Archive for March, 2016

  • February NFP: +242,000
    , March 4th, 2016 at 8:34 am

    The February jobs report is out. The U.S. economy created 242,000 net new jobs last month. Plus, another 30,000 were added due to revisions. The private sector added 230,000 jobs in February.

    The unemployment rate is 4.9%. Interestingly, average hourly earnings fell by 0.1%.

  • CWS Market Review – March 4, 2016
    , March 4th, 2016 at 7:08 am

    “It is not the crook in modern business that we fear, but the
    honest man who doesn’t know what he is doing.” – Owen D. Young

    Over the last few months, there’s been a global rush to safety that’s dominated world markets. Stocks have dropped, bonds have risen and volatility has increased. But over the last three weeks, that trend has started to unwind, and that trend is increasing every day.

    Now stocks are rallying while bonds are retreating, and for the first time this year, the Volatility Index closed below 17. Suddenly, risky assets are popular again. Since February 11, the S&P 500 has gained 9% and our Buy List is up 10.2%. Check out how the stock market has performed (black line) compared with the Long Bond ETF (gold line).

    big03042016a

    In this week’s CWS Market Review, I’ll tell you what it all means. Plus, I’ll talk about the strong earnings report from Ross Stores. They had a very good holiday quarter. The deep-discounter also gave us a nice 15% dividend increase. (I love dividend hikes!) I’ll also bring you up to speed on some of our other Buy List stocks. But first, let’s look at the market’s newly-found appetite for risk.

    Investors Rediscover Risk

    The year 2016 got off to a no-good, horrible, very bad start for investors. What happened is that we saw a global flight from any and every asset that smacked of risk. Investors left stocks, particularly risky sectors like High Beta, and sought safety in areas like treasury bonds and dividend stocks.

    The dynamic was simple. The risker it was, the worse it did. The safer it was, the better it did. Junk bonds and emerging markets tanked, but gold, the safest investment of all, did the best. The yellow metal shone for the first time in several years.

    This mini-panic was fueled by concerns of a slowdown in the U.S. economy. This was compounded by fears of a currency war in Asia and Europe. In China, the economy is weak (we have to guess since no one trusts the government’s numbers), and the authorities are trying to weaken the yuan. Except they don’t want anyone to notice. I’m not trying to sound facetious. I really don’t think the suits in the PBOC understand that their actions reverberate, very quickly, all around the world.

    In Europe, Mario Draghi is trying his best to get the Eurozone back on its feet. But in the Old World, bond yields have plunged to absurd levels. In Germany, a two-year bond will fetch you -0.6%. That’s 145 basis points less than a two-year U.S. Treasury bond.

    In the U.S., the Federal Reserve has said it expects the U.S. economy will improve, and it’s standing by, ready to raise interest rates. The only problem has been that the economy wasn’t cooperating. Futures traders didn’t buy the Fed’s interest rate plans at all. The market expected the Fed to largely stand apart for the next year, and possibly longer.

    But since February 11, the whole game has changed. Stocks are popular and bonds are not. In particular, High-Beta stocks are doing well. Junk bonds and emerging markets are up. So many beaten-down names from last year are recovering the strongest. On our Buy List, stocks like Ford Motor (F) and Bed, Bath & Beyond (BBBY) are up more than 20% over the last few weeks.

    More Encouraging News for the Economy

    As I mentioned in last week’s issue, the economic data have improved. The economy still needs a lot of work, but the arrows are pointing in the right direction. Just this week, we learned that the ISM Manufacturing Index improved to 49.5. That’s not great, but it’s the best number since September. Jobless claims have now been under 300,000 for 52-straight weeks. We also got good reports on construction spending, and the car sales report was quite good. (I’ll have more on Ford Motor later on.)

    I’m particularly pleased to see that inflation expectations have picked up a tad. I don’t want to see a lot of inflation, but it’s very important that we steer clear of deflation. I like to look at the difference between the five-year Treasury and the five-year inflation-protected Treasury. That tells us what the market is expecting for inflation over the next five years. Recently, it dipped below 1% for the first time since 2009. But now, it’s now ticked up to 1.34%. I want it to go higher.

    Tied to that is that crude oil has rallied well since February 11. It’s still dancing step-for-step right along side the stock market. As technician Charlie Bilello points out, oil has traded below its 200-day moving average for 400 straight days. That’s by far the longest run on record. But it’s important to note that the increase in prices may not be felt across the board. For example, natural gas prices just hit a 17-year low.

