Archive for January, 2017

• Volatility Now Versus the Summer
  Eddy Elfenbein, January 23rd, 2017 at 11:32 am

  It’s hard to describe how low the market’s volatility is. Here’s another way to see it. This is the daily changes of the S&P 500 over the last 24 days compared with a 24-day stretch from the middle of last year. I’ve used the same vertical axes.

  Here’s last summer:

  

  And this is now:

  

• FLOTUS and AFLAC
  Eddy Elfenbein, January 23rd, 2017 at 11:18 am

  Here’s an ad from one of our Buy List stocks featuring the new First Lady of the United States:

• Morning News: January 23, 2017
  Eddy Elfenbein, January 23rd, 2017 at 7:04 am

  Chinese Banks Told To Issue Dollar-Denominated Debt-Sources

  Japan’s PM Says Will Keep Seeking Trump’s Understanding on TPP

  OPEC and Friends Agree on Way to Monitor Oil Cut to End Glut

  Kuwait State Oil Company Says Onshore Oil Leak Contained

  Chevron Slams Canadian Backdoor in $9.5 Billion Pollution Fight

  The Rising Risk of Central Bank Instability

  HUD Suspends FHA Mortgage Insurance Rate Cut An Hour After Trump Takes Office

  Retail Malaise Puts Pressure on Chains to Shutter More Stores

  AIG to Pay Buffett’s Berkshire About $10 Billion In Insurance Deal

  Xiaomi, Chinese Phone Maker, Losing Its Global Face as Hugo Barra Exits

  Apple-Supplier Foxconn Weighs $7 Billion U.S. Display Plant

  Japan’s First Jet Delayed Again Raising Concerns About New Sales

  Snapchat Discover Takes a Hard Line on Misleading and Explicit Images

  Jeff Miller: Will Policy Uncertainty Increase Stock Volatility?

  Howard Lindzon: Post Alt Fact World

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• CWS Market Review – January 20, 2017
  Eddy Elfenbein, January 20th, 2017 at 7:08 am

  “Obama’s Radicalism Is Killing the Dow” – WSJ, 13,000 Dow Points Ago

  Dear Lord, this has been a dull, dull, dull market. The S&P 500 has now gone six weeks without having a single daily move, up or down, of more than 1%. Compare that to last summer, when we had six straight days of moves greater than 1%.

  The Trump Rally has apparently given way to the Ambien market. Folks, Wall Street is fast asleep. Here’s a stat for you: Since December 12, the Dow has closed every single day within a range of 230 points. That’s a little over 1%. You can expect that kind of range for one day, but over a month?

  

  Things may change soon. Fourth-quarter earnings season is under way, and we’ve already had our first Buy List earnings report. Signature Bank beat consensus estimates by two cents per share. This bank has had a phenomenal rally since the election, but, like everybody else, it’s chilled out. I’ll go over the earnings report in a bit.

  I’ll also preview the five earnings reports coming our way next week. But first, let’s look at why the Ambien market may not last, and why I’m cautious about stocks over the next few weeks.

  Expect a Rougher Market This Winter

  The new president is going to be sworn in in a few hours. Whenever there’s a new president, you’ll hear lots of breathless commentary about how he’ll ruin or save Wall Street. I tend to shy away from these predictions (see this week’s epigram). As Warren Buffett said, forecasts tell you more about the forecaster than they do about the future.

  Having said that, I think the market is looking tired right now. The Dow ran into 20,000 and could go no further. Let me be clear: I’m hardly forecasting doom. Rather, I think some minor pullbacks are in order over the next few weeks. Nothing to be too concerned about. In fact, I would expect our stocks to weather any storm better than the overall market.

  This is a key moment for the economy. Next week, we’re going to get our first look at the fourth-quarter GDP report, and I think it will be a good one. The report for Q3 was 3.5%, but here’s the thing—the U.S. economy has had a difficult time stringing together two or three good quarters in a row. I think this is our best chance to break that.

