Archive for February, 2017

  • Morning News: February 6, 2017
    , February 6th, 2017 at 6:59 am

    U.K. Business Says Brexit Already Having a Negative Effect

    German Factory Orders Surge Most Since 2014 on Investment

    China’s Factories Don’t Fear Trump

    Dodd-Frank’s Tentacles Go Deep. They Won’t Be Cut Fast or Easily

    A Trump-Cohn Financial Rewrite

    Oil Trades Near $54 as Iran Tension Offsets Rising U.S. Drilling

    Apple, Facebook and Google Say Trump’s Travel Ban Would Hurt Business

    The Rise of Snapchat from a Sexting App By Stanford Frat Bros to a $3 Billion IPO

    Toyota Braces for U.S. Trade Tension, Raises Profit Forecast

    China’s Auto Ambitions Get a Boost as Takata Picks Bidder

    China’s First Large Homemade Passenger Jet to Fly in 2017

    Electrolux Buys Anova To Tap Into Connected Products Growth

    Tiffany CEO Out After Less Than 2 Years Because of Poor Sales

    Jeff Miller: Is Market Optimism Justified?

    Jeff Carter: The Cashless Society

    Be sure to follow me on Twitter.

  • January NFP +227K, Unemployment 4.8%
    , February 3rd, 2017 at 9:32 am

    The government reported that the U.S. economy created 227,000 net new jobs last month. The unemployment rate rose to 4.8%.

  • CWS Market Review – February 3, 2017
    , February 3rd, 2017 at 7:08 am

    “Don’t gamble; take all your savings and buy some good stock and hold
    it till it goes up, then sell it. If it don’t go up, don’t buy it.” – Will Rogers

    The S&P 500 has now gone 78 days in a row without a 1% drop. That’s the longest such streak in a decade. While the market has been in a fairly calm mood, the earnings picture looks bright. So far, 73% of companies in the S&P 500 have beaten their earnings estimates this season.

    We’ve closed the books on January, and it was a good month for the market. The S&P 500 gained 1.79% last month, which is a big improvement over last January’s loss of 5%. I tend to be skeptical of these Wall Street adages, but it’s true that January has often been a harbinger for the rest of the year. Since 1950, if stocks are up in January, the following 11 months have been positive 88% of the time.

    In this week’s CWS Market Review, I’ll look at our four Buy List earnings reports from this week. Even though our stocks had good numbers, the latter didn’t always translate into gains for us. Plus, I’ll preview five more Buy List reports coming next week. But first, I want to touch on the Fed’s meeting and why the central bank won’t be doing much until this summer.

    The Federal Reserve Holds off Raising Rates

    For the last few weeks, I’ve been telling you that we have nothing to fear from the Federal Reserve. The central bankers got together again this week and decided—I hope you’re sitting down—against raising interest rates.

    True, this was hardly a surprise. Going into the meeting, the futures market put the odds of a rate increase at 4%. Still, traders wanted to see if they could get a glimpse of the Fed’s thinking for the rest of the year, or if President Trump has any plans to criticize the Fed. The Fed’s policy statement was almost an exact copy of the one from December.

    Here’s my take: The Fed could become a concern for investors at some point, but we’re still a long way from that possibility. While it’s true that the yield on the two-year Treasury has more than doubled since the summer, it’s still only at 1.2%. That ain’t exactly stiff competition for stocks.

    The Fed thinks it will have to hike rates three times this year. Let me put it this way—taking the “under” on that bet would be a wise move. At the earliest, the Fed may hike again in June. After that, the outlook gets very murky.

    The truth is that the U.S. economy continues to waddle along. Not too fast, not too slow. The January jobs report is due out later today. The NFP number for December was a little light, just 156,000. Expectations for January are for 175,000. Personally, I’m more concerned to see the wage numbers. It would be a very good sign if we saw workers taking home larger paychecks.

    Last Friday, the government said that Q4 GDP rose by 1.9%. As I said, waddling along. On Monday, the government said that in December, personal income rose by 0.3% and personal spending rose by a healthy 0.5%. I was particularly impressed with Wednesday’s report on ISM Manufacturing. The ISM for January came in at 56.0, which is the highest in more than two years. That’s also good news if U.S. factories are brimming with activity.

    I want to reiterate my near-term bearishness. I think it’s likely that we’ll see pullback in share prices over the next few weeks. Nothing to get too scared about, especially if you’re focused on the long term. As always, investors should concentrate on high-quality stocks. Now let’s take a look at our recent Buy List earnings reports.

    Danaher Is A Buy Up To $87 Per Share

    When I previewed Danaher’s (DHR) earnings in last week’s issue, I said I was “expecting to see a beat here.” I was right. On Tuesday, Danaher reported Q4 earnings of $1.05 per share. That beat estimates by two cents per share. Quarterly revenue rose 6% to $4.6 billion, and their “core revenue” was up by 3.5%. For all of 2016, DHR earned $3.61 per share, which was up 21% over 2015.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “We are very pleased with our strong fourth-quarter results, capping off a transformative year for Danaher. In 2016, the team delivered double-digit earnings growth, meaningful margin expansion, and strong free cash flow. We also executed on a number of strategically significant acquisitions during the year, including Cepheid and Phenomenex.”

    Joyce added, “We believe that the strength of our portfolio, combined with the power of DBS, provides the foundation for enhancing our growth trajectory and delivering long-term outperformance.”

    For Q1, Danaher sees earnings between 82 and 85 cents per share. For all of 2017, they forecast earnings of $3.85 to $3.95 per share. Wall Street liked those numbers, and DHR gapped up 4% on Tuesday. This week, I’m raising my Buy Below on Danaher to $87 per share.

    Also on Tuesday, AFLAC (AFL) reported soggy results for Q4. This was a surprise because the duck stock is usually very consistent. But last quarter, AFLAC had operating earnings of $1.46 per share. That was 17 cents below Wall Street’s estimate of $1.63 per share.

    I have to discuss the important issue of the exchange rate because so much of AFLAC’s business is done in Japan. For the fourth quarter, the yen/dollar exchange rate averaged 109.1. That’s 11.4% stronger (meaning lower) than Q4 of 2015. The stronger exchange rate added eight cents per share to AFLAC’s Q4 bottom line. So after we adjust for currency, their EPS fell by 6.4%.

    For the entire year, AFLAC had operating income of $6.79 per share. That’s up from $6.16 in 2015. However, the exchange rate added 34 cents per share. Adjusting for that, last year’s earnings were up by 4.7%. That’s pretty much what AFLAC told us to expect.

    CEO Dan Amos said:

    “As we look to 2017, our guidance remains unchanged since our December outlook call. Our objective is to produce stable operating earnings per diluted share of $6.40 to $6.65, assuming the average exchange rate in 2016 of 108.70 yen to the dollar. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders.”

    I like Amos a lot, and he said that his outlook is “unchanged.” Wall Street, however, was not pleased with these numbers. The stock dropped 4% on Wednesday. Let me be clear: I’m not at all worried about AFLAC. This is a very well-run firm, and the stock is going for just over 10 times this year’s earnings estimate.

    Both Snap-on and Ingredion Fall on Good Results

    We had two more earnings reports on Thursday. Both stocks beat estimates, yet both stocks fell sharply.

    For Q4, Snap-on (SNA) earned $2.47 per share. That was six cents better than Wall Street’s consensus. Revenues rose 4.5% to $889.8 million, which was also better than expectations. For all of 2016, Snap-on made $9.20 per share, compared with $8.10 per share in 2015.

    Overall, this was a solid report. But one problem is that Snap-on’s tool group only saw revenue growth of 1.5%. Apparently that was enough to spook traders as the shares dropped 7.4% on Thursday.

    I’ll be honest that I find that reaction baffling, but short-term reactions are often more about emotion than sober analysis. After all, Snap-on has been rallying well for the last four months, so perhaps some folks headed for the exits. Still, the business looks sound and I see no reason to worry.

    Also on Thursday, Ingredion (INGR) said it made $1.67 per share last quarter, which was three cents better than estimates. For all of 2016, the ingredients company made $7.13 per share. That’s a nice increase from the $5.88 per share they made in 2015. Sales came in at $1.4 billion, which was flat compared with a year ago.

    “We concluded 2016 with record earnings per share and operating income, and significant progress on our strategic blueprint. Sales of our higher-value specialty portfolio grew to 26 percent of net sales for the year, and our acquisitions of TIC Gums and Shandong Huanong Specialty Corn were completed in the fourth quarter,” said Ilene Gordon, chairman, president and chief executive officer.

    For 2017, INGR sees 2017 earnings between $7.40 and $7.80 per share (they don’t give quarterly numbers). Wall Street had been expecting $7.54 per share. Still, the stock got taken down for a loss of 8.5% on Thursday. Again, I don’t see the need for such a dramatic reaction from traders, but traders are known to play by their own rules. I still like Ingredion, but to reflect the drop, this week, I’m lowering my Buy Below on INGR to $122 per share.

    Five Buy List Earnings Reports Next Week

    We have five Buy List earnings reports coming next week. On Tuesday, February 7, Intercontinental Exchange (ICE) will report Q4 earnings. Wall Street expects 69 cents per share. I should add that the New York Stock Exchange landed the highly anticipated IPO for Snap Inc.

    On Wednesday, February 8, Axalta Coating Systems (