    You can be sure this news is getting attention at the Federal Reserve, which meets again on March 15-16. Don’t expect a rate increase. But the market thinks there’s roughly a 50-50 chance the Fed could hike rates again by its September meeting. Just a few weeks ago, that was seen as a distant possibility. The Fed will also update its projections for the coming year. I think we’ll see the central bankers reel back their aggressive plans for interest rates.

    On Thursday, the S&P 500 rallied as high as 1,993.69. That’s the highest in two months. Here’s an interesting fact I learned from Ryan Detrick: Every up day since February has closed near the high. That tells me that the bulls have found some courage. Earlier I mentioned that the Volatility Index closed below 17 for the first time this year. On February 11, it peaked at over 30. Measuring over the past three weeks, this has been one of the steepest declines in expected volatility on record.

    While the market’s behavior has been quite good since February 11, I’m still not convinced that we’re out of the woods. As always, we need to play it safe. Investors should continue to buy and hold quality names. As we’ve seen, you never know when the market will suddenly turn in your favor.

    Right now on our Buy List, I particularly like Microsoft (MSFT). The last few earnings reports have been quite good. At its current price, MSFT yields 2.75%. I also like Wells Fargo (WFC). The stock hasn’t performed well this year, but Wells is a very well-run outfit. WFC is currently yielding just over 3%. That’s not bad. Now let’s look at the latest earnings report from Ross Stores.

    Ross Stores Beats Earnings and Raises Dividend

    On Tuesday, Ross Stores (ROST) reported fiscal Q4 earnings of 66 cents per share. Let’s take a step back and see this earnings report in context. In August, when Ross released its second-quarter report, they also gave us guidance for Q3 and Q4. I remembering thinking it was odd that they would give guidance for two quarters out. But more pressingly, I was struck by how pessimistic the guidance was.

    Ross said they expected Q3 earnings to range between 48 and 50 cents per share, and for Q4, they expected 60 to 63 cents per share. That was well below what Wall Street (and I) had been expecting. Of course, we know that Ross has a habit of low-balling Wall Street, and then “surprising” us with better-than-expected results. It’s a game they know well.

    big03042016

    At the time, CEO Barbara 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.” The next day, shares of Ross plunged nearly 10%.

    As it turned out, Ross was indeed being cautious. Very cautious. For Q3, the company earned 53 cents per share, and on Tuesday, we learned that they made 66 cents per share for Q4. I was particularly impressed with the details in the Q4 report. Previously, Ross said they expected same-store sales to grow between 0% and 1%. Instead, it was 4%. Overall sales rose by 7.2%, which also beat expectations.

    For the whole year, Ross earned $2.51 per share. Net sales rose 8%, and same-store sales rose 4%. But the best news is that Ross raised its quarterly dividend by 15% to 13.5 cents per share. The previous dividend was 11.75 cents per share (it had been 23.5 cents prior to the 2-for-1 stock split).

    Once again, Ross is offering conservative guidance. For Q1, they see earnings ranging between 69 and 72 cents per share. Wall Street had been expecting 76 cents per share. For the current fiscal year, Ross sees earnings between $2.59 and $2.71 per share. That’s below Wall Street’s consensus of $2.75 per share. For the quarter and full year, Ross expects same-store sales growth of 1% to 2%. I think we can expect some upside “surprises” this year.

    This week, I’m lifting my Buy Below price on Ross Stores to $60 per share.

    Buy List Updates

    In last week’s CWS Market Review, I told you about the strong earnings report from HEICO Corp. (HEI). The company earned 49 cents per share for fiscal Q4, which was a 20% increase over the year before. All around, it was a solid report. HEICO also raised its full-year guidance. This week, I’m lifting my Buy Below on HEICO to $61 per share. These quiet stocks are fun to watch.

    With the strong retail results from Ross Stores, you may have also noticed the rebound in shares of Bed Bath & Beyond (BBBY). On Thursday, the home-furnishings store broke $50 per share for the first time this year. The stock is up over 22% from its February low. BBBY will report earnings again on April 6. Bed Bath remains a good buy up to $53 per share.

    Investor’s Business Daily recently featured Fiserv (FISV): “If you’ve withdrawn money from an automated teller or transferred a balance from one account to another, there’s a good chance it went smoothly in part because of Fiserv.” This is been such a solid company for so long, it’s easy to forget how special they are. You can see the whole article here.

