Archive for September, 2015

  • Weak CPI Report for August
    , September 16th, 2015 at 10:20 am

    The inflation report for August came out this morning. Headline inflation fell 0.071% last month. So we’re talking about raising interest rates while we’re experiencing deflation. Year-over-year inflation rose from 0.17% through July to 0.20% through August.

    It’s not just commodity prices. Core inflation rose by just 0.074%. That’s the lowest rate all year. Core inflation is now running at just over 2% this year.

    Here’s the year-over-year inflation rate (black) along with the Fed funds rate (blue). You can see that the Fed has kept real rates negative (black higher than blue), but that’s come undone recently. In other words, by doing nothing, the Fed has effectively tightened rates.

  • High Quality Wins
    , September 16th, 2015 at 9:40 am

    From Business Insider:

    Investing in the stock market may be easier than we think, according to Chris Montagu and the equities research team at Citi.

    They have identified that the strategy of investing in so-called high-quality stocks has returned 5% to 7% a year on average since 1995.

    All you have to do is pick out big, boring stocks with decent profit margins, low debt, and reliable income flows.

    Then sit back and wait.

  • The Dividend Bull Market
    , September 16th, 2015 at 9:32 am

    Here’s a look at the S&P 500 (blue line, left scale) along with its trailing dividends (black line, right scale). The two lines are scaled at a ratio of 50-to-1. That means that whenever the lines cross, the market’s dividend yield is exactly 2%.

    What’s striking is that dividends have risen right along with prices. Or perhaps, vice versa. I would hardly say that the market’s dividend yield is the end-all in valuations, but the persistence of 2% is noteworthy.

    Only recently has it broken down. Through June, the S&P 500 had paid out $41.74 in dividends for the previous four quarters. (That’s the index-adjusted number.) Companies are still churning out the dividend increases. Viewed from this perspective, the market is hardly a bubble. What I like about dividend analysis is how stable dividends are.

    I estimate that the trailing four-quarter dividend number will be $42.65 at the end of this month. To be yielding 2%, the S&P 500 would then need to be at 2,132.50 which would be a new closing high.

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  • 18 Years Ago Today, Steve Jobs Returns
    , September 16th, 2015 at 8:43 am

    Eighteen years ago today, Steve Jobs returned to Apple (AAPL), the company he founded. The stock closed that day, September 16, 1997, at $21.94 per share. Adjusted for two 2-for-1 and one 7-for-1 splits, Apple was trading at 78.3 cents per share in today’s terms. The high from this past spring was $134.54. The company is currently worth two-thirds of a trillion dollars.

    sc09162015

    Interestingly, the stock was not an immediate hit when Jobs came back. Within a few days, it dropped down to $12.75 per share, or about 45.5 cents adjusted for splits. That was barely above Apple’s IPO price from 17 years before.

    (Apple IPO’d at $22 per share; adjusted for splits of 56-for-1, that comes to 39.3 cents in today’s dollars. The IPO was the largest offering since Ford in 1956.)

    At its low point in 2003, Apple was lower than where it had been in 1983. Think about that! Twenty years of no gain, and this was well after Steve Jobs had returned.

    Apple’s single-worst day came on September 29, 2000 when the stock plunged 51.9%. The catalyst was that Apple said they were going to miss earnings. That was also Apple’s highest volume day. It traded over 1.8 billion shares that day.

    Apple has suffered other big drops. On the day of the 1987 crash, Apple fell 24.4%. The stock has fallen more than 10% in a single day 26 times, which is nearly once per year.

    Apple’s single-best day came on August 6, 1997 when it soared 33.2%. That was the day Steve Jobs, who was then an advisor to Apple, announced at a MacWorld trade show that Microsoft was investing $150 million in Apple preferred stock. That moved saved Apple. At the time, people in the crowd booed. Here’s the video:

    Jobs had left Apple 30 years ago this Friday, September 18, 1985. At the time, the stock was at $16.25 per share, or 29 cents adjusted for splits. So in the 12 years of his absence, Apple had gone from 29 cents to 78 cents. That was a gain of 170%, which works out to 8.6% annually.

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    In the last 18 years, the stock is up nearly 150-fold, or 32% annually.

  • Morning News: September 16, 2015
    , September 16th, 2015 at 7:07 am

    Eurozone Inflation Slows Unexpectedly in August

    Standard & Poor’s Downgrades Japan’s Sovereign Credit Rating From AA- to A+

    Emerging Stocks Rally With Currencies Before Fed as China Jumps

    OECD Trims Growth Outlook But Urges Fed Action This Week

    Finance Replaces OPEC as Oil Supply Arbiter

    Volatility Seen Lingering No Matter What the Fed Does

    U.S. Retail Sales Rise 0.2%, as Consumers Show More Confidence

    Anheuser-Busch InBev Approaches SABMiller on Possible Takeover

    HP to Cut Up to 30,000 More Jobs in Enterprise Business

    Motorola Solutions Moving Headquarters, 800 Jobs to Chicago

    Comcast Creates New Enterprise Services Unit to Target Big Businesses

    Microsoft Is Undervalued Ahead Of Dividend Raise

    FedEx Trims 2016 Forecast as First-Quarter Earnings Fall Short

    Jeff Carter: Consumer Jumps Into B2B: B2B Jumps Into Consumer

    Howard Lindzon: Twitter a Buy?

