Archive for May, 2016

• Who Has the Most Stable Earnings Growth?
  Eddy Elfenbein, May 19th, 2016 at 8:56 pm

  I’ve recently been digging through tons of financial data, and I was curious to see which stock had the most consistent earnings growth. By that, I mean which stock seemed to grow its earnings by roughly the same percent every year.

  I didn’t do a scientific survey but from my perusing, it seemed that the winner was Torchmark Corporation (TMK).

  Thankfully, HarvestInvestor came to the rescue and did run the numbers. HI looked at the last 20 years’ worth of data, and provided the average earnings growth, the standard deviation of that growth, and the latter divided by the former (meaning earnings variance per unit of growth).

  

  It’s interesting to see so many Buy List stocks, former Buy List stocks and members of our informal Watch List.

• Morning News: May 19, 2016
  Eddy Elfenbein, May 19th, 2016 at 7:04 am

  In Japan’s Slow Economy, Rare Price Rise Prompts Surplus of Remorse

  Now or Later? Eurozone, IMF at Odds Over When Greece Should Get Debt Relief

  Fed Puts June Rate Increase on Table Provided Economy Says Go

  Feds Want to Ensure Coal Companies Can Clean Up Land They Damage

  Oil Drops Below $48 on Fed Hike Speculation, Fading Support From Outages

  Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance

  Deal Still Possible in Colombia – Novartis Cancer Drug Talks

  Technip to Merge With FMC in $13 Billion Oil-Service Company

  Google Appeals French Privacy Ruling

  Goldman Says Tesla Won’t Come Close to Target, But Rates It a ‘Buy’ Anyway

  Deutsche Bank Aims to Stanch Legal Costs This Year

  How Wall Street Led LendingClub Into Crisis

  Wal-Mart Profit Beats Expectations; U.S. Sales Up

  Jeff Carter: The Business Blockchain

  Roger Nusbaum: The New Asset Allocation Standard?

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• Stocks Drop on Fed Minutes
  Eddy Elfenbein, May 18th, 2016 at 2:36 pm

  The S&P 500 has lost about 25 points in the last 45 minutes. According to the latest Fed minutes, the Fed is considering raising rates next month. In my opinion, that would be a big mistake.

  The unusually frank bulletin was delivered in the official account of the Fed’s April meeting, which said explicitly that most officials thought “it likely would be appropriate” to raise rates in June if the economy has rebounded from a weak winter.

  That message is sharply at odds with the expectations of investors, who have largely written off the chances of a June increase, betting instead that the Fed would leave rates unchanged until later in the year. Measures calculated from asset prices suggested investors saw less than a 20 percent chance of a June hike before Wednesday.

  There is no certainty that the Fed will move at its meeting on June 14 and 15. The available economic data does not yet appear to show the strength that the Fed wants to see, and some officials said in April that there might not be time to gain the necessary confidence before the June meeting. But the account made clear that Fed officials want markets to take the possibility much more seriously.

  If you guessed the Fed minutes came out at 2 pm, you were correct.

  

  and the 10-year bond.

  

• Newsletter Issues
  Eddy Elfenbein, May 18th, 2016 at 11:09 am

  For some reason, it appears that some recent issues of CWS Market Review have been getting directed to spam folders. I’m not sure how or why, but if you haven’t seen your emailed issue recently, it may be in your spam folder.

• Hormel Earns 40 Cents per Share
  Eddy Elfenbein, May 18th, 2016 at 9:21 am

  This morning, Hormel Foods (HRL) reported fiscal Q2 earnings of 40 cents per share, one penny more than estimates. Revenues rose 0.9% to $2.3 billion.

  Here are some details:

  Grocery Products operating profit up 21 percent; volume down 1 percent; dollar sales up 1 percent.

  Refrigerated Foods operating profit up 13 percent; volume up 3 percent; dollar sales up 7 percent.

  Jennie-O Turkey Store operating profit up 20 percent; volume down 5 percent; dollar sales down 4 percent.

  Specialty Foods operating profit up 74 percent; volume down 2 percent; dollar sales down 5 percent.

  International & Other operating profit down 33 percent; volume down 13 percent; dollar sales down 17 percent.

  For the second time, Hormel raised its full-year guidance. The company now sees 2016 EPS coming in between $1.56 and $1.60.

  “We are raising our fiscal 2016 earnings guidance range from $1.50 to $1.56 per share to $1.56 to $1.60 per share based on strong second quarter results and continued expectations for growth in the back half of the year,” stated James P. Snee, president and chief operating officer.

  “We look for Refrigerated Foods and Grocery Products to continue driving earnings increases through growth in value-added products combined with favorable input costs,” stated Snee. “Jennie-O Turkey Store is well-positioned to drive sales and earnings growth as turkey production has returned to normalized levels.”

  “Specialty Foods will continue to deliver increased sales of MUSCLE MILK® protein products but may not show year-over-year increases in segment sales and earnings as a result of the divestiture of Diamond Crystal Brands,” added Snee. “We expect International to return to growth in the back half of fiscal 2016 led by export sales of our SPAM® family of products and SKIPPY® peanut butter.”