  This week, for example, we learned that industrial production grew by 0.8% last month. That’s quite good. That beat expectations, and it was the biggest increase in more than two years.

  We also got another CPI report telling us that inflation is well contained. The news reports noted that inflation rose by 2.1% last year, which was the largest increase in five years. Well, yes, that’s correct, but it glides over the fact that we came close to deflation over those five years. So this year, inflation has climbed all the way to “low.” This is another reason I doubt the Fed will raise interest rates three times this year.

  

  This week’s Fed’s Beige Book said that labor markets are getting “tight.” That’s econo-talk for “workers want more money.” They may get it. The initial claims report came within a whisker of touching its lowest point since the Nixon administration. Plus, last Friday, the Census Bureau released a decent retail-sales report for December. On Wednesday, Janet Yellen said the economy is close to full employment.

  I prefer to listen to the market’s opinion over that of economists, and I’m pleased to see the bond market pull back some. It shouldn’t be too easy for bond investors to outpace stock investors. The bond folks need to be kept on their toes. The 10-year yield got up to 2.5% this week. That’s about double the yield from six months ago. This is part of an ongoing rotation as money leaves safe assets and is gradually finding a home in riskier ones. That could be a major theme this year.

  Now let’s look at our first Buy List earnings report for Q4.

  Signature Bank Earned $2.11 Per Share

  On Thursday, before the opening bell, Signature Bank (SBNY) reported Q4 earnings of $2.11 per share. That was two cents more than Wall Street’s consensus. Overall, this was another good quarter for Signature.

  For the year, the bank earned $7.37 per share. That was only 10 cents more than 2015’s total, but remember that they took a 70-cent charge in Q3 related to their medallion loans. Still, they were to top 2015’s result, which made 2016 their ninth record year in a row. The numbers for last year were pretty impressive. Total deposits grew 19% on the year. The key stat I like to watch is net interest margin, and that came in at 3.30%. That’s quite good.

  

  I was also pleased to see Signature improve its fiscal condition this year by raising money from the capital markets. They had a common stock offering that brought in $320 million, plus a debt offering that took in $260 million.

  Signature Bank Chairman of the Board Scott A. Shay, noted: “Signature Bank has produced yet another record year of earnings and solid financial performance. We are proud that — even from the depths of the financial crisis — we maintained a rapid growth pace while remaining a pillar of strength for our clients during those uncertain times.

  “As the Bank continues to grow, we retain our strong discipline and follow the hedgehog theory of business – doing a few things, but doing each of them very well. In our case, that means maintaining our unrelenting commitment to depositor safety and service and conservative lending posture. We look forward to the New Year and to embracing many opportunities as we have built a platform poised to serve an expanding roster of clients,” Shay concluded.

  Shares of SBNY weren’t doing much until the election. Then, out of the blue, the stock jumped 21% in four days. It’s always interesting how stocks can suddenly rally right about when you’ve given them up for dead. Once SBNY got to $150 per share, the rally started to peter out, and that’s about where the stock is today. I continue to rate Signature a buy up to $165 per share.

  Next Week’s Buy List Earnings Reports

  Stryker (SYK) is due to report its Q4 earnings on Tuesday, January 24. The orthopedics company had a good earnings report in October. In fact, they felt confident enough to raise the low-end of their full-year guidance by five cents per share. Stryker now expects 2016 earnings to range between $5.75 and $5.80 per share. That translates to Q4 results of $1.73 to $1.78 per share.

  I’ll be curious to hear their forecast for 2017. Wall Street expects $6.39 per share. I suspect Stryker will offer conservative guidance.

  Just a reminder that one year ago, Stryker said to expect 2016 earnings of $5.50 and $5.70 per share, and they’ll clear that with room to spare. This is why we like high-quality stocks. Here’s the annual EPS trend for Stryker: $2.95, $3.33, $3.72, $4.07, $4.23, $4.73, $5.12, and $5.75 to $5.80 for last year. That’s very impressive.