    Be sure to follow me on Twitter.

  • The S&P 500 and its Earnings
    , September 15th, 2015 at 1:25 pm

    Here’s an updated look at the S&P 500 and its earnings line. The index is the black line and it follows the left scale. The earnings line is yellow and it follows the right. The future part of the yellow line is based on Wall Street’s consensus.

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    The two lines are scaled at a ratio of 16-to-1 so whenever the lines cross, the market’s P/E Ratio is exactly 16. I don’t mean to imply that’s fair value. The graph simply works best at that ratio.

  • The S&P 500 Crosses 1,970
    , September 15th, 2015 at 1:11 pm

    The stock market is up today, and the S&P 500 broke above 1,970 for the first time since last Wednesday. The VIX is below 23, and I think it’s poised to fall even low. On our Buy List, Fiserv (FISV), Hormel (HRL) and CR Bard (BCR) are within 5% of their 52-week highs.

    This morning, we learned that retail sales rose by just 0.2% last month. With gasoline, retail sales were up 0.4%. Sales for July were revised higher.

    Industrial production fell 0.4% last month. We’re just 1.8% above the peak before the recession.

  • Morning News: September 15, 2015
    , September 15th, 2015 at 7:10 am

    European Stocks Erase Drop as Metals Decline on Growth Concern

    China Stocks Resume Sharp Slide as Economic Worries Mount

    The Hidden Story in China’s FDI Statistics

    India Seeks to Solve Inflation-Deflation Puzzle

    Why the Fed Is Likely to Stand Pat This Week

    One U.S. Banker Is Ready to Raise His Rates, With or Without the Fed

    The U.S. Dollar Is Gaining Like It’s the 1980s — For Better or Worse

    Hispanics in Congress Ask Treasury to Prevent ‘Catastrophe’ in Puerto Rico

    MillerCoors to Shut North Carolina Brewery Amid Volume Declines

    Pratt Prepping for Big Production Increase on F-35 Jet Engines

    Praxair Buys Industrial-Gas Assets From Norway’s Yara

    GM, UAW Extend Current Labor Pact Beyond Midnight Expiration

    A Vinyl LP Frenzy Brings Record-Pressing Machines Back to Life

    Cullen Roche: Nowhere to Hide…

    Roger Nusbaum: The Fate of the Free World Hangs in the Balance

    Be sure to follow me on Twitter.

  • The Market Chills Out
    , September 14th, 2015 at 4:34 pm

    Here’s something best shown in graph form. Notice how much the intra-day volatility has declined, especially in the last three days. Yet the VIX is still elevated. It closed today at 24.25. I think the VIX will drop very soon.

    big09142015d

  • The Liquidity of the S&P 100
    , September 14th, 2015 at 2:13 pm

    Here’s a topic that investors often overlook until it’s too late: liquidity. One of the great things about stocks is that they’re easy to sell.

    Here’s a look at all the stocks in the S&P 100 (there are actually 101). I included the Market Cap (in millions), the float (in millions) and the average daily volume (in millions). The final column is the average daily volume divided by the float. In other words, what percentage of a company’s shares are traded each day. As you can see, this figure varies widely.