    Shares of Ford Motor (F) got a big boost this week after the automaker reported very good sales for February. Sales rose 20% from a year ago. Wall Street had been expecting a 12.6% increase. SUV sales were particularly strong. The stock is up more than 21% in the last three weeks. For now, I’m going to hold off raising the Buy Below. Ford Motor remains a solid buy up to $13 per share.

    That’s all for now. The February jobs report is due to come out later today. In my mind, what’s more important than the net number of jobs created is an increase in hourly average earnings. I hope this trend continues. Next week will be a fairly quiet week for economic news. Wholesale inventories are reported on Wednesday. The latest Treasury Budget report comes out on Thursday. 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: March 4, 2016
    , March 4th, 2016 at 7:03 am

    BOJ Governor Kuroda: Not Considering Cutting Rates Further for Now

    Brazil’s Economy Shrinks by Most in 25 Years

    Iran Invites Boeing for Talks, a Stride Toward Business Ties With the U.S.

    RBC Targets Market Share Gains in U.S. Investment Banking

    Facebook to Pay Millions of Pounds More in U.K. Tax

    Hacked! Business Bank Accounts Vulnerable to Cybercriminals

    Snapchat Raises $175 Million From Fidelity at Flat Valuation

    Adidas to Open 3,000 Stores in China by 2020

    In the Bag: Samsonite Confirms Deal to Buy Tumi

    Aurora Flight Sciences Wins $89 Million Contract for X-Plane

    Why Barnes & Noble Isn’t Going Away Yet

    Apple Is Rolling Up Supporters in Privacy Fight Against F.B.I.

    The Mystery Madoff Victims Who Left $2.5 Billion on the Table

    Josh Brown: On the Reaction to “Abundance”

    Jeff Carter: Be Courageous

    Be sure to follow me on Twitter.

  • Morning News: March 3, 2016
    , March 3rd, 2016 at 7:12 am

    Japan Feb Services PMI Falls to Seven-Month Low, New Business Slows

    Trudeau’s Message to World: Let Government Spending Do the Work

    U.S. Economy Expands With Wide Range of Wage Growth, Fed Says

    Investors Are Flipping Houses Again

    Cisco Buying Israel’s Leaba Semiconductor for $380 Million

    Goldman Sachs Invests in Africa’s ‘First Unicorn’

    This Is How Target Is Solving Its Out-of-Stock Problems

    Adidas’s Fourth-Quarter Loss Narrows

    LinkedIn CEO’s Equity Package to Be Distributed to Other Employees

    The Shipping Industry Isn’t Doing as Well as It Looks From Space

    Alaska’s Biotech Sugar Daddy Is Showering Money on Startups

    Whistleblower Award for NYSE Fine Goes to HFT Critic

    Energy Pioneer McClendon Dies in Oklahoma Car Crash a Day After Indictment

    Cullen Roche: Scarcity Vs. Abundance

    Roger Nusbaum: Hindsight Bias & Incorrect Expectations

    Be sure to follow me on Twitter.

  • Warren Buffett: Economists Don’t Make Money Buying And Selling Stocks
    , March 2nd, 2016 at 11:05 pm

  • IBD on Fiserv
    , March 2nd, 2016 at 5:39 pm

    Investors Business Daily looks at Fiserv (FISV):

    Financial Industry Still Craves Tech, Which Is Good For Fiserv

    As banks farm out more tech services and try to keep up with customers managing more of their money via their phones, Fiserv (FISV), a company that provides back-end technology to the finance industry, seems to be expanding at a solid, measured pace.

    Companies spilling over with triple-digit growth every quarter are drawing more adventurous investors, which is why many on Wall Street seem to like Fiserv’s steadiness. The company routinely generates single-digit sales gains and low-double-digit earnings growth, aided by share buybacks.

    Following the Fed’s rate hike last year and forecasts for fatter industry tech budgets, more of the same could be in store despite worries over a downturn and consolidation, the company and analysts say. That’s due primarily to a steady income base.

    “When you have 85% of revenue recurring, it gives them a very good visibility into their numbers,” helping enable more accurate guidance and minimizing surprises when earnings season rolls around, Monness Crespi Hardt analyst Alexander Veytsman told Investor’s Business Daily.

    “They do increase pricing, but given the longevity of those contracts and given the fact that these clients have been with them for a number of years, I would say they’re growing it slowly and steadily,” Veytsman said.

