Archive for August, 2015

  • The Market at 3 PM
    , August 24th, 2015 at 3:03 pm

    The crisis from this morning has passed, but the market is still rightly spooked.

    Within six minutes of the opening bell, the Dow was down 1,089.42 points. By 1:10 pm, the index had rallied 990.88 points off its low. We then went down again. We‘ve lost more than 480 points from the post-lunch high.

    I expect another rally into the closing bell.

  • The Market at 1 PM
    , August 24th, 2015 at 1:03 pm

    Today’s rebound has been amazing. The Dow is up nearly 1,000 points from today’s low. Several important stocks have turned green. The Nasdaq 100 Index went positive, and the Nasdaq Composite may be close behind. The S&P 500 has rallied to a loss on the day of less than 1%.

    Today wasn’t Black Monday, it was Black 9:30 to 9:35 Monday.

  • The Market at 11:40 AM
    , August 24th, 2015 at 11:42 am

    Things are still moving pretty fast but it now appears that the market has recovered dramatically from this morning’s terrible open. The Dow fell over 1,000 points and then rallied more than 600 points. It looks like today is merely a lousy day for the market instead of a disaster. Of course, we’re not done yet.

  • The Market Tanks
    , August 24th, 2015 at 9:58 am

    Things are moving too fast for me to blog, but the brief version is that the stock market is falling hard today. Some of these prices are unreal. The S&P 500 has been as low as 1,867.01. That’s a drop of 5.27%.

    Ford Motor (F) got as low as $10.44 per share. The stock was actually suspended not because of the drop but because of its bounce back.

    The 10-year yield got as low as 1.93% today.

  • Morning News: August 24, 2015
    , August 24th, 2015 at 7:30 am

    China Stocks Give Up Year’s Gains as ‘National Team’ Stays on Bench

    China Crash: You Can’t Keep Accelerating Forever

    Park Says South Korea Won’t Back Off as Crisis Hits Markets

    Russia’s Ruble at Eight-month Low, Market Dips Over 4%

    Indian Shares Fall Nearly 6%, Biggest Falls in 6-1/2 Years

    Oil-Nation Currency Pegs to Cave on Crude Rout, Kazakh PM Says

    Oil Plunges Amid Broad Commodities Selloff

    Larry Summers Warns of ‘Dangerous Consequences’ If Fed Hikes in September

    The Fed Is Looking At A Very Different Dollar Than Wall Street

    Vague Disclosures by Highflying Mutual Funds May Put Investors at Risk

    A Sprawl of Ghost Homes in Aging Tokyo Suburbs

    Brad Katsuyama’s Next Chapter

    Junior Miners Jump Into Medical Marijuana, Food Service Amid Slump

    Jeff Miller: Weighing the Week Ahead: The Start of Something Big?

    Cullen Roche: What’s Your Max Pain Point?

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  • The Dow Loses 531 Points
    , August 23rd, 2015 at 2:44 pm

    On Friday, the S&P 500 plunged 3.19% for its worst loss in nearly four years. The index lost 64.84 points which is its eighth-largest point loss ever. This was the first 3% loss for the index since November 9, 2011. To give you an idea how much less volatile the market has become, in the four years prior to that, there were 46 drops of more than 3%.

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    In Friday’s newsletter, which I wrote before the opening bell, I said “While I don’t believe the overall market is in trouble, I would be wary of sectors like high-priced tech names. I’d also steer clear of many biotech stocks.” I still hold that view.

    Make no mistake, the action on Friday was ugly. Large-cap tech stocks were especially hard hit. Investor favorites like Apple (AAPL), Netflix (NFLX), Gilead (GILD) and Starbucks (SBUX) were all down more than 5%.

    The Nasdaq Composite, which has many tech stocks, was down 3.52%. The Nasdaq 100, which has the largest nonfinancial stocks on the Nasdaq, was down 4.28%. In the last three days, the Nasdaq 100 has lost 7.59%. That’s brutal.

    Prior to this selloff, many observers noted the “stealth correction,” meaning that a growing number of stocks were already more than 20% below their 52-week highs. There are now 147 stocks in the S&P 500 that are more than 20% off their high.

    The S&P 500 closed Friday at 1,970.82. That’s the lowest close since October 27, 2014. Interestingly, small-caps held up unusually well. In fact, this was one of their best out-performance days in years. The Russell 2000 dropped 1.34% which beat the S&P 500 by 185 basis points. That’s huge. The Small-Cap Value ETF (IWN) was only down 0.96%.

    I recently wrote about how the market climbs slowly, but falls suddenly, and you can certainly see that effect in last week’s market. A little after 10 am the market was down just 0.55% but the selling quickly accelerated. Soon people were selling because other people were selling, and that led to still more selling.

