Archive for May, 2015

  • Morning News: May 8, 2015
    , May 8th, 2015 at 7:04 am

    Is Argentina’s Economy Pulling a Tango Turnaround?

    China to Raise Wholesale Tax Rate for Cigarettes to 11%

    Wal-Mart to Buy Canadian Locations From Target

    Syngenta Rejects Monsanto’s $45 Billion Takeover Offer

    Forget Loeb. Toyota Courts Japan’s Mom-and-Pop Investors

    Yelp Up For Sale? Apple,Google Are Possible Buyers

    China’s JD.com Posts 62% Rise in Quarterly Revenue

    Amarin’s Vascepa Revenue Grows 42%

    Bitcoin Exchange Receives First License in New York State

    Profits at CBS Outperform Expectations, but N.F.L. Schedule Causes Revenue Drop

    Molson Coors, U.S. Joint Venture MillerCoors Facing Stiff Challenges

    Ericsson Sues Apple in Europe Over Phone Patent Royalties

    How Jonathan Steinberg Made Good on a Second Chance

    Joshua Brown: The Greatest Trick the Devil Ever Pulled

    Howard Lindzon: Robinhood – I Love When a Plan Comes Together

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  • Morning News: May 7, 2015
    , May 7th, 2015 at 7:47 am

    German Industrial Orders Up Less Than Expected in March

    Brazil’s Real Buffeted By Speculation Over U.S. Rates

    London Traders Brace for Marathon in Election All-Nighter

    Greek Banks Face Curbs to Foreign Exchange Trading

    Wary of Bond ‘Cliff,’ Fed Plans Cautious Cuts to Portfolio

    FAA Says Media Can Use Drone Photos From Citizen Journalists, Not Professionals

    Tesla Loss Widens as Spending Jumps

    Alibaba Names New CEO as Revenue Tops Views

    EDF Said to Be Ready to Buy Areva Reactor, Engineering Divisions

    Company Creates Bioethics Panel on Trial Drugs

    Germany’s Siemens to Cut 4,500 More Jobs as Earnings Slip

    Keurig Plummets After Slow Brewer Sales Eat Into Forecast

    Hedge Fund Star Dan Loeb Trashes Warren Buffett

    Cullen Roche: Yes, The Fed Does Directly Influence the Broad Money Supply Through QE

    Roger Nusbaum: NASCAR, Firefighting & Investing

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  • Are Stocks Are Overvalued?
    , May 6th, 2015 at 7:34 pm

    Matt O’Brien writes at Wonkblog:

    Now, stocks have cooled off since the start of the year, but not that much. So does that mean stock prices are “quite high”? Well, that depends on how you look at it. Take Robert Shiller’s cyclically-adjusted price-earnings ratio, or CAPE, which looks at the past ten years of earnings to figure out how pricey stocks are today. The idea here is that it smooths out any big ups or downs, and shows us how fairly valued—or not—stocks are. And by this measure, as you can see below, stocks really are getting expensive.

    The only problem is they’ve been getting expensive for awhile low. “According to CAPE,” Crossing Wall Street’s Eddy Elfenbein told me, “stocks have been valued above average for most of the last 25 years.” Part of that is accounting standards are different than they used to be, so valuations are too—they’re higher. Another part is that interest rates having been falling the last three decades, and, all else equal, lower rates should mean higher stock valuations. And the last part is that CAPE overweights what happened before to what’s happening now. Think about it like this. Today’s 27.2 CAPE ratio is so high, in part, because earnings were so bad during the financial crisis. But it’s a little funny to say that a historically crummy economy seven years ago means stocks are overvalued now.

