Archive for October, 2016

  • Stock-Picking Strikes Back!
    , October 31st, 2016 at 3:16 pm

    I wanted to highlight a few bits from this Bloomberg piece. Correlations within the S&P 500 have fallen from very high levels. At the same time, active managers have rebounded relative to their benchmarks.

    But while the benchmark gauge churns, stocks within it have gotten more lively. A measure of 30-day realized correlation among S&P 500 constituents has eased 34 percent since reaching a four-year high in October 2015, according to data compiled by Bloomberg.

    Active managers have reaped benefits. According to Bank of America Corp., the proportion of large-cap funds beating their benchmarks reached 58 percent in the third quarter, compared with 18 percent in first six months. That marked the best period since the second quarter of 2015, and the second-best since the start of 2009.

    Among growth funds, 71 percent exceeded returns on the Russell 1000 Growth Index, while 63 percent of value investors beat their benchmark. It was the most since 2013 for both groups.

    (…)

    Fund managers are currently holding 5.8 percent of their portfolios in cash, the most since the period after the Sept. 11, 2001, terrorist attacks, according to a survey conducted by Bank of America Corp. The level was matched in July after the U.K. voted to leave the European Union.

  • P/E Ratio of Healthcare Stocks
    , October 31st, 2016 at 11:31 am

    I thought this was a fascinating chart. It shows the P/E Ratio of Healthcare stocks (blue) compared with the P/E Ratio of the S&P 500 (red).

    sc10312016b

  • Personal Spending Rose 0.5% in September
    , October 31st, 2016 at 11:19 am

    This morning, the government reported that personal spending rose 0.5% in September. That’s a pretty good number. Personal income rose by 0.3%. Economists had been expecting increases of 0.4% for both.

    Consumer spending accounts for about two-thirds of total output in the U.S. and household outlays have been the main driver of economic growth throughout most of the expansion. But Americans had appeared more cautious in recent months amid declining confidence in the economy.

    In the third quarter of the year, personal-consumption expenditures rose at a 2.1% pace, down from 4.3% during the prior period, according to separate data released last week. The University of Michigan’s consumer sentiment index, meanwhile, matched a two-year low in October.

    Here’s personal spending (PCE) going back a few years:

  • Morning News: October 31, 2016
    , October 31st, 2016 at 6:25 am

    World Shares Mostly Lower as FBI Probe Raises US Uncertainty

    EU, Canada Finally Sign Groundbreaking Trade Deal

    Bob Doll Says October’s Bond Rout Means U.S. Economy Improving

    GE Nears Deal to Combine Oil-and-Gas Business With Baker Hughes

    Legoland Becomes First Brick in Dubai’s Southern Expansion

    Coke Ginger Designed To Tempt Health-Conscious Australians With New Infusion

    Japan’s Largest Shipping Firms to Merge Container Operations

    Honda Net Profit Jumps as Company Shows Signs of Rebound

    Sony Cuts Forecast on Impairment for Sale of Battery Unit

    No One Saw Tesla’s Solar Roof Coming

    Qualcomm Appears To Have Overpaid For NXP

    Chevron’s Financials Signal A Turning Point

    Media’s Odd Couple: Proudly Freewheeling HBO and Buttoned-Up AT&T

    Howard Lindzon: Twenty Minute VC Interview

    Cullen Roche: Obama’s Great Economic Blunder

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  • The FBI News….
    , October 28th, 2016 at 3:02 pm

    You can always tell by looking at traders. The news of the FBI investigation broke at 1 pm here in the east.

    big10282016w

  • Q3 GDP Grew by 2.9%
    , October 28th, 2016 at 9:00 am

    Today we got our first look at Q3 GDP. The government said the economy grew in real terms by 2.9% during the third three months of the year. That’s the best growth rate in two years.

    Still, this has been a very weak recovery in historical terms.

    Here’s a look at quarterly growth rates.