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    Our Buy List lost 3.63% on Friday which was 44 basis points worse than the S&P 500. Almost all of the underperformance was due to Ross Stores (ROST). We knew Ross was going to be bad thanks to the weak guidance. The stock dropped 9.5% to close at exactly $50 on the nose. But the stock is still higher than it was seven weeks ago. Microsoft (MSFT) was one of the large-cap tech stocks that was dinged hard. MSFT lost 5.67% on Friday. I see that Ford Motor (F) fell to $13.86 per share. That’s a yield of 4.33%.

    There was direct catalyst for Friday’s selloff. The closest was an unexpectedly poor purchasing managers index from China. This has come on the heels of other data suggesting rough economic news out of China. That could hurt a lot of major tech companies. Poor Apple is down to a market value of just $603 billion. The S&P 500 is now going for 15 times next year’s earnings, although some of next year’s estimate will probably come down some.

    Let’s also remember that downdrafts like this are quite common. The S&P 500 dropped 7.4% between September 18 and October 15. It lost another 4.9% between December 5 and December 16. Since the bull market started in 2009, the S&P 500 has dropped more than 5% from its high 12 times. All 12 were reversed. Now we’re at #13.

    Let me add that Friday’s selloff challenges the idea of a “safe haven.” The miners index (^XAU) dropped 2.94%. Investors didn’t seek safety in size, but sought safety in small stocks. West Texas crude fell to just $40.29 per barrel. The Volatility Index (^VIX) jumped 46% on Friday. I expect to see more volatility next week before things calm down.

  • CWS Market Review – August 21, 2015
    , August 21st, 2015 at 7:08 am

    “If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.” –Benjamin Graham

    The great trading range has finally come to an end! For 138-straight trading days, the S&P 500 closed between 2,040.24 and 2,130.82. But not on Thursday. The index dropped 2.1% to close at 2,035.73. This was one of the longest and tightest trading ranges in decades.

    What a frustrating market this has been! In Greek mythology, Sisyphus was the unfortunate fellow who had to spend all of eternity rolling a boulder uphill only to watch it roll back down again. I think ol’ Sis would have felt right at home in this trading range. Every time we got some upward momentum, the bears showed up to wreck things. But any time the market started to lose ground, sure enough, the bulls strolled in and pushed us higher.

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    So does the end of the trading range mean bad news for stocks? I doubt it. The market climate is still mostly favorable for stocks although there are some areas to avoid. Internally, the market is shunning commodity-related stocks and that’s been good for us. Our Buy List has expanded its lead against the market to 6.34% for the year.

    This week, we got good earnings reports from Hormel Foods (HRL) and Ross Stores (ROST). Not only did Hormel beat earnings but it guided higher and touched a new 52-week high. Ross Stores also beat earnings, but its guidance was rather cautious. I’ll have more details in a bit. Later on, I’ll share with you some stocks I’m considering for next year’s Buy List. But first, let’s look at the end of the Great Trading Range of 2015!

    The Market’s Worst Day in More than 18 Months

    Thursday was the single-worst day for the market since February 3, 2014. Of course, the more interesting part of that factoid is that the worst day in an 18-month span brought a loss of just 2.11%. Compared with a few years ago, that ain’t nothing. We’ve been fortunate to live through a placid market, but it’s a good reminder that markets don’t always remain so relaxed. I don’t mind a little volatility. In fact, volatile markets are good for our style of investing. More volatility means that more high-quality stocks will get caught up in a temporary down draft. That’s fine by me.

    This month, I’m going to forego any discussion of the Federal Reserve and what their plans for interest rates are. All we need to know is that rates are going to go up soon. Exactly when isn’t important. The other key fact is that real interest rates, meaning rates adjusted for inflation, will continue to remain low for an extended time. This is very good for us as investors. The average dividend yield is running around 2%, so it will take several rate increases before the short-term fixed market can offer serious competition.

    Lately, the daily market has been in a tug-of-war between commodity-based cyclicals and high-dividend value stocks. A good way to look at this is through the behavior of the Energy Sector ETF (XLE) and the Utility Sector ETF (XLU). Nearly every day, these are the best- and/or worst-performing sectors. They’re acting like negatively charged magnets.

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    For the most part, the high-dividend value stocks have been winning. Nearly any commodity-related stock has been getting tossed aside. The XLE just closed at a 38-month low. This summer has been terrible for commodities. The flip side is that this has been a very good environment for our Buy List. Investors have been flocking towards the safety of high-quality stocks.