    Ticker Market Cap Float Avg Volue Liquidity
    FCX $11,860 1,020 32.23 3.160%
    BAX $19,650 544 12.35 2.269%
    EBAY $32,060 1,120 20.25 1.808%
    HAL $31,800 853 14.39 1.688%
    NOV $14,830 383 6.09 1.589%
    FB $259,360 2,130 31.98 1.501%
    APA $15,200 376 4.81 1.278%
    GM $47,760 1,370 17.18 1.254%
    DVN $15,970 387 4.47 1.155%
    FOXA $54,780 1,630 16.96 1.040%
    BIIB $74,170 235 2.42 1.030%
    CAT $43,770 601 6.09 1.013%
    AAPL $651,310 5,700 57.5 1.009%
    AMZN $247,620 384 3.81 0.991%
    EXC $25,590 859 8.27 0.962%
    APC $33,350 507 4.46 0.880%
    QCOM $85,880 1,570 13.61 0.867%
    DOW $50,700 1,160 9.64 0.831%
    BAC $167,430 10,400 85.98 0.827%
    EMC $47,350 1,920 15.68 0.817%
    TGT $48,940 628 5.1 0.813%
    COP $58,420 1,230 9.63 0.783%
    TXN $48,830 1,020 7.96 0.780%
    MON $43,270 466 3.54 0.759%
    ALL $23,280 399 3.03 0.759%
    HPQ $48,820 1,800 13.58 0.754%
    F $54,400 3,880 28.88 0.744%
    SLB $93,260 1,270 9.44 0.743%
    GILD $160,890 1,460 10.68 0.732%
    NSC $23,860 300 2.19 0.729%
    INTC $140,100 4,750 33.95 0.715%
    EMR $30,250 653 4.59 0.703%
    GS $80,200 407 2.84 0.698%
    DIS $176,350 1,560 10.87 0.697%
    DD $43,830 904 6.16 0.682%
    MS $66,400 1,520 10.25 0.674%
    MET $54,200 942 6.29 0.668%
    FDX $42,680 262 1.75 0.667%
    OXY $51,110 761 4.92 0.647%
    AXP $75,600 999 6.4 0.640%
    AIG $75,470 1,290 8.22 0.637%
    UNP $74,730 866 5.51 0.636%
    C $153,800 3,010 18.93 0.629%
    MDLZ $68,770 1,610 10.12 0.629%
    MCD $91,740 941 5.87 0.624%
    UTX $82,230 889 5.49 0.617%
    SBUX $83,900 1,440 8.81 0.612%
    TWX $57,100 815 4.96 0.609%
    LOW $63,500 924 5.58 0.604%
    RTN $32,340 302 1.81 0.599%
    SO $38,800 908 5.38 0.593%
    COF $41,030 540 3.12 0.578%
    WMT $207,260 1,560 8.89 0.570%
    BK $43,770 1,070 6.08 0.568%
    CMCSA $141,620 2,490 14.07 0.565%
    CVX $142,620 1,880 10.48 0.557%
    ACN $64,140 458 2.55 0.557%
    ABBV $98,240 1,630 8.91 0.547%
    BA $91,510 679 3.65 0.538%
    T $201,260 6,150 32.9 0.535%
    CSCO $131,690 5,060 26.85 0.531%
    NKE $95,650 677 3.49 0.516%
    ORCL $164,420 3,220 16.56 0.514%
    UNH $113,190 938 4.46 0.475%
    AMGN $116,170 756 3.57 0.472%
    MSFT $347,750 7,410 34.43 0.465%
    GD $45,790 321 1.48 0.461%
    LLY $90,680 1,110 5.11 0.460%
    UPS $87,090 690 3.12 0.452%
    JPM $231,350 3,680 16.16 0.439%
    COST $61,990 436 1.91 0.438%
    MA $103,420 992 4.33 0.437%
    WBA $98,740 950 4.13 0.435%
    SPG $55,430 307 1.33 0.433%
    IBM $144,350 979 4.21 0.430%
    CVS $113,140 1,110 4.75 0.428%
    MMM $88,250 624 2.61 0.418%
    HD $148,240 1,280 5.35 0.418%
    USB $72,310 1,750 7.28 0.416%
    LMT $64,220 310 1.28 0.412%
    GOOG $426,100 585 2.38 0.407%
    V $172,150 1,950 7.93 0.407%
    MDT $98,810 1,410 5.66 0.401%
    ABT $64,700 1,490 5.96 0.400%
    PFE $203,340 6,160 24.54 0.398%
    BMY $98,750 1,660 6.53 0.393%
    GOOGL $439,080 633 2.48 0.392%
    HON $77,880 780 3.02 0.387%
    MRK $146,720 2,820 10.61 0.376%
    VZ $185,920 4,070 15.11 0.371%
    CL $55,740 897 3.32 0.370%
    MO $103,110 1,960 7 0.357%
    PG $185,630 2,710 9.59 0.354%
    BRK-B $306,790 1,090 3.85 0.353%
    XOM $303,080 4,160 14.59 0.351%
    PEP $134,590 1,470 4.93 0.335%
    KO $165,870 4,320 14.28 0.331%
    GE $251,910 10,090 33.34 0.330%
    WFC $270,120 5,120 16.44 0.321%
    JNJ $257,330 2,770 8.26 0.298%
    PM $123,110 1,550 4.02 0.259%

    Freeport-McMoRan (FCX) sees 3.160% of its shares traded every day. That means that the average share is held for less than 32 trading days. For Philip Morris (PM), it’s 386 trading days, or 18 months.

    We turn over one-fourth of our Buy List each year. That means the average stock is held for four years, which is over 1,000 trading days.

    There are some big exceptions (like eBay and Qualcomm) but for the most part, I like the stocks at the bottom of the list better than the ones at the top.