  On Tuesday of this week, Alliance Data Systems (ADS) said it stands by its 2016 FY forecast of $16.90 per share in core earnings on revenue of $7.2 billion. That translates to Q4 guidance of $1.9 billion in revenue and core EPS of $4.64. My numbers say that sounds about right. ADS will report its earnings on Thursday, January 26.

  CR Bard (BCR) has enjoyed a few upgrades recently from Wall Street. I started to get very bullish on this stock during the fall. On CNBC, they asked me for a candidate to beat earnings for Q3, and I said CR Bard. The company gave guidance of $2.51 to $2.55 per share, and I said that was too low. I was right. Bard made $2.64 per share, but the stock didn’t start to rally until last month.

  Bard also increased their 2016 EPS range to $10.23 – $10.28 per share. That implies Q4 earnings of $2.70 to $2.75 per share. Keep an eye on my $230 Buy Below price. Don’t chase BCR. I’ll raise my Buy Below if the numbers are strong.

  Microsoft (MSFT) also reports on Thursday. Not much to add about the software giant. The company has been churning out very good earnings. They beat the Street three months ago by eight cents per share. The consensus on Wall Street is for 78 cents per share. The stock has had a very good run over the last six months.

  Sherwin-Williams (SHW) is one of our new stocks this year. The company gave a Q4 range of $2.13 to $2.23 per share; Wall Street expects $2.21.

  Buy List Updates

  Good news for Moody’s (MCO). The credit-ratings agency has agreed to pay $864 million to settle with the government over its ratings leading up to the financial crisis. The agreement calls for Moody’s to pay $437.5 million to DOJ and $426.3 million to the states. The news helped the stock bounce above $100 per share, despite being downgraded by UBS and Barclays last week.

  Barclays struck again. This time, they downgraded Cerner (CERN). Interestingly, Cerner was one of our worst-performing stocks last year, and it’s our best so far this year. Weird how that happens! Earnings are due out on February 9.

  SunTrust initiated coverage on HEICO (HEI) with a buy rating and a price target of $85. Also, Institutional Investors named HEICO’s CEO, Laurans Mendelson, the best CEO in defense/aerospace.

  Deutsche Bank initiated coverage on Danaher (DHR) with a Buy rating. They gave the stock a price target of $88 per share.

  That’s all for now. The news next week will probably be dominated by earnings news, but there will be some key economic reports. The most important will be the first look at Q4 GDP. Growth for Q3 was 3.5%, but we’ve had a lot of difficulty getting two good quarters back to back. Let’s see if we can do it this time. 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: January 20, 2017
  Eddy Elfenbein, January 20th, 2017 at 6:00 am

  Davos Elites See an `Abyss’: The Populist Surge Upending the Status Quo

  China’s Growth in 2016 Slumps as Trump Trade Struggle Looms

  Trump’s Dollar Confusion

  Yellen Backs Gradual Rate Rises as Fed Not Behind the Curve

  Steven Mnuchin, Treasury Nominee, Failed to Disclose $100 Million in Assets

  Soros Says Markets to Slump With Trump, EU Faces Disintegration

  IBM Posts Earnings Beat In Q4 And Raises Guidance For 2017, But Stock Plunges

  Netflix Beats Subscriber Count Target By 36% As Growth Strategy Pays Off

  Uber to Pay $20 Million to Settle FTC Charges on Earnings Claims for Drivers

  Heineken in Discussions With Kirin to Double Down in Brazil

  Telecommunications Company Avaya Files for Bankruptcy

  Robot Crop Pickers Limit Loss of U.S. Farm Workers to Trump Wall

  ChemChina Seeks U.S. Anti-Trust Approval for Syngenta Deal

  Josh Brown: QOTD: Bob Shiller on the Trump Illusion

  Jeff Carter: Venture Capital Is The Red Headed Stepchild, But It Shouldn’t Be

  Be sure to follow me on Twitter.