    The nature of the company’s contracts with clients helps Fiserv maintain its firm footing. Many deals are longer-term and retention is high, Morningstar notes in its research on the company. In addition, it’s costly and potentially hugely disruptive for financial companies to switch from one core-processing service to another, helping Fiserv keep customers in the fold.

    And even amid Wall Street’s hand-wringing over a possible recession, Chief Executive Jeffrey Yabuki told IBD that he sees the trends in tech spending among Fiserv’s own clients continuing.

    “Most of our revenue is based on non-discretionary, mission-critical technologies under longer term contracts and is not subject to dramatic fluctuation,” he said via email. “We are seeing stable and growing demand for newer technologies that enhance experiences in the increasingly digital world.”

    13,000 Clients

    Brookfield, Wis.-based Fiserv serves 13,000 banks, credit unions, retailers and other clients around the world. If you’ve withdrawn money from an automated teller or transferred a balance from one account to another, there’s a good chance it went smoothly in part because of Fiserv.

    Created in 1984 through a merger, Fiserv handles everything from transaction processing to data analysis to person-to-person payment systems. With this year’s technology spending seen growing 4%-5% among banks and credit-union customers — Fiserv’s bread and butter — the company is set to follow, Argus Research says.

    “We believe that Fiserv remains well positioned to benefit from technology infrastructure spending among its primary customers (banks and credit unions), many of whom are working to improve processing efficiency for online bill payment and debit card transactions,” Argus analyst Stephen Biggar said in a research note last month.

    “This should help revenue to keep rising at a modest mid-single-digit pace,” Biggar said, adding that Argus sees 5.5% in sales growth this year.

    Shares are up 25% over the past 12 months. The company has a Composite Rating of 93 out of a best-possible 99, boosted most recently by its strong fourth-quarter results that were marked by better-than-expected operating margins.

    The company also has tried to stay relevant through acquisitions. In 2011, Fiserv snapped up mobile banking company M-Com and digital payments outfit CashEdge, which gave it Popmoney, a bank-based person-to-person payments system for participating institutions that has helped drive sales growth. The company in 2013 announced that it acquired Open Solutions, giving it real-time account-processing technology.

    “You don’t need a new product every day,” Biggar said, “but you need something fairly significant every 2-3 years that would have its own sort of life cycle.”

    Last month, Fiserv said the United Nations Federal Credit Union for U.N. employees, among the largest in the U.S. by assets, will begin using Fiserv’s core account-processing technology. Analysts say the Federal Reserve’s rate hike in December could help strengthen banks’ finances, potentially freeing up cash for their technology budgets.

    “We view the Fed rate increase for the first time in a decade as good news for banks and a way to help fund needed increases in IT spend, as institutions look for ways to keep up with the broad changes across the technology landscape,” CEO Yabuki said on the company’s fourth-quarter earnings call last month.

    Outsourcing Limits?

    Some concern persists that Fiserv could make less money if consolidation continues within the banking industry, either due to tightening regulations or an event like the 2008 financial crisis. Mergers and acquisitions could reduce client count and give those bigger, combined companies more muscle in negotiating cheaper contract prices with companies like Fiserv.

    However, the reduction in clients hasn’t materialized, Veytsman said, and the prospect of more banks bringing tech operations in-house seems unlikely. Fiserv counts Wells Fargo (WFC) among its big clients, potentially signaling a stronger shift to outsourcing among larger banks.

    Monness Crespi’s Veytsman said consolidation could actually accelerate the trend of tech outsourcing.

    “When they consolidate they also look to see what’s happening with the bottom line and what they’re doing around the costs,” he said. “And if someone was not considering using Fiserv as a client, maybe together, they will.”

    Yabuki sees consolidation continuing, but stressed that the number of accounts and transactions has kept rising for the company.

    Foreign exchange amid a stronger dollar could also hurt the company, although its international exposure is limited, Veytsman said. Jack Henry & Associates and FIS are among the company’s primary competitors. Concern also lingers about Fiserv’s debt, although Yabuki cites the company’s $1-billion-plus free cash flow last year.

    Still, both Biggar and Veytsman say the company’s acquisitions have been relatively focused and restrained.

    And one might be forgiven for wondering whether a person-to-person service like Popmoney can compete with PayPal’s (PYPL) Venmo, or payment-tech offerings from Facebook (FB), Alphabet (GOOGL) and, potentially, Apple (AAPL).