  • CWS Market Review – October 28, 2016
    , October 28th, 2016 at 7:08 am

    “They say you never go broke taking profits. No, you don’t. But neither do
    you grow rich taking a four-point profit in a bull market.” – Jesse Livermore

    This week’s CWS Market Review will be all about earnings. Nine of our 20 Buy List stocks reported earnings this week. Most were pretty good, but not all. In this week’s issue, I’ll discuss all of them. Plus, I’ll preview one more Buy List earnings report coming this week.

    I also have several new Buy Below prices for you. Please note that many of the new Buy Below prices are downward adjustments. That doesn’t mean I’m any less confident about the stocks. It simply reflects each stock’s most recent price action.

    big10282016

    Despite all the earnings news this week, the stock market as a whole has been fairly tame (see above). We’ve now gone 12 straight days without a daily move of more than 0.62%. For 79 straight days, the S&P 500 has closed in the 2100s.

    Earnings from Wabtec, Express Scripts and CR Bard

    Before I get to this week’s earnings, I want to mention Microsoft (MSFT). Last week, the software giant reported very good earnings. On Friday, after the newsletter came out, the stock gapped up to $61 per share, which was an all-time high. This is a good example of a stock that was clearly a good buy, but the market wasn’t waking up to that fact. It takes time, but the market eventually sees the truth. Microsoft remains a buy up to $63 per share.

    On Tuesday, three of our Buy List stocks reported earnings. Wabtec (WAB) was the first, and so far, only earnings miss. The rail-services company earned 94 cents per share, which was five cents below estimates.

    Wabtec also lowered its full-year forecast again. The previous range was $4 to $4.20 per share. They now expect full-year earnings of $4 to $4.04 per share.

    Raymond T. Betler, Wabtec’s president and chief executive officer, said: “Our transit business continues to perform well, while the freight markets remain challenging due to overall rail-industry conditions and the sluggish global economy. We have continued to focus on controlling what we can by aggressively reducing costs, generating cash and investing in our growth opportunities, including acquisitions. At the same time, we are progressing toward completion of the Faiveley Transport acquisition and remain excited by its growth and improvement opportunities.”

    The company’s freight group is struggling, and that’s largely behind the disappointing numbers. Still, their cash flow numbers are decent. On Wednesday, the DOJ said that Wabtec will have to divest Faiveley Transport North America’s entire U.S. freight-car brakes business in order to complete its buyout of Faiveley. That shouldn’t be a problem. WAB is a good company in a tough time for its business. This week, I’m lowering my Buy Below on Wabtec to $82 per share.

    After Tuesday’s closing bell, Express Scripts (ESRX) reported Q3 earnings of $1.74 per share. That matched Wall Street’s estimate on the nose. The company had previously given us a range of $1.72 to $1.76 per share.

    Now for guidance. Express narrowed its full-year range from $6.33 to $6.43 per share to $6.36 to $6.42 per share. That translates to Q4 earnings of $1.84 to $1.90 per share. Wall Street had been expecting $1.85 per share. Overall, this was a good quarter for ESRX.

    “The healthcare industry demands that we stay ahead of future trends and deliver solutions to emerging issues facing today’s market,” said Tim Wentworth, CEO and President. “Doing so deepens the trusted relationships we have built with our clients, resulting in another strong year in terms of client retention and new sales.”

    Express also narrowed its expected retention rate for next year from 96% – 98% to 97% – 98%. It sounds minor, but it’s very good to see. The stock was largely unmoved by the earnings report.

    For the most part, the company is doing well, but the stock has lagged this year. Express is also dealing with an unpleasant legal mess with Anthem. It’s too early to say how that will turn out, but I still like ESRX. I’m lowering our Buy Below on Express Scripts down to $74 per share.

    I was on CNBC last week, and Brian Sullivan asked me what stock looked to beat earnings. I said I thought medical devices company CR Bard (BCR) was a top candidate to beat the Street. The company had given a range for Q3 of $2.51 to $2.55 per share. I said that was too low. I also said that Bard would guide higher for the rest of the year.

