January 2016 Crossing Wall Street

Poor ISM for December
Eddy Elfenbein, January 4th, 2016 at 10:58 am

The December ISM report came out today and it wasn’t a good one. The Index fell to 48.2 for December. That’s the lowest reading since June 2009.

This was also the second-straight month in which manufacturing fell. Any ISM below 50 indicates that the manufacturing sector is getting smaller.

While today’s report is bad news, it’s not dire just yet. For one, the report only covers the manufacturing sector of the economy. Also, recessions have generally correlated with ISMs below 46 or so. During the stretch from 1995 to 1998, there were several weak ISMs even though the broader economy was doing well.

Since 1948, the ISM has been between 45.0 and 49.9 a total of 137 times. Only 25 have been during recessions. That’s 18.2%.

Morning News: January 4, 2016
Eddy Elfenbein, January 4th, 2016 at 6:44 am

Biggest Economies Face $7 Trillion Debt Refinancing Tab in 2016

China’s Two-Speed Economy Stays Intact as Factories Slump, Services Gain

Singapore’s Economy Expands More Than Estimated

Stocks Slump Across Europe and Asia Following Shanghai’s 7% Crash

Fed’s Fischer Supports Higher Rates If Markets Overheat

Solar Energy Is The Future. You Can’t Stop It.

Nokia, Alcatel-Lucent Set to Put Merger to Work

Ferrari Makes Stand-Alone Debut on Milan Stock Exchange

Uber’s No-Holds-Barred Expansion Strategy Fizzles in Germany

Samsung Warns of a Challenging 2016 as Competition Escalates

Takata Emails Show Brash Exchanges About Data Tampering

The Ghosts of Baha Mar: How a $3.5 Billion Paradise Went Bust

Cullen Roche: Shorting The Big Short

Jeff Miller: Will There Be A January Effect?

Howard Lindzon: My Mission Continues in 2016

Be sure to follow me on Twitter.

Amazing Stat
Eddy Elfenbein, January 2nd, 2016 at 6:10 pm

With the end of the year, I was updating some of my data files, and I came across this stat. Over the last 20 years, the Dow gained 253.49% on Monday and Tuesday combined. But it lost 3.67% on Wednesday, Thursday and Friday.

That’s extraordinary.

Every Buy List Stock
Eddy Elfenbein, January 1st, 2016 at 5:04 pm

Here are all 68 Buy List stocks and when they’ve made the cut.

Stocks	’06	’07	’08	’09	’10	’11	’12	’13	’14	’15	16
ABT						X
ADS											X
AFL	X	X	X	X	X	X	X	X	X	X	X
APH		X	X	X
BAX				X	X
BBBY	X	X	X	X	X	X	X	X	X	X	X
BCR							X	X	X	X	X
BDX				X	X	X
BER/WRB		X	X
BIIB											X
BLL										X
BMET	X	X
BRO	X
CA							X	X	X
CERN											X
CLC			X
CTSH				X				X	X	X	X
DCI	X	X	X	X
DELL	X
DHR	X	X	X	X
DLX						X
DTV							X	X	X
EBAY/PYPL									X	X
ESRX									X	X	X
EV				X	X
EXPD	X
F						X	X	X	X	X	X
FDS	X	X	X	X				X
FIC	X	X
FISV	X	X	X	X	X	X	X	X	X	X	X
GDW/WB	X
GGG		X
GILD					X	X
HCBK							X
HD	X
HEI											X
HOG	X	X	X
HRL										X	X
HRS							X	X
IBM									X
INTC					X
JNJ					X	X	X
JOSB		X	X	X	X	X	X
JPM						X	X	X
LLY				X	X
LNCR			X
LUK			X	X	X	X
MCD									X
MDT	X	X	X	X	X	X	X	X	X
MOG-A			X	X	X	X	X	X	X	X
MSFT								X	X	X	X
NICK		X	X	X	X	X	X	X
ORCL						X	X	X	X	X
QCOM									X	X
RAI					X	X	X
RESP	X	X
ROST								X	X	X	X
SBNY										X	X
SEIC	X	X	X	X	X
SNA										X	X
SRCL											X
SYK			X	X	X	X	X	X	X	X	X
SYY	X	X	X	X	X	X	X
UNH	X	X	X
VAR	X	X
WAB										X	X
WFC								X	X	X	X
WXS/WEX					X	X	X	X

The Eddy Effect
Eddy Elfenbein, January 1st, 2016 at 4:42 pm

I unveiled my new buys for this year two weeks ago. While the Buy List doesn’t take effect until the new year, the five new stocks have performed rather well.