    However, Yabuki said P2P was in the early innings. And Veytsman said Popmoney is intended more as a side dish in its offerings to midcap banks than a main course.

    “It’s very hard to challenge PayPal,” he said.

  • Morning News: March 2, 2016
    , March 2nd, 2016 at 7:10 am

    South Korea’s Output Drops More Than Estimates as Exports Slump

    How Can Brazil Restore Its Growth Trajectory?

    Molotovs and Death Threats: Russian Debt Collectors Go Medieval

    Shale Oil Isn’t Saudi Arabia’s Only Nemesis

    Shell Proves Test Case For Oil Majors’ Environmental Records

    What Super Tuesday’s Victories Mean for Wall Street Now

    Forbes Outs World’s Billionaires List

    AB InBev Reaches Deal for Sale of SABMiller’s Chinese Beer Business

    Sports Authority Files Bankruptcy After Missing Fitness Boom

    Mark Pincus, Founder of Zynga, Is Replaced as C.E.O. Again

    Honeywell Saved By United Technologies

    Qualcomm Settles SEC Charges That It Repeatedly Bribed Chinese Officials To Gain An Edge

    Former Chesapeake CEO McClendon Charged With Bid-Rigging of Land Leases

    Jeff Carter: How Can the U.S. Win the Corporate Tax Battle?

    Joshua Brown: Warren Buffett Said Everything on CNBC

    Be sure to follow me on Twitter.

  • Ross Stores Earns 66 Cents per Share
    , March 1st, 2016 at 4:10 pm

    Ross Stores (ROST) just released its fiscal Q4 earnings. For November, December and January, the discounter earned 66 cents per share. Sales rose 6% to $264 million, and same-store sales rose 4%.

    Barbara Rentler, Chief Executive Officer, commented, “We are pleased with our sales and earnings results for the fourth quarter, which exceeded our expectations despite the highly promotional holiday selling environment and our most challenging sales comparisons from the prior year. These results were driven by the competitive values we offered on a wide assortment of name brand bargains and gifts throughout our stores.”

    Ms. Rentler continued, “Fourth quarter operating margin was 12.7% compared to 13.1% in the prior year, as higher merchandise margin and tight expense control were more than offset by the timing of packaway-related costs. For the 2015 fiscal year however, operating margin rose 10 basis points to a record 13.6%.”

    For the year, Ross earned $2.51 per share. Net sales rose 8%, and same-store sales rose 4%.

    Ross is also raising its quarterly dividend by 15% to 13.5 cents per share. The previous dividend was 11.75 cents per share.

  • February ISM Rises to 49.5
    , March 1st, 2016 at 10:20 am

    More encouraging news. The February ISM Index rose to 49.5. This is the second straight monthly gain for an index that hasn’t done well over the last 18 months.

    A reading above 50 means the manufacturing sector is expanding while below means it’s contracting. This is the fifth report in a row below 50, but it appears we may be in an upward trend.

    Also, the Commerce Department said that construction spending rose by 1.5% in January. That’s the biggest increase since October 2007.

  • Ford Jumps on Strong February Sales
    , March 1st, 2016 at 9:39 am

    It’s still early but Ford Motor (F) is having a nice morning. The stock has been up as much as 4% today, and it broke above $13 per share.

    The company just reported its best February sales in 11 years.

    Ford Motor Company’s U.S. sales were up 20 percent in February versus a year ago with 217,192 vehicles sold. Retail sales grew 11 percent – the company’s best February since 2005.

    Retail sales gains came across the product portfolio. Cars gained 6 percent, trucks increased 5 percent, and SUVs were up 22 percent.

    Ford SUV sales last month – the best February in company history – totaled 65,016 vehicles, up 28 percent versus a year ago. Edge jumped 91 percent, Explorer was up 18 percent and Escape gained 14 percent.

    F-Series sales were strong, too, with 60,697 vehicles sold – a 10-percent increase – marking Ford’s best February for F-Series in a decade.

    “We saw a solid industry last month and a strong month for Ford, as customer demand for our newest vehicles – including new high-end series on Explorer and Edge – helped Ford increase its average transaction prices at almost double the industry average,” said Mark LaNeve, Ford vice president, U.S. Marketing, Sales and Service. “Offering more high-end options for truck and SUV customers and having the capability fleet buyers value as they are reinvesting in their fleets are strengthening our business.”