    While I don’t believe the overall market is in trouble, I would be wary of sectors like high-priced tech names. I’d also steer clear of many biotech stocks. Some biotechs have started to come down, but I think there could be a real shakeout. I’d also avoid trying to find a bottom in the energy patch. Things could get much worse. Some sectors, like the homebuilders, look quite reasonable here.

    Some good names on our Buy List right now would include Cognizant Technology Solutions (CTSH). Shares of AFLAC (AFL) got dropped more than 5% on Wednesday and Thursday. The duck stock had been recovering, but a downgrade by BAML knocked it back. My Buy Below for AFLAC is $65 per share, but it’s especially attractive below $62 per share. I also like PayPal (PYPL) below $36 per share. Now let’s look at this week’s Buy List earnings reports.

    Hormel Foods Beats and Raises

    Before the opening bell on Wednesday, Hormel Foods (HRL) reported earnings of 56 cents per share for the July quarter (the company’s fiscal Q3). That beat estimates by one penny per share. Revenue came in at $2.19 billion which was below the Street’s consensus of $2.24 billion.

    If you recall, there had been some concerns that Hormel was feeling the effects of the avian flu. The company was up front about the impact and said any problems would be temporary. These results suggest that’s correct. Bear in mind that Hormel owns several brands and they’re well diversified. In fact, the company recently made a big move into natural and organic food by buying Applegate Farms. I think that was a smart move.

    From the earnings press release:

    “Our balanced business model prevailed once again this quarter, as we were able to overcome the significant challenge of avian influenza in our Jennie-O Turkey Store segment to deliver record earnings and volume sales,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “Grocery Products drove earnings growth with favorable input costs and increased sales of HORMEL® chili and SKIPPY® peanut butter. Specialty Foods also delivered excellent results, as the team continues to increase sales of MUSCLE MILK® protein nutrition products, and improve the cost structure and synergies between our CytoSport and Century Foods businesses. Revenues were down for the quarter, impacted by lower pricing due to declining pork markets affecting our Refrigerated Foods and International segments, and the loss of sales related to avian influenza in the Jennie-O Turkey Store segment.”

    Yes, Hormel is a lot more than Spam. The best news is that Hormel raised its full-year guidance. It now sees full-year earnings ranging between $2.57 and $2.63 per share. The earlier range was $2.50 to $2.60 per share. This is actually the second time Hormel has raised its full-year guidance. The new range implies growth of 15% to 18% over 2014, which itself was a record year. When the next earnings report comes out around Thanksgiving, expect Hormel to announce its 50th dividend increase in a row. Here’s the 25-year log chart for Hormel:

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    The stock had an unusual reaction to the earnings report. Shares of HRL rallied 1.1% on Wednesday, then they rallied again on Thursday after Hormel was upgraded by Deutsche Bank. It’s almost like traders were waiting for permission to buy. On Thursday, the stock rose 3.9% to touch a new 52-week high. Yesterday, it was the second-best performer in the S&P 500. Hormel is now a 22% winner on the year for us. I’m raising my Buy Below to $68 per share.

    Ross Stores Beats but Offers Weak Guidance

    After the closing bell on Thursday, Ross Stores (ROST) reported fiscal Q2 earnings of 63 cents per share. That also beat the consensus by one penny per share. The deep discounter earned 57 cents per share for last year’s Q2. Quarterly sales rose 9% to $2.968 billion. Comparable-store sales were up 4%.

    Now for guidance, which is pretty weak. For Q3, Ross sees earnings ranging between 48 and 50 cents per share and comp-store sales growth of 1% to 2%. For Q4, which is the big holiday quarter, Ross projects earnings between 60 and 63 cents per share and comp-store sales growth between 0% and 1%.

    CEO Barbara Rentler addressed the weak guidance:

    Looking ahead, Ms. Rentler said, “While we hope to do better, we are maintaining a cautious outlook for the second half, when we face more challenging sales and earnings comparisons. In addition, the macro-economic and retail landscapes remain uncertain.

    Adding it all up, Ross sees earnings this year coming in between $2.40 and $2.45 per share. They made $2.21 per share last year. The shares were down about 9% in after-hours trading, so I expect an ugly day on Friday. Still, I’m going to raise my Buy Below on Ross Stores from $52 to $54 per share.

    Stocks I’m Considering for Next Year’s Buy List

    I won’t unveil my 2016 Buy List for four more months, but I wanted to share with you some ideas I’m considering for new additions. Of course, there’s no guarantee that these will be our new stocks; December is a long time away. I don’t want to go into too much detail yet, but these are some options I’m looking at. Ultimately, I’ll choose only five.

    Alliance Data Systems (ADS) is an interesting company. They’re the folks behind all those “loyalty” programs. They’ve had impressive earnings growth, but the stock got hammered last month after its earnings report.