    Another way to look at this is to just consider last year’s earnings. Now this has the opposite problem of only weighting what’s happening now. So if earnings are negligible or negative, like they were in 2008, this will say that stocks are super expensive when they’re actually super cheap. But as long as we keep that in mind, this still helps us look at stocks from a slightly different angle. And it tells us that, with a PE ratio of 19.7, the S&P 500 isn’t a bargain, but it isn’t exorbitant either. In other words, it’s a little high, but compared to the last 25 years, not crazily so. (That’d be the tech bubble). Besides, it’s a “misperception that the market falls due to valuation,” Elfenbeing says, when “more often stocks fall with lower fundamentals instead of prices soaring beyond fundamentals.”

    Elfenbeing? Was he in The Hobbit?

  • Looking Ahead to Friday’s Jobs Report
    , May 6th, 2015 at 10:02 am

    The big event for the markets this week will be Friday’s jobs report for April. This will be an interesting one because the report for March was quite poor. It’s hard for me to say what will happen. The last initial claims report was very strong. This morning, the ADP report said that the economy created 169,000 new private sector jobs last month. That was below forecasts of 205,000. The consensus for Friday’s report is for 220,000 jobs.

    The bond market has been drifting lower over the past three weeks. On April 17, the 10-year yielded as low as 1.845%. The yield has climbed in the last seven days in a row, and it recently broke above 2.2%. That’s still low, but it’s higher than where it was.

    The price of oil has also slowly climbed higher. On March 17, West Texas Intermediate got as low as $42.41 per barrel. It’s risen almost nonstop since then. Oil closed at $60.67 yesterday and it’s up again today. That’s a jump of more than 40% in just a few weeks.

    Yesterday, Fiserv (FISV) closed out earnings season for our Buy List with a three-cent earnings beat. The shares are up about 2% in early trading. Hormel (HRL) and Ross Stores (ROST) ended their quarters in April so they should report their earnings in a few weeks.

  • Morning News: May 6, 2015
    , May 6th, 2015 at 7:09 am

    ECB Mulls Tighter Greece Rules After 100 Days of Tspiras

    Euro Zone Business Activity Starts Second Quarter on Solid Footing

    EU Announces Plans to Create Digital Single Market

    E.U. Commission Opens Antitrust Inquiry Into E-Commerce Sector

    Never Mind Oil, Iran’s About to Shake the World Pistachio Market

    Oil Extends Gain Above $62 as U.S. Crude Supply Glut Seen Easing

    U.S. Trade Deficit Explodes to $51.4 Billion

    Buffett and Ackman Hate U.S. Bonds and the Losses Are Piling Up

    Salesforce’s Cloud Prowess and High Cost Pose Dilemma for Microsoft

    Zenefits Tagged With $4.5 Billion Valuation After Just Two Years

    Record SUV Sales Help BMW Beat Profit Forecasts

    Imperial Tobacco Expects U.S. Deal to Complete Soon

    Murdoch’s News Corp. Trails Estimates as Ad Sales Drop

    Cullen Roche: Why Do We Care About High Hedge Fund Manager Incomes?

    Joshua Brown: Bund Investors Lose 25 Years’ Worth of Yield in Two Weeks!

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  • Fiserv Earned 89 Cents per Share
    , May 5th, 2015 at 4:20 pm

    After the closing bell, Fiserv (FISV) reported Q1 adjusted earnings of 89 cents per share. That’s a 9% increase over last year’s Q1 and it’s three cents better than expectations. Adjusted revenue grew by 4% to $1.19 billion.

    “We are pleased with our strong start to the year,“ said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Results for the quarter were consistent with our full-year expectations, highlighted by strong operating performance and excellent growth in free cash flow.”

    Fiserv reiterated their revenue and earnings forecasts for this year. They expect internal revenue to grow by 5% to 6% and EPS to range between $3.73 and $3.83. Since Fiserv made $3.37 per share last year, this year’s guidance works out to an earnings growth rate of 11% to 14%. If that’s right, this will be Fiserv’s 30th-straight year of double-digit earnings growth.

    The shares have largely stayed between $77 and $80 for much of the last three months, but I’m not at all worried. Fiserv is about as solid as they come.

