Archive for October, 2015

  • Terrible Jobs Report for September
    , October 2nd, 2015 at 10:26 am

    The U.S. economy created only 142,000 net new jobs last month. That’s a big miss. Wall Street had been expecting 200,000 jobs. Plus, the numbers for July and August were revised lower.

    We’ve had weak reports before, like in March of this year. Also, the non-farm payrolls reports have a wide error range.

    The unemployment rate stayed at 5.1%. Looking at the decimals, the unemployment rate came very close to rounding down to 5%. The economy only needed to create 400 more jobs for that to happen. We now have the lowest unemployment rate since April 2008. The unemployment rate is lower now than at anytime between 1974 and 1988.

  • CWS Market Review – October 2, 2015
    , October 2nd, 2015 at 7:08 am

    “In a roaring bull market, knowledge is superfluous and experience is a handicap.” – Benjamin Graham

    The third quarter has mercifully come to an end. Ye shall not be missed. This was the worst quarter for Wall Street in four years. All told, the S&P 500 lost 6.94% in Q3.

    But here’s an interesting fact: The market’s pain was overwhelmingly concentrated within a four-session span that ranged from August 20 to August 25. In fact, if we isolate just two of those days, Friday, August 21 and Monday, August 24, the S&P 500 lost 7.00%. In other words, outside those two successive days, the market was up by a teeny bit last quarter.

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    Naturally, you could say this is cherry-picking the data, and to some degree, that’s correct. But it highlights an important point I often stress to investors: selloffs are quick and sharp while recoveries are slow and steady. In fact, sell-offs are often mostly over at just about the time people are wondering if we’re in one.

    That was certainly true this week. Billionaire Carl Icahn made headlines by saying that the stock market is in “dangerous territory.” (Icahn outlined his thoughts in a video entitled “Danger Ahead.”) Of course, his warning comes more than a month after the market’s August turbulence and more than four months after the market’s May peak. Investing is the one area of human activity where people are unnerved by lower prices.

    In this week’s CWS Market Review, we’ll take a closer look at our Buy List’s performance so far. The bad news is that we’re down for the year. The good news is that we’re not as down as much as everyone else. Of course, being a bit less bad than everybody else will get you far on Wall Street. We also had a blow-out sales report from Ford Motor (F). The automaker just registered its best September in eleven years. I’ll also explain why the market’s recent “retest” was so unbalanced. But first, let’s see how well our Buy List has fared this year.

    Three Quarters Down, and We’re Beating the Market

    On Wednesday, September 30, the S&P 500 closed at 1,920.03. That gave the index a YTD loss of 6.74%. If you add in dividends, the index was down 5.29%.

    The 21 stocks on our Buy List finished the third quarter with a YTD loss of 2.22%. Once you include dividends, the loss was 1.37%, so we’re running about 4% ahead of the overall market. For tracking purposes, I assume the Buy List is a $1 million portfolio at the start of the year. The portfolio is divided equally among the 20 stocks, so we start with $50,000 in each position. The Buy List now includes 21 stocks as a result of eBay’s spinning off of PayPal.

    As always, the rules of the Buy List forbid me from making any changes during the year. Each December, I announce our portfolio changes and we have five new buys and five sells. (This December, there will be six sells due to PayPal). After that, the Buy List is locked and sealed for the next 12 months.

    We had a nice run of beating the S&P 500 for seven years in a row until we lost to the market last year. (It was close: 13.69% to 11.80%.) Fortunately, we’re back to our market-beating ways in 2015.

    This is the tenth year for the Buy List. If you were to group all 9.75 years together, our Buy List has gained 147.84% to the S&P 500’s 89.10%. Basically, we turned every $2 into $5. Bear in mind, we did this with very little trading.

    (Side note: When I give the performance of the long-term Buy List, I calculate it by assuming annual rebalancing. I realize that very few investors do this, nor is it necessary. But I believe it’s the fairest way to state our long-term results.)

    At the end of three quarters, our best-performing stock is Fiserv (FISV), with a 22% gain. This quiet stock just goes up and up. In second place is one of our new additions this year, Hormel Foods (HRL), with a 21.5% gain. The Spam company has held up quite well recently. That’s what I like about consumer staples. When times get rough, people cut back on luxuries but not on things like Dinty Moore (yep, a Hormel brand).

    The also-rans of this year’s Buy List are dominated by four underachievers: Oracle (ORCL), Qualcomm (QCOM), Bed Bath & Beyond (BBBY) and Moog (MOG-A). Oracle was down 19.7% at the end of Q3, while the other three were all down by more than 25%.

    This highlights another important fact of investing. Your worst positions will often be down more than your best positions are up. Not always, but it’s true often enough. Remarkably, 15 of our 21 stocks have outperformed the market this year. The problem is that the duds really weigh down our performance. That’s why diversification is so important. Investors should always make sure their portfolios are broadly diversified. Now let’s turn to one of our more frustrating stocks, but one I still like.