    Bard reported on Tuesday, and it turns out, I was right. The company earned $2.64 per share for Q3. That’s up 16% from last year, and it easily topped Wall Street’s estimate of $2.56 per share.

    Timothy M. Ring, chairman and chief executive officer, commented, “The results this quarter demonstrate the continued strength of the economic engine of our business. We continue to increase investments in geographies, products, platforms, and programs that we believe can drive revenue growth longer term. During this period of increased investment in 2016, we have also been able to deliver attractive bottom-line returns for shareholders. We have increased our full-year financial guidance every quarter this year, and we are doing so again today. We expect a strong finish to what has been a very strong year for us so far.”

    Bard now expects full-year sales growth of 8% to 9%. Excluding currency, that’s 9% to 10%. I was also right on guidance. For earnings, Bard sees profits ranging between $10.23 and $10.28 per share. That’s an increase on the previous range of $10.10 to $10.20 per share. Wall Street had been expecting $10.17 per share.

    Bard’s new range implies Q4 guidance of $2.70 to $2.75 per share. Wall Street had been expecting $2.74 per share. This was an excellent quarter for Bard.

    With the stock action, I wasn’t quite so prescient. Bard did rise on Wednesday: at one point it was up 2.5%. But that didn’t last long. Soon enough, the shares drifted back to $210. I’m not worried at all about Bard, but I’m dropping my Buy Below to $217 per share.

    Earnings from Fiserv and Biogen

    On Wednesday, we got earnings from Biogen and Fiserv. I’m pleased to say that Biogen (BIIB) creamed estimates. The biotech stock reported Q3 earnings of $5.19 per share. That beat the Street’s consensus by 22 cents per share.

    All across the board, Biogen had a very good quarter. Last quarter, their star drug, Tecfidera, had sales growth of 10% to just over $1 billion.

    Chief Executive George Scangos announced in July he would be leaving, allowing a new chief to lead the company as it works to reignite growth. The biotechnology giant has also drawn takeover interest from drug companies such as Merck Co. and Allergan PLC, The Wall Street Journal reported in August.

    Over all for the third quarter, Biogen reported a profit of $1.03 billion, or $4.71 a share, up from $965.6 million, or $4.15 a share, a year earlier. Excluding the restructuring charges, among other items, per-share earnings rose to $5.19 from $4.48.

    Total revenue rose 6% to $2.96 billion. Analysts had projected adjusted earnings of $4.97 a share on sales of $2.91 billion, according to Thomson Reuters.

    Remember that Biogen is planning to spin off its hemophilia business. The new company will be called Bioverative. (Yuck, who names these?) The spinoff will probably happen sometime early next year. I’m lowering my Buy Below on Biogen to $310 per share.

    After the closing bell, Fiserv (FISV) reported Q3 earnings of $1.14 per share. That was one penny more than expectations. Fiserv is about as consistent as they get.

    The financial-services company saw its revenue grow by 5%. Last quarter, earnings-per-share rose 11%, and they’re up 15% for the year. Operating margins dropped a bit to 32.8%. Free cash flow rose 12% to $747 million.

    ”Strong operating performance in the quarter drove double-digit adjusted earnings-per-share growth and excellent free cash flow,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Outstanding sales results in the quarter should provide additional market momentum and growth.”

    For all of 2016, Fiserv expects EPS between $4.43 and $4.46. That means Q4 EPS between $1.15 and $1.18. Wall Street had been expecting $1.16.

    Yabuki said, “We continue to expect strong operating results despite a slight shortfall in revenue growth for the year. We anticipate revenue growth to accelerate in the fourth quarter and into 2017.”

    The shares took a small hit after the earnings report, but I still like Fiserv a lot. I’m lowering my Buy Below to $105 per share.

    Earnings from Ford Motor, AFLAC, Stryker and Stericycle

    Now on to Thursday and four more Buy List earnings reports. Before the opening bell, Ford Motor (F) reported Q3 earnings of 26 cents per share. That was six cents more than consensus.