• United States Lime & Minerals
  Eddy Elfenbein, January 19th, 2017 at 12:35 pm

  If you’ve followed me for some time, you know that I have a soft spot for small, not well-known stocks that have performed very well.

  Here’s another good example—United States Lime & Minerals (USLM).

  Fourteen years ago, USLM was going for $3 per share. Today it’s at $77. So how many analysts follow it? Zero.

  The stock has a market cap of $425 million. I also have to say that I love that name.

  So what do they do? From their website:

  United States Lime & Minerals, Inc. (“US Lime”) is a public company traded on the NASDAQ Global Market® under the symbol USLM and conducts its business through two segments:

  Lime and Limestone Operations and Natural Gas Interests.

  The Lime and Limestone Operations manufactures lime and limestone products, supplying primarily the construction (including highway, road and parking lot contractors), metals (including steel producers), environmental (including municipal sanitation and water treatement facilities and flue gas treatment), oil and gas services, industrial (including paper and glass manufacturers), roof shingle and agriculture (including poultry and cattle feed producers) industries. The company is headquartered in Dallas, Texas, and primarily serves markets in the Central United States and consists of open-pit quarries and an underground mine, plants and distributions facilities owned by US Lime’s wholly owned subsidiaries: Arkansas Lime Company, Colorado Lime Company, Texas Lime Company, U.S. Lime Company, U.S. Lime Company — Shreveport, U.S. Lime Company — St. Clair and U.S. Lime Company — Transportation.

  Through its wholly owned subsidiary, U.S. Lime Company — O & G, LLC (“U.S. Lime O & G”), under a lease agreement (the “O & G Lease”), US Lime has royalty interests ranging from 15.4% to 20% and a 20% non-operating working interest, resulting in an overall average revenue interest of 34.8%, with respect to oil and gas rights in wells drilled on approximately 3,800 acres of land located in Johnson County, Texas, in the Barnett Shale Formation. Through U. S. Lime O & G, US Lime also has a drillsite and production facility lease agreement and subsurface easement (the “Drillsite Agreement”) relating to approximately 538 acres of land contiguous to Johnson County, Texas, property. Pursuant to the Drillsite Agreement, US Lime receives a 3% royalty interest and a 12.5% non-operating working interest in any wells drilled from two pad sites located on the property.

  Not too sexy, but they make money. Don’t expect to hear a lot about this one on TV or in the newspapers. USLM is about as dull as they get. About the only time they make news is when they release their quarterly earnings, and no one seems to pay too much attention to that.

  

• Signature Bank Earned $2.11 Per Share for Q4
  Eddy Elfenbein, January 19th, 2017 at 11:57 am

  This morning, Signature Bank (SBNY) reported Q4 earnings of $2.11 per share. That was two cents more than Wall Street’s consensus. Overall, this was another good quarter for Signature.

  The bank earned $7.37 per share for the year. That was only 10 cents more than 2015’s total, but remember they took a 70-cent charge related to their medallion loans. Still, they were to top 2015’s result which made 2016 their ninth record year in a row. Total deposits grew 19% on the year. The key stat is net interest margin and that came in at 3.30%. That’s quite good.

  

  The bank also improved its fiscal condition this year by raising money from the capital markets. They had a common stock offering that brought in $320 million, plus a debt offering that took in $260 million.

  Signature Bank Chairman of the Board Scott A. Shay, noted: “Signature Bank has produced yet another record year of earnings and solid financial performance. We are proud that — even from the depths of the financial crisis — we maintained a rapid growth pace while remaining a pillar of strength for our clients during those uncertain times.

  “As the Bank continues to grow, we retain our strong disciplines and follow the hedgehog theory of business – doing a few things but doing each of them very well. In our case, that means maintaining our unrelenting commitment to depositor safety and service and conservative lending posture. We look forward to the New Year and to embracing many opportunities as we have built a platform poised to serve an expanding roster of clients,” Shay concluded.

  Shares of SBNY weren’t doing much until the election. Then the stock jumped 21% in four days. The rally started to peter out once SBNY got to $150 per share, and that’s about where the stock is today.