    Ford’s Best September in Eleven Years

    Beleaguered Ford Motors (F) finally got some good news this week. Ford reported sales growth of 23% last month. That’s a very good number. Wall Street had been expecting 19%. With interest rates low and gas prices down, buying and driving a new car isn’t much of an obstacle for many Americans.

    Sales of Ford’s F-Series pickups were up 16%, and their SUV’s did especially well. Commercial-van sales were up 86%. This was their best month in 29 years. These numbers suggest that Ford closed Q3 on a strong note. The automaker had a very good report for Q2, beating the Street by 10 cents per share, but that hasn’t helped the stock.

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    Shares of Ford have been rocked back and forth ever since the market broke down in late August. The stock briefly dripped below $13 per share before rallying to nearly $15 two weeks ago. It dropped back again to $13 per share earlier this week. There’s also the looming threat of a strike at an F-150 plant in Kansas City. Don’t worry. I’m inclined to believe some agreement will be reached before Sunday’s deadline.

    I still like Ford a lot, and I’m surprised the shares are so low. The company has stood by its earnings forecast all year, and the dividend is sound. Ford remains an attractive buy up to $15 per share.

    Wait Till the VIX Hits 20

    A few weeks ago, I told you that the coast will be clear once the Volatility Index (^VIX) closes below 20. Since then, the VIX has come close a few times, but it hasn’t yet closed below that target. We can use that as a rough indicator for the market’s state of mind.

    In last week’s CWS Market Review, I wrote, “I wouldn’t be surprised if the S&P 500 tries to ‘retest’ its low of 1,870.” That’s exactly what happened. This past Tuesday, the S&P 500 dropped down to an intra-day low of 1,871.9, which is less than five points above the intra-day low from August 24.

    Technical analysts pay attention to when the market goes back to “test” its previous low points. The theory goes that if the test fails, you can expect the downtrend to continue. But if the old low holds, hat bodes well for the start of a new uptrend. So far, the old low has held. (So far.)

    What’s interesting about this retest is how unbalanced it is. Let me explain. When the market gets nervous, investors run for cover in more stable stocks, and that generally means large-caps. As a result, the mammoth-cap stocks have not been the ones resetting their lows. Rather, it’s been the little guys. They’ve not only been testing the lows, the lows have been falling left and right. The small-cap Russell 2000 recently fell for eight days in a row.

    Bloomberg notes that 42% of the stocks in the S&P 500 have slipped below their August 25 low. In fact, if we look at three Mongo-caps, ExxonMobil (XOM), Microsoft (MSFT) and Apple (AAPL), they’ve combined for nearly 20% of the index’s gain since the recent low. The S&P 500 Equal Weighted Index has already made a new low. In other words, for most stocks, the market’s correction is still going strong.

    Is this a sign of more bad times to come? Will the big-caps finally give in? I can’t say for sure, but the good news is that we don’t need to worry about timing the market to do well. Instead, our strategy is to focus on strong companies that are going for good prices.

    One of the stocks I like right now on our Buy List is AFLAC (AFL). The selling at Moog (MOG-A) has gotten to be a bit much. The stock is especially attractive below $55 per share. Again, I like Ford Motor (F). If you can get it below $14, you got a good deal. Now let’s look at some other Buy List stocks.

    Buy List Updates

    If you recall, Ball Corp. (BLL), one of our Buy List stocks, wants to take over Rexam. The problem is that the anti-trust authorities in Europe aren’t too wild about the idea. I can’t say that’s entirely surprising, since the companies are the #1 and #2 can-makers.

    This week, the EU formally raised its objections to the deal. That’s actually good news because now Ball has something concrete to work with. They can alter the deal to meet the approval of regulators. Most likely, this means Ball will have to sell off some assets. Ball and Rexam have a deadline of December 9 to respond to the EU’s objections. Ball sounds very confident that the merger will eventually be approved. This will be a good deal for Ball.

    I also want to lower my Buy Below prices for two of our stocks. The selling pressure has been rough this last month, and I want my Buy Below prices to reflect that. I’m lowering PayPal’s (PYPL) Buy Below to $34 per share. I’m also lowering Wabtec’s (WAB) to $95 per share. Last week, I said I especially like Wabtec when it’s below $90 per share.

    Finally, let me note that Bank of America Merrill Lynch just upgraded Microsoft (MSFT) from underperform to neutral. They raised its target price from $39 to $47 per share. This stock is going for a good price.

