ESRX	711.8451	$70.24	$50,000.00	$84.67	$60,271.92	20.54%
  FISV	846.7401	$59.05	$50,000.00	$70.97	$60,093.14	20.19%
  F	3,240.4407	$15.43	$50,000.00	$15.50	$50,226.83	0.45%
  IBM	266.5671	$187.57	$50,000.00	$160.44	$42,768.03	-14.46%
  MCD	515.3045	$97.03	$50,000.00	$93.70	$48,284.03	-3.43%
  MDT	871.2319	$57.39	$50,000.00	$72.20	$62,902.94	25.81%
  MSFT	1,336.5410	$37.41	$50,000.00	$46.45	$62,082.33	24.16%
  MOG-A	735.9435	$67.94	$50,000.00	$74.03	$54,481.90	8.96%
  ORCL	1,306.8479	$38.26	$50,000.00	$44.97	$58,768.95	17.54%
  QCOM	673.4007	$74.25	$50,000.00	$74.33	$50,053.87	0.11%
  ROST	667.2895	$74.93	$50,000.00	$94.26	$62,898.71	25.80%
  SYK	665.4245	$75.14	$50,000.00	$94.33	$62,769.49	25.54%
  WFC	1,101.3216	$45.40	$50,000.00	$54.82	$60,374.45	20.75%
  Total			$1,000,000		$1,102,635.22	10.26%

  Note that Cognizant Technology Solutions ($CTSH) split its shares 2-for-1 on March 10. The results above have been adjusted for the stock split.

  Starting Prices and Shares for the 2014 Buy List

  Here are the starting prices and number of shares for the 2015 Buy List. For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided among 20 stocks. Whenever I discuss how well our Buy List is doing, this is what I’m referring to:

  Company	Ticker	Price	Shares	Balance
  AFLAC	AFL	$61.09	818.4646	$50,000.00
  Ball Corp.	BLL	$68.17	733.4605	$50,000.00
  Bed Bath & Beyond	BBBY	$76.17	656.4264	$50,000.00
  Cognizant Technology Solutions	CTSH	$52.66	949.4873	$50,000.00
  CR Bard	BCR	$166.62	300.0840	$50,000.00
  eBay	EBAY	$56.12	890.9480	$50,000.00
  Express Scripts	ESRX	$84.67	590.5279	$50,000.00
  Fiserv	FISV	$70.97	704.5230	$50,000.00
  Ford Motor	F	$15.50	3,225.8065	$50,000.00
  Hormel Foods	HRL	$52.10	959.6929	$50,000.00
  Microsoft	MSFT	$46.45	1,076.4263	$50,000.00
  Moog	MOG-A	$74.03	675.4019	$50,000.00
  Oracle	ORCL	$44.97	1,111.8523	$50,000.00
  Qualcomm	QCOM	$74.33	672.6759	$50,000.00
  Ross Stores	ROST	$94.26	530.4477	$50,000.00
  Signature Bank	SBNY	$125.96	396.9514	$50,000.00
  Snap-on	SNA	$136.74	365.6575	$50,000.00
  Stryker	SYK	$94.33	530.0541	$50,000.00
  Wabtec	WAB	$86.89	575.4402	$50,000.00
  Wells Fargo	WFC	$54.82	912.0759	$50,000.00

  There are five new stocks and five stocks that I’m removing. The five new stocks are Ball Corp. ($BLL), Hormel Foods ($HRL), Signature Bank ($SBNY), Snap-on ($SNA) and Wabtec ($WAB).

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

  The average market cap is $69 billion. That ranges from a high of $382 billion for Microsoft ($MSFT) to $3 billion for Moog ($MOG-A).

  Thirteen of the twenty stocks pay dividends. The total yield of the Buy List is 1.06%.
  Only three stocks have been on the Buy List all ten years: AFLAC ($AFL), Bed Bath & Beyond ($BBBY) and Fiserv ($FISV). Stryker ($SYK) and Moog ($MOG-A) are both making their eighth appearance.

  Buy Below Prices for the New Buys

  Now let me give you the Buy Below prices for our five new buys. Remember, these aren’t price targets. They’re guidelines for new entry.

  I’m starting Ball Corp. ($BLL) out as a buy up to $72 per share. This is a good stock for conservative investors. Ball also pays a very small dividend. I’m going to initiate Hormel Foods ($HRL) with a Buy Below of $56. By the way, Hormel reports on a Jan-Apr-July-Oct Cycle, so its earnings will come a bit after most of our other stocks. Signature Bank ($SBNY) is a buy up to $133. I’d like to see SBNY start paying a dividend soon. Snap-on ($SNA) is a buy anytime you see it below $143 per share. Lastly, I rate Wabtec ($WAB) a buy up to $90 per share. This week, I’m also raising the Buy Below on Ross Stores ($ROST) to $96 per share.

  On Thursday, January 8, Bed Bath & Beyond ($BBBY) will report earnings for its fiscal third quarter. This covers September, October and November. On the last earnings call, BBBY said they expect Q3 to range between $1.17 and $1.21 per share. Interestingly, they also gave guidance for Q4 which they see ranging between $1.78 and $1.83 per share. The fourth quarter is the biggie for Bed Bath. For the entire year, management said they see earnings coming in between $5.00 and $5.08 per share.

  I was impressed with this guidance. Buybacks are helping out a lot. My numbers pretty much match up with what the company is saying. If they hit $5.08 for the year, that means the stock is going for 15 times earnings, which is hardly overpriced. Last week, Barron’s ran a feature on BBBY and noted that the company has ramped up its Internet presence. For now, I’m going to keep a fairly tight Buy Below on BBBY. Let’s see how Q4 is shaping up. Bed Bath & Beyond remains a buy up to $77 per share.

  That’s all for now. The market is closed on Thursday for New Year’s Day, but Friday will be a full work day. At 10 a.m., the December ISM will come out. Next Friday, we’ll get some of the key turn-of-the-month econ reports like Trade Balance and Factory Orders. The latest Fed minutes come out on Wednesday. This all leads up to the big jobs report next Friday. 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: January 1, 2015
  Eddy Elfenbein, January 1st, 2015 at 7:05 am

  S&P 500 Erases Monthly Gain on Final Day of 2014 Trading

  Sector-By-Sector Breakdown of 2014’s Market Moves

  Commodities Head for Record Losing Run on Oil, Strong Dollar

  The Euro Currency Prepares To Say Adieus To One Country While Welcoming In Another

  How Putin Forged a Pipeline Deal That Derailed

  China December Factory PMIs Suggest Economy Cooling Further, More Stimulus Expected

  U.S. Jobless Claims Rise, But Labor Market Still Firming

  Orbitz and United Are Suing a 22-Year-Old Who Figured Out How to Game Airlines

  U.S. Drone Rules Remain in the Hangar in 2014

  Ambac Sues Bank of America Over Countrywide Mortgage Bonds

  Apple Customers Sue Over Shortage of Storage Space in iOS 8

  Verso Settles With U.S. Department of Justice Regarding Pending Acquisition of NewPage

  The 5 Worst Stocks of 2014

  Jeff Miller: 2014 in Review: Hot or Not?

  Roger Nusbaum: MLPs Weren’t Supposed to Decline

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