  • Q1 Earnings Calendar
    , May 5th, 2015 at 4:17 pm

    Here’s how 16 of our 20 Buy List stocks have reported Q1 earnings in the past few weeks:

    Stock Symbol Date Estimate Result
    Wells Fargo WFC 14-Apr $0.98 $1.04
    Signature Bank SBNY 21-Apr $1.59 $1.64
    Stryker SYK 21-Apr $1.08 $1.11
    eBay EBAY 22-Apr $0.70 $0.77
    Qualcomm QCOM 22-Apr $1.33 $1.40
    Wabtec WAB 22-Apr $0.95 $0.99
    Microsoft MSFT 23-Apr $0.51 $0.61
    CR Bard BCR 23-Apr $2.07 $2.10
    Snap-on SNA 23-Apr $1.82 $1.87
    Ford Motor F 28-Apr $0.26 $0.23
    AFLAC AFL 28-Apr $1.54 $1.54
    Express Scripts ESRX 28-Apr $1.10 $1.10
    Ball Corp. BLL 30-Apr $0.79 $0.69
    Moog MOG-A 1-May $0.91 $0.96
    Cognizant Technology CTSH 4-May $0.70 $0.71
    Fiserv FISV 5-May $0.86 $0.89

  • Top Hedge Fund Managers Did Well Even if Their Funds Did Not
    , May 5th, 2015 at 3:10 pm

    The New York Times noted that many leading hedge fund managers did very well last year, even though many of their funds did not.

    The top 25 hedge fund managers reaped $11.62 billion in compensation in 2014, according to an annual ranking published on Tuesday by Institutional Investor’s Alpha magazine.

    That collective payday came even as hedge funds, once high-octane money makers, returned on average low-single digits. In comparison, the benchmark Standard & Poor’s 500-stock index posted a gain of 13.68 percent last year when reinvested dividends were included.

    (…)

    Still, what makes such nine- and 10-figure paychecks remarkable for 2014 is that many of the top earners had mediocre performances at best. Only half of the top 10 earners recorded returns that exceeded that of the S.&.P 500.

    For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average, according to a composite index of 2,200 portfolios collected by HFR, a firm that tracks the industry. Hedge funds are lightly regulated private pools of capital open to institutional investors like pension funds, university endowments and wealthy investors.

    The article contains the phrase “declined to comment” seven times.

  • The Flash Crash Five Years On
    , May 5th, 2015 at 11:15 am

    Five years ago tomorrow, specifically at 2:42 pm, the stock market crashed and no one really knows why. Just as quickly as the market fell, it came back to mostly erase those gains.

    Here’s what it looked like on CNBC:

    The big drops stands out here:

    big05052014

    But not so much in the long-term view:

    big05052015a

    Measuring from the close the day before the Flash Crash to yesterday’s close, the S&P 500 has gained 81.4%. The S&P 500 Total Return Index is up 101.5%.

  • The Fancy Casual Rally
    , May 5th, 2015 at 10:23 am

    Shares in several “fancy” fast food stocks have done very well recently. There are more IPOs on the way including Fogo de Chao, a personal favorite. This Reuters article is worth quoting extensively:

    Investors seem willing to pay just about anything for a better burger.

    Half a dozen food chains have held piping-hot stock market debuts in the past year to meet a growing appetite for “fast-casual” restaurants catering to younger and more affluent diners willing to pay more for fresher, higher quality fare than they expect to find at traditional fast food places like McDonald’s.

    Wall Street hopes the new crop of publicly traded eateries will replicate the success of Chipotle Mexican Grill Inc (CMG), which has grown to about 1,800 restaurants since its 2006 debut. With consumer spending showing signs of improvement and more diners keen on antibiotic-free meats and other healthy foods, now is a great time for restaurants in that niche, especially ones adept at building grass-roots buzz and loyalty, experts said.