    That’s all for now. The big September jobs report is due out later today. Earnings season kicks off next week when Alcoa reports Q3 earnings on Thursday. None of our Buy List stocks report next week, but Wells Fargo (WFC) will be our first stock to report the following Wednesday, October 14. Seventeen of our stocks will report over the following three weeks. Also next week, the Fed will release the minutes of their last meeting. This was the controversial “no go” meeting. It will be interesting to hear what was discussed. 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: October 2, 2015
    , October 2nd, 2015 at 6:27 am

    ECB President Mario Draghi Says Eurozone Returning to Growth After Policy Moves

    Pacific Trade Ministers Vow to Reach Deal But Extra Time Needed

    Global Stocks Rise Ahead of U.S. Jobs Report

    Stocks Rally With Crude Before Payrolls as China Nerves Subside

    Oil Rises as Russian Strikes in Syria Raise Middle East Tension

    A Key Tenet of Janet Yellen’s ‘Lowflation’ Call Might Be Off the Mark

    At Morgan Stanley, Clues on Succession

    Sprint Expected to Cut Jobs, Up to $2.5 Billion in Costs

    First Data to Raise Up to $3.7 Billion in IPO

    United’s Chief Says Airline Must Improve

    Chick-fil-A Brings Its Sandwich, and Its Values, to New York

    U.A.W. Contract Vote at Fiat Chrysler Takes a Populist Tone

    China Billionaire With Canal Dream Confronts Biggest Loss of ’15

    Howard Lindzon: The Carl Icahn Bottom of 2015?

    Roger Nusbaum: Say Goodbye to the 4% Rule?

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  • Hudson City Deal Finally Approved
    , October 1st, 2015 at 11:23 pm

    In 2012, I added Hudson City Bancorp (HCBK) to our Buy List. That August, the bank announced that it was merging with M&T Bank (MTB).

    We got a good price for Hudson and it was a 30% winner for us in 2012. Since it was going to merge, I didn’t include HCBK on our 2013 Buy List.

    The merger, however, did not get approved. Not until this week.

    The deal repeatedly stalled as the Fed reviewed Buffalo, New York-based M&T’s anti-money-laundering controls. Hudson City has also faced scrutiny from regulators and agreed this month to pay more than $30 million to resolve an investigation by the Justice Department and the Consumer Financial Protection Bureau into allegations of discriminatory lending practices.

    The delay, which analysts have called one of the longest in U.S. banking history, has served as a cautionary tale for other lenders seeking to increase in size through acquisitions and has exacerbated a slowdown in deal-making.

    We added Hudson at $6.25 per share. Just before the merger announcement, it got to $6.44 per share. Hudson jumped $1.01 on the day of the news. It eventually closed 2012 at $8.13, which is where we exited our position. The stock closed today at $9.76 per share. In the 2.75 years since we sold Hudson, it gained 20%. The S&P 500 is up about 35% over that time.

  • Ford’s Best September in 11 Years
    , October 1st, 2015 at 11:30 am

    This morning’s ISM came in at 50.2. That’s on the low side, but it’s still above 50 which signals the economy is still expanding.

    Two other economic reports are in our immediate view. One is that initial jobless claims rose to 277,000. The big September jobs report is tomorrow.

    We also learned that construction spending rose 0.7% in August. Overall, construction spending is up 13.7% in the last year.

    The best news was a very good report for auto sales. Ford (F) had its best sales month in 11 years.

    Ford Motor Co. posted a 23 percent year-over-year rise to 221,599 vehicles sold in September.

    The strong result for the Dearborn automaker was broad-based, with cars, trucks and utilities all posting double-digit sales gains.

    The company’s retail sales increased 23 percent, and overall Ford had its best September performance in 11 years.

    It joined fellow Detroit Three automakers FCA US and GM in posting double-digit gains for the month. Sales gains were aided by a later Labor Day holiday weekend selling period but the industry as a whole has also been strong.

    For Ford, retail sales of the all-important F-Series trucks rose 28 percent, pushing truck sales to their highest level in nine years. Ford brand SUV sales were up 27 percent, marking that category’s best September since 2003. And sales of Ford commercial vans jumped 86 percent in route to their best September sales since 1986.

  • Morning News: October 1, 2015
    , October 1st, 2015 at 7:05 am

    Putin’s Economic Might Is Withering Away

    Charting the Markets: China Factory Data Sends Global Equities Higher

    Lagarde Says Fed Hike, Slower China to Test Global Economy

    Forget Rates and Payrolls: It’s Earnings That Really Matter

    Fed’s Dudley Open to Adjusting Rules to Improve Liquidity

    Oil Drillers Spared More Misery by U.S. Judge’s Fracking Ruling

    Tsinghua Deal to Connect Western Digital to Powerful China Tech Set

    1,129 Days Later… Bank Deal Approved

    How Glencore’s Crazy Month Makes Greek Banks Look Tame

    Fiat Chrysler Workers Appear to Reject Contract Proposal

    The Other Victims of the Volkswagen Scandal: Dealers

    Pacific Trade Partners Make Progress on Autos Hurdle

    Young Americans Are Giving Up on Getting Rich

    Cullen Roche: How Long Can You Stick With Failing Factor Investing?

    Joshua Brown: Are You Ready For The Next Bear Market?

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