• Morning News: January 19, 2017
  Eddy Elfenbein, January 19th, 2017 at 6:51 am

  China Says Can Resolve Trade Disputes With New U.S. Government

  As E.C.B. Meets, Monetary Policy Faces Complications Worldwide

  May’s Speech to the 2017 World Economic Forum

  Treasury Yields Rise on Yellen’s Hawkish Tone

  A Border Adjustment Tax Threatens Disruption For U.S. And Its Neighbors

  Safran to Buy Zodiac for $10 Billion in All-French Aero Deal

  Goldman Exodus Isn’t Just About Trump

  How Deutsche Bank Made −€367 Million Disappear

  Here’s Why Netflix’s Share Price Just Hit a New All-Time High

  Australia to Welcome Back Vegemite, a Surprisingly American-Owned Spread

  JPMorgan Hit With Pair of Bias Claims in Obama’s Final Hours

  Mallinckrodt Will Pay $100 Million to Settle Price-Hike Suit

  Student Loan Collector Cheated Millions, Lawsuits Say

  Jeff Miller: Neglected Investment Ideas

  Roger Nusbaum: Tweets & Press Conferences

  Be sure to follow me on Twitter.

• Industrial Production and Inflation
  Eddy Elfenbein, January 18th, 2017 at 3:24 pm

  Two econ reports to pass along.

  The first is that the Fed said that industrial production rose by 0.8% in December. That’s a strong number. It was the best in two years.

  Manufacturing output, the biggest component of industrial production, climbed 0.2% in December, led by gains for primary metals and autos.

  Factory activity had been stagnant for much of 2016 but appears to have perked up a little in the final month of 2016. Still, a long stretch of lackluster growth left December output only 0.2% ahead of the same month a year ago.

  A separate gauge of manufacturing finished 2016 at its highest mark in two years. The Institute for Supply Management earlier this month said its purchasing managers index rose amid stronger household demand for goods and a brighter consumer outlook following November’s presidential election.

  This caused some pain for the long-end of the bond market, and I think that’s a good thing. A month ago, the 10-year yield broke above 2.6%. It’s now back around 2.4% but I’d like to see it rise again.

  At the shorter end, inflation continues to be quite tame. The government said that the CPI rose by 0.3% last month while the core rate rose by just 0.2%. For the year, the CPI rose by 2.1%. That’s the highest rate since 2011, but that’s because the other years were so low.

  With today’s CPI report we have some final numbers for 2016:
  S&P 500 +9.54%
  S&P 500 Total Return Index +11.96%
  CPI +2.07%
  Real S&P 500 +7.31%
  Real Total Return Index +9.68%

• Morning News: January 18, 2017
  Eddy Elfenbein, January 18th, 2017 at 5:47 am

  The Risks of ‘Brexit Means Brexit’

  Loonie in Hottest Streak Since 1970 as U.S. Dollar Retrenches

  Brainard Joins Fed Chorus Warning About Fiscal Stimulus Risks

  Why Trump’s Tariff Threats Get Taken So Seriously

  Treasury Pick Steven Mnuchin, Like His Would-Be Boss Donald Trump, Followed His Own Rules

  Land Rush in Permian Basin, Where Oil Is Stacked Like a Layer Cake

  Reynolds Board Accepts Increased BAT Offer of $49.4 Billion

  HPE to Acquire Data-Storage Startup SimpliVity for $650 Million in Cash

  Deutsche Bank CEO Looks to Future After Mortgages Settlement

  Restaurant Chain Chuck E. Cheese Prepares IPO

  Sears Clings to Catalog Thinking in an Online World

  Bad Behavior Database Aims to Stop Rogue Traders Before They Act

  Compounding Snowballs

  Jeff Carter: If You Don’t Understand Blockchain Or Think It Won’t Apply To You; Read This

  Howard Lindzon: The Dumb Multitasker?

  Be sure to follow me on Twitter.