    But investors have pushed the shares of some of those restaurants – Shake Shack Inc (SHAK), Zoe’s Kitchen Inc (ZOES) and Habit Restaurants Inc (HABT) – to sky-high levels that imply growth expectations that may prove hard for the management to deliver.

    Shake Shack – the big outperformer – is up 260 percent since it went public at the end of January. As a group, shares of established restaurant companies have outperformed the broader stock market exponentially, with the Dow Jones U.S. Restaurants & Bars Index .DJUSRU (which doesn’t include these newcomers) rising 11 percent this year, compared with the Standard & Poor’s 2 percent increase.

    Based on the number of locations open at the end of 2014, Shake Shack’s current stock price values its restaurants at $40 million each, four times the stock market value of a Chipotle restaurant and 15 times the value investors assign to a McDonald’s Corp (MCD) restaurant.

    Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF (HDGE), said he would short Shake Shack’s shares, except that his broker has none left after lending his last at a staggering 65 percent annual interest rate. At that rate, short sellers would have to pay out more than 5 percent of their investment every month while waiting for Shake Shack’s stock to fall, which may not happen.

    “Just because a stock looks expensive doesn’t make it a great short. It’s way too expensive to borrow,” Lamensdorf said, adding it might become more feasible in July after insiders restricted following Shake Shack’s January IPO are allowed to sell their shares. Almost 40 percent of Shake Shack’s shares are currently short-sold.

    Lamensdorf is also shorting Chipotle, betting that the company’s expansion is about to lose steam. Chipotle is down 7 percent so far in 2015. Another fast-casual chain, Buffalo Wild Wings, is down 13 percent, with investors concerned about slowing growth momentum at both chains.

    And some may already have lost their luster: Shares of Chicago-based sandwich chain Potbelly Corp more than doubled in their first trading session after its IPO in 2013. But since then, the company’s growth has failed to impress investors and its stock sells now for about a dollar more than the $14 a share it fetched when it first went public.

    More fast-casual restaurant IPOs are in the works. Nashville, Tennessee-based J. Alexander’s Holdings Inc and Fogo de Chao, a steakhouse chain offering 20 cuts of meat in Brazilian-style tableside barbecue service, have both filed with U.S. regulators for IPOs.

    Habit, which opened in 1969 and is known in California for its charburgers, is up 120 percent since its November IPO. Zoe’s Kitchen, which serves Mediterranean cuisine with Southern hospitality, has doubled since its IPO in April 2014.

    High prices for the newly listed stocks reflect a scarcity of high-growth restaurants to invest in as well as Wall Street’s confidence in companies’ management teams, said Piper Jaffray analyst Nicole Miller Regan, who has “overweight” ratings on Zoe’s and Habit and does not cover Shake Shack.

    “Look at Chipotle. It’s not a burrito company, it’s an ATM,” Miller Regan said. “I don’t care what cuisine you put through there – it’s a phenomenal return.”

    Shake Shack’s PEG ratio (price/earnings over its expected next year’s growth – a measure of a stock’s value that accounts for expected profit growth), is 156 compared to 1.6 for Chipotle. Lower PEGs suggest cheaper stocks. Zoe’s PEG is 2.5 and Habit stands at 4.6. By comparison, Internet giant Twitter Inc (TWTR.N) has a PEG of just 0.8, suggesting it is well priced for its expected growth.

    (…)

    To justify its recent stock price, Shake Shack would need to establish more than 400 company-run or franchised restaurants within about five years, estimated Georgetown University business professor James Angel.

    With a new location in Austin, Texas, Shake Shack now has 68 restaurants in the United States and other countries; it has said it plans to open at least 10 domestic locations annually and expand abroad.

    Shake Shack, which says its key to success is a culture of “enlightened hospitality,” is a master of word-of-mouth marketing. It has more than 1,800 Instagram followers for every $1 million spent across its locations, compared with 11 for McDonald’s Corp (MCD.N) and 60 for Taco Bell, a fact that Goldman Sachs has cited as helping build loyalty among millennials.