Since I announced the new stocks, Biogen (BIIB) has rallied 3.1% and Alliance Data Systems (ADS) is up 2.8%. But the big winner is HEICO (HEI) which jumped 9.4%. Stericycle (SRCL) rose 1.6%. The only loser was Cerner (CERN) which fell 0.3%.

Over the final nine trading days of the new year, those five stocks posted an average gain of 3.31% while the S&P 500 gained just 0.1%.

Unfortunately, none of this counts towards our track record. I wouldn’t say this was the effect of me adding those stocks. (At dinner parties, of course, I’ll take full credit.) But HEICO, for example, was clearly helped by an upgrade from BAML.

CWS Market Review – January 1, 2016
Eddy Elfenbein, January 1st, 2016 at 7:08 am

The 2015 trading year is on the books, and I’m happy to report that we once again beat the overall market. This is the eighth time in the last nine years in which our Buy List has outpaced the S&P 500.

For the year, our Buy List gained 3.73%, and with dividends, we were up 4.93%. The S&P 500 lost 0.73%, but with dividends, it was up 1.38%.

Our biggest gainer on the year was Hormel Foods (HRL) with a gain of 51.79%. Who knew Spam was so profitable? Fiserv (FISV) was a distant second at 28.87%.

Our biggest loser was Bed Bath & Beyond (BBBY) with a loss of 36.65% followed by Qualcomm (QCOM) which lost 32.75%.

Counting the eBay/PayPal investment as one position, 12 of our 20 stocks made money this year. To people who care about such things, the “beta” of our Buy List was 0.9981. The correlation of the daily changes of the Buy List and of the S&P 500 was 96.5%.

Over the ten-year history of the Buy List, our total compounded gain including dividends is 163.67%. That compared with 102.42% for the S&P 500. That assumes annual rebalancing, which—let me stress—is not necessary for you to do. Feel free to let your winners run. Now let’s dig into the numbers.

Details of Last Year’s Buy List

The table below details the Buy List’s performance for 2015. 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 out equally divided among the 20 stocks.

Stock	Shares	12/31/14	Beginning	12/31/15	Ending	Profit/Loss
AFL	818.4646	$61.09	$50,000.00	$59.90	$49,026.03	-1.95%
BBBY	656.4264	$76.17	$50,000.00	$48.25	$31,672.57	-36.65%
BCR	300.0840	$166.62	$50,000.00	$189.44	$56,847.91	13.70%
BLL	733.4605	$68.17	$50,000.00	$72.73	$53,344.58	6.69%
CTSH	949.4873	$52.66	$50,000.00	$60.02	$56,988.23	13.98%
EBAY	890.9480	$23.6197	$21,043.92	$27.48	$24,483.25	16.34%
ESRX	590.5279	$84.67	$50,000.00	$87.41	$51,618.04	3.24%
F	3225.8065	$15.50	$50,000.00	$14.09	$45,451.61	-9.10%
FISV	704.5230	$70.97	$50,000.00	$91.46	$64,435.67	28.87%
HRL	959.6929	$52.10	$50,000.00	$79.08	$75,892.51	51.79%
MOG-A	675.4019	$74.03	$50,000.00	$60.60	$40,929.36	-18.14%
MSFT	1076.4263	$46.45	$50,000.00	$55.48	$59,720.13	19.44%
ORCL	1111.8523	$44.97	$50,000.00	$36.53	$40,615.96	-18.77%
PYPL	890.9480	$32.5003	$28,956.08	$36.20	$32,252.32	11.38%
QCOM	672.6759	$74.33	$50,000.00	$49.985	$33,623.70	-32.75%
ROST	1060.8954	$47.13	$50,000.00	$53.81	$57,086.78	14.17%
SBNY	396.9514	$125.96	$50,000.00	$153.37	$60,880.44	21.76%
SNA	365.6575	$136.74	$50,000.00	$171.43	$62,684.66	25.37%
SYK	530.0541	$94.33	$50,000.00	$92.94	$49,263.23	-1.47%
WAB	575.4402	$86.89	$50,000.00	$71.12	$40,925.31	-18.15%
WFC	912.0759	$54.82	$50,000.00	$54.36	$49,580.45	-0.84%
Total			$1,000,000.00		$1,037,322.75	3.73%

Note that Ross Stores (ROST) split 2-for-1 on June 12. Also, eBay (EBAY) spun off shares of PayPal (PYPL) on July 6. Here are the details of the accounting for the spin-off.