  “Today we announced that we have entered into a definitive agreement to acquire Justin’s, LLC, owner of the JUSTIN’S® brand and a pioneer in nut butter-based snacking,” stated Snee. “We are excited to work together with the Justin’s team to bring these great natural and organic products to even more consumers, leveraging key Hormel Foods resources to drive continued innovation and growth to this on-trend category.”

• Morning News: May 18, 2016
  Eddy Elfenbein, May 18th, 2016 at 7:14 am

  Japan’s Rebound Blunts Push for New Stimulus

  America’s Mistake Over Chinese Steel: Imposing Tariffs Just Makes Americans Poorer

  White House Increases Overtime Eligibility by Millions

  U.S. Industrial Production Jumps at Fastest Pace in More Than a Year

  Another Year of Anger for Deutsche Bank’s Investors

  Suzuki Reports Improper Fuel Economy Tests, but Denies Cheating

  Lowe’s Top Views on Comparable Sales Growth, Lifts Guidance

  Tesla Motors Is About to Face a Critical Test

  HP Hopes 3D Printers Will Revive Its Business

  To Raise or Not to Raise…Pursuing Equity Crowdfunding Under Title III

  AbbVie’s Patent Dam Springs a Leak

  Asahi Eyes U.S. Beer Expansion With $3.7 Billion War Chest

  Tencent’s Profit Jumps on Strong Revenue From Mobile Games, Advertising

  Howard Lindzon: The Death of Retail is The BIRTH of Retail

  Cullen Roche: Would Donald Trump Crash the Stock Market?

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• Could Stericycle Be Up for Sale?
  Eddy Elfenbein, May 17th, 2016 at 7:12 pm

  Jana Partners, the activist hedge fund, has announced that it has a stake in Stericycle (SRCL). They haven’t said if they want to shake things up at SRCL, at least not yet, but that’s what they’re known to do.

  The stock is down this year, which of course means it would be more attractive to a potential buyer. So is a buyout in the works?

  If Stericycle were to be pressured into exploring a sale, Waste Management could be a potential buyer. Stifel analysts reckon a tie-up between the two would be “compelling” and deliver some $100 million in synergies. Factoring in those cost savings, a deal representing a 25 percent premium to Stericycle’s current price would be immediately accretive to Waste Management’s earnings per share, regardless of the transaction’s cash-and-stock mix, according to data compiled by Bloomberg. It helps that Waste Management CEO David Steiner and CFO James Fish said on an April earnings call that the company could go after a big acquisition if it was strategic and reasonably priced.

  Last month, Stericycle said they’re forecasting full-year 2016 earnings between $4.90 and $5.05 per share. Wall Street had been expecting $5.22 per share. In my opinion, if the company can clear $5 per share this year, I think the pressure to sell would dissipate and the stock would rally.

• S&P 500 Sales and Earnings
  Eddy Elfenbein, May 17th, 2016 at 1:27 pm

  Here’s a look at the sales and earnings for the S&P 500. The sales (red line) follows the left scale and the earnings (blue) follow the right. The two lines are scaled at a ratio of 10-to-1, so whenever the lines meet, the S&P 500’s profit margin is exactly 10%.

  

  What’s interesting to note is how more pronounced the slide in earnings is compared to the drop in sales. A lot of this is due to the train wreck in the energy sector.

  You can also see how the economic recovery was driven by an expansion of profit margins. That seems to have come to an end.

• Industrial Production Finally Rises
  Eddy Elfenbein, May 17th, 2016 at 1:21 pm

  Since November 2014, industrial production has fallen steadily. There were two brief interruptions when the data series showed an increase. Today we learned that April is the third.

  The Federal Reserve said today that industrial production rose by 0.7% last month.

  Utilities drove the increase, boosting output by nearly 6% to respond to higher demand for electricity and natural gas. The Fed attributed the jump to a return to normal weather in April after a warmer-than-usual March.

  Factory output—the biggest component of overall production and a good measure of the economy’s health—grew 0.3% in April after falling by the same pace in March. Demand for big-ticket items such as machinery and cars picked up last month.

  Mining output, meanwhile, fell a sharp 2.3% last month because of persistent woes in the energy and coal sectors.

  So is this yet another false start? I suspect not. Instead, the economy is still walking along slowly. The Atlanta GDP forecast for Q2 is now up to 2.8%.

  I think it’s interesting that we see this data coming after cyclical stocks started leading the market.

  Energy stocks reached their relative performance low on January 20. The Industrials came two days later, and the Materials on January 25.

• Strongest Inflation in 38 Months
  Eddy Elfenbein, May 17th, 2016 at 9:47 am

  This morning, the government reported that the headline CPI rose by 0.4% in April. That’s the largest increase in 38 months. Wall Street had been expecting an increase of 0.3%. The big driver was gasoline prices which rose by 8.1%. Still, gas is down a lot in the last year.

  Here’s a look at the monthly increase in headline CPI.
  

  The core rate of inflation, which excludes food and energy, rose by 0.2% last month. That matched expectations. Here’s the recent trend in core. Notice the big increase in January and February:

  

  Despite the uptick in headline inflation last month, I still think the Fed’s words are overly hawkish and I don’t expect much in the way of rate increases this year.