    Silgan Holdings (SLGN) is a leading supplier of rigid packaging for shelf-stable food and other consumer-goods products.

    Danaher (DHR) is a former Buy List stock I never should have gotten rid of. Solid stock.

    International Flavors & Fragrances (IFF) is a cosmetics and consumer-products company.

    Hershey (HSY) is the major candy conglomerate. Very stable business. The just raised their dividend by 9%.

    Foot Locker (FL) has been, believe it or not, an earnings powerhouse.

    I always say I’ll buy CVS (CVS) when it pulls back. It never does. There’s probably a lesson in that.

    Cerner (CERN) is a healthcare IT company. Amazing earnings growth. The stock has been down recently.

    IDEX (IEX) is one of those boring diversified manufacturers that no one ever pays attention to. The stock hasn’t done much in the last two years. They make the Jaws of Life.

    The name Mettler-Toledo International (MTD), is nearly good enough for me. The Ohio-based medical-instruments company has been growing very rapidly. I’d like to see the price come down.

    OSI Systems (OSIS) “designs and manufactures specialized electronic systems and components worldwide.” They make metal detectors and airport X-ray inspection machines.

    That’s all for now. No big earnings reports are on tap for next week, but there are a few crucial econ reports due to come out. On Wednesday, the durable-goods report is due to be released. The last report—the one for June—was pretty good, and I’m hoping to see some follow-through. On Thursday, the government will revise its report on Q2 GDP. The initial report showed growth of 2.3%, which wasn’t so hot. On Friday, the figures for Q2 personal income and spending will be revised. The initial reports were mostly in line with expectations. 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: August 21, 2015
    , August 21st, 2015 at 7:01 am

    Eurozone Economy Resilient in the Face of Greece

    Greek Prime Minister Alexis Tsipras Calls for New Elections

    Disappointing Business Surveys Intensify Growth Fears

    China Shares Brush New Low Since Depth of Selloff

    Traders Sound Fed Policy-Error Alarm as Inflation Outlook Dives

    Salesforce Inspires Followers Despite Lack of Consistent Profits

    Glaxo Sells Rights to Auto-Immune Disease Drug to Novartis

    Hormel’s Profit Rises While Sales Disappoint

    Twitter Breaks Its IPO Price

    Deere Announces Third-Quarter Earnings of $512 Million

    Disney And Other Media Stocks Tank As Analyst Declares, ‘The World Has Changed Too Much’

    Investors Hope to Ride Swell of SoulCycle Fever in Coming I.P.O.

    Santa is Four Months From Christmas – But a Week From Bankruptcy

    Cullen Roche: The One Factor to Explain Them All

    Joshua Brown: The One-Percent Letters Are On Their Way

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  • What to Buy for a Down Market
    , August 20th, 2015 at 2:05 pm

    From Alex Rosenberg at CNBC:

    Of course, just because a stock hasn’t been correlated to the overall market in the past does not mean that the relationship will hold into the future. In extremely trying times, correlations are infamous for rising due to contagion risk.

    More generally, investors have historically proven to be better off when they ignored their worst instincts of fear and greed and stuck to a sensible asset allocation in good times and bad.

    “I strongly advise investors not to buy a stock on the premise that the market will go lower,” stock picker Eddy Elfenbein of the Crossing Wall Street blog wrote to CNBC.

  • Morning News: August 20, 2015
    , August 20th, 2015 at 7:07 am

    Greece Gets First Batch of New Bailout Loans, Avoids Default

    China’s Oil Demand Not Off A Cliff, US Rate Hike May Have Bigger Pricing Impact

    IMF Decision Rattles Yuan Anew

    Russia Rewrites Growth Blueprint as Recession Dooms Consumer

    Emerging-Market Rout Strains Pegs as Tenge Shifts to Free Float

    Oil Companies Sit on Hands at Auction for Leases

    Fed Minutes Show Caution in Discussion on Rates

    Sears Sales Soften in 2nd Quarter

    LinkedIn’s New Employee Directory App ‘Lookup’ Could Boost Daily Activity On Its Network

    AmEx Loses Crown to Discover in J.D. Power Satisfaction Ranking

    Target’s ‘Return To The Core’ And Digital Strategy Makes It A ‘Can’t Miss’ For Investors

    SunEdison Closes $253 Million of Financing, Breaks Ground on 156 Megawatt Solar Project in Colorado

    Coca-Cola: We’ll Do Better

    Michael Pettis: China’s Stock Markets and Revisiting 2011 Predictions

    Jeff Miller: The Great Divide – Traders Versus Investors

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