Starting Prices and Shares for the 2016 Buy List

Now for the 2016 Buy List. Below are all 20 positions with the number of shares for each and the closing price for 2015. Whenever I discuss how the Buy List is doing, the list below is what I’m referring to. The Buy List is now locked and sealed, and I can’t make any changes for 12 months.

Company	Ticker	Price	Shares	Balance
Alliance Data Systems	ADS	$276.57	180.7861	$50,000.00
AFLAC	AFL	$59.90	834.7245	$50,000.00
Bed Bath & Beyond	BBBY	$48.25	1,036.2694	$50,000.00
CR Bard	BCR	$189.44	263.9358	$50,000.00
Biogen	BIIB	$306.35	163.2120	$50,000.00
Cerner	CERN	$60.17	830.9789	$50,000.00
Cognizant Technology Solutions	CTSH	$60.02	833.0556	$50,000.00
Express Scripts	ESRX	$87.41	572.0169	$50,000.00
Ford Motor	F	$14.09	3,548.6160	$50,000.00
Fiserv	FISV	$91.46	546.6871	$50,000.00
HEICO	HEI	$54.36	919.7940	$50,000.00
Hormel Foods	HRL	$79.08	632.2711	$50,000.00
Microsoft	MSFT	$55.48	901.2257	$50,000.00
Ross Stores	ROST	$53.81	929.1953	$50,000.00
Signature Bank	SBNY	$153.37	326.0090	$50,000.00
Snap-on	SNA	$171.43	291.6642	$50,000.00
Stericycle	SRCL	$120.60	414.5937	$50,000.00
Stryker	SYK	$92.94	537.9815	$50,000.00
Wabtec	WAB	$71.12	703.0371	$50,000.00
Wells Fargo	WFC	$54.36	919.7940	$50,000.00
Total				$1,000,000.00

The five new stocks for this year are Alliance Data Systems, Biogen, Cerner, HEICO and Stericycle.

The six deletions are Ball, eBay, Moog, Oracle, PayPal and Qualcomm. We have an extra stock leaving this year due to the PayPal spinoff.

The average market cap is $58 billion. That ranges from a high of $443 billion for Microsoft (MSFT) to $3.6 billion for HEICO (HEI). Please note that these are all liquid stocks. Many trade millions of shares a day. Even our smaller ones see heavy volume. You should have no trouble getting orders filled with these stocks.

Eleven of our twenty stocks pay dividends. The total yield of the Buy List works out to 0.95%. Only three stocks have been on the Buy List all eleven years: AFLAC (AFL), Bed Bath & Beyond (BBBY) and Fiserv (FISV). This will be Stryker’s (SYK) ninth year on the Buy List.

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 Alliance Data Systems (ADS) with a Buy Below of $293. Please don’t let the high share prices scare you. Buy fewer shares if you need to. I’m starting Biogen (BIIB) as a Buy up to $330 per share. Cerner (CERN) is a very good buy any time you see it below $64 per share. HEICO (HEI) has been doing quite well lately. I’m rating it a buy up to $58 per share. Lastly, I’m starting Stericycle (SRCL) as a buy up to $130 per share. I’m very excited for our new stocks this year.

We have one Buy List earnings report coming next week. On Thursday, Bed Bath & Beyond (BBBY) will report fiscal Q3 earnings. They’ve already told us it won’t be a good one. They’re expecting earnings between $1.07 and $1.10 per share. The home furnisher sees revenues rising just 0.3% to $3 billion. Their initial guidance for same-store sales was for an increase of 1% to 3%. Now they see that falling by 0.4%.

Given that bad news, why do I still like the stock? It’s because I think the selling is overdone. Below $50 per share, the stock is a bargain. I’ll also be curious to hear if they can offer any guidance for Q4. That’s the big quarter for them. The company previously suggested that December was a good month. Don’t overlook BBBY.

That’s all for now. The market is closed today for New Year’s Day, but the new trading year begins bright and early on Monday morning. We’ll get some of the key turn-of-the-month econ reports. ISM comes out on Monday. The ADP payroll report is on Wednesday. Then the big jobs report comes 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