    Ford’s earnings were down a lot from last year’s Q3, but investors had been expecting that, and the results a year ago were very strong. Ford’s quarterly revenues fell 6% and, more troubling, operating margins fell to 8.4%.

    F-150 sales were pretty good, but a lot of those sales were to fleet buyers which tend to be less profitable. Frankly, this was a difficult quarter for Ford. The company spent a lot of time and money adjusting itself to much higher gas prices. Now that oil is still well below its high, consumers have gravitated to GM’s SUVs. I’m dropping my Buy Below on Ford to $13 per share.

    After Thursday’s bell, AFLAC (AFL) said it earned $1.82 in operating earnings for Q3. That was eight cents more than estimates. The duck stock had given us a huge range of $1.58 to $1.86 per share. The stronger yen added 15 cents per share to AFL’s results. Adjusting for currency, AFLAC’s earnings were up 7.1% from last year.

    AFLAC decided to raise its dividend from 41 to 43 cents per share. This is their 34th-consecutive dividend increase. The new payout gives the shares a yield of 2.45% based on Thursday’s close.

    AFLAC said that if the yen averages 100 to 110 to the dollar for Q4, then they expect Q4 earnings between $1.53 and $1.82 per share. That would bring their full-year earnings to a range of $6.78 to $7.07 per share. AFLAC made $6.16 per share last year. AFLAC remains a solid buy up to $75 per share.

    Stryker (SYK) said they earned $1.39 per share for Q3. That was two cents better than estimates. It was also better than the company’s own forecast of $1.33 to $1.38 per share. Quarterly revenues rose 17.1% to $2.83 billion, which also beat estimates.

    big10282016a

    This was a good quarter for Stryker. The orthopedics company felt confident enough to raise the low-end of its full-year guidance by five cents per share. They now expect 2016 earnings to range between $5.75 and $5.80 per share. That translates to Q4 results of $1.73 and $1.78 per share. The Street had been expecting $1.75 per share. I’m dropping my Buy Below price on Stryker down a tad to $119 per share.

    Stericycle (SRCL) has been a terrible stock for us this year. I’ve grown concerned with management’s use of “rollups” to mask slowing organic sales growth. Some of my concerns were assuaged a little bit by the Q3 earnings report. The waste-management company earned $1.24 per share last quarter. That beat estimates by seven cents per share. Still, organic sales rose by just 0.3%.

    “We were able to maintain consistent margin performance in the quarter despite revenue headwinds from previously discussed pricing pressure and softness in the manufacturing and industrial market,” said Charlie Alutto, President and Chief Executive Officer.

    I’m lowering my Buy Below price on Stericycle to $80 per share.

    We have one Buy List earnings report next week. On Tuesday, Cerner (CERN) is scheduled to report its results. For Q3, the health IT company sees earnings ranging between 59 and 61 cents per share.

    Cerner’s stock has been a wild ride for us this year. By early March, it was down 17%. CERN then rallied 35% by early August. Since then, it’s slowly slid back.

    Three months ago, Cerner reiterated its full-year guidance of $2.30 to $2.40 per share, but it lowered its full-year revenue guidance to $4.9 billion to $5.0 billion. The previous range was $4.9 billion to $5.1 billion.

    That’s all for now. Lots more earnings next week. We’ll also get some of the key turn-of-the-month econ reports. Personal income and spending are on Monday. The ISM report is on Tuesday. Wednesday is ADP payroll. The Fed also meets on Wednesday. I strongly doubt they’ll do anything. That leads us up to Friday and the big jobs report. 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 28, 2016
    , October 28th, 2016 at 7:02 am

    RBS Warns on Profit Outlook After Trading Unit Boosts Revenue

    Broadband Providers Will Need Permission to Collect Private Data

    Wall Street’s Frantic Push to Hire Coders

    UPS Puts $5.3 Billion in Air Power Behind Overseas Expansion

    Alphabet Delivers a Resounding Beat

    Amazon Takes Hit as Costs Surge

    Toyota Invests In U.S. Car-Sharing Service

    Xerox’s Quarterly Revenue Falls Nearly 3%

    More Wretched News For Newspapers as Advertising Woes Drive Anxiety

    General Electric Pursues Deal With Baker Hughes

    Sharpie-Maker Newell Lifts Full-Year Profit, Sales Forecasts

    Booz Allen Is Reviewing Its Security After the Arrest of Another NSA Contractor

    U.S. Takes Down Call-Center Financial Scam

    Howard Lindzon: Google Cuts Fiber…a Sad Day in American Technology History

    Jeff Carter: What Is The One True Thing You Know?

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  • Morning News: October 27, 2016
    , October 27th, 2016 at 7:42 am

    China’s Slowing Industrial Profits Show Rising Debt Hampering Economy

    U.K. Economy Wins Round One of Brexit Before Real Test Begins

    Did Brexit Kill the British IPO Market?

    Deutsche Bank Warns of Tough Times Ahead Due To U.S. Fine

    Nissan Commits to Build New Models in Britain, Securing 7,000 Jobs

    Ford Profit Falls Less Than Forecast Aided by Cost Controls

    Twitter Beats Revenue, User Estimates and Cuts 9% of Workforce

    China Logistics Company Raises $1.4 Billion in U.S. IPO

    Qualcomm to Buy NXP Semiconductors For About $47 Billion Including Debt

    VW Brand’s Massive Slump in Profit Sparks More Calls for Cost Cuts

    Here’s The Big Problem Some Analysts Have With Tesla’s Results

    Barclays Posts 35% Jump in Profit on Bond-Trading Revenue

    AT&T Needs the Time Warner Content Factory to Survive

    Cullen Roche: The Pitfalls of the Passive Investing Marketing Pitch

    Jeff Miller: Things I Don’t Care About — And Neither Should You!!

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  • Fiserv Earned $1.14 per Share
    , October 26th, 2016 at 4:09 pm

    After the closing bell, Fiserv (FISV) reported Q3 earnings of $1.14 per share, one penny more than expectations.

    ”Strong operating performance in the quarter drove double-digit adjusted earnings per share growth and excellent free cash flow,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Outstanding sales results in the quarter should provide additional market momentum and growth.”

    Here are some highlights:

    • Adjusted revenue increased 5 percent in both the third quarter and first nine months to $1.31 billion and $3.86 billion, respectively, compared to the prior year periods.

    • Internal revenue growth for the company was 4 percent in the third quarter, driven by 5 percent growth in the Payments segment and 2 percent growth in the Financial segment.

    • Internal revenue growth for the company was 4 percent in the first nine months of 2016, led by 6 percent growth in the Payments segment and 1 percent growth in the Financial segment.

    • Adjusted earnings per share increased 11 percent in the third quarter to $1.14 and 15 percent in the first nine months of 2016 to $3.28 compared to the prior year periods.

    • Adjusted operating margin decreased 30 basis points to 32.8 percent in the quarter and increased 20 basis points to 32.2 percent in the first nine months compared to the prior year periods.

    • Free cash flow increased 12 percent to $747 million in the first nine months of 2016 compared to the prior year period.

    • Sales performance increased 34 percent in the quarter and 21 percent in the first nine months of 2016 compared to the prior year periods.

    • The company repurchased 3.1 million shares of common stock for $329 million in the third quarter and 9.3 million shares of common stock for $933 million in the first nine months of 2016. As of September 30, 2016, the company had 8.1 million remaining shares authorized for repurchase.

    For all of 2016, Fiserv expects EPS between $4.43 and $4.46. That means Q4 EPS between $1.15 and $1.18. Wall Street had been expecting $1.16.

    “We continue to expect strong operating results despite a slight shortfall in revenue growth for the year. We anticipate revenue growth to accelerate in the fourth quarter and into 2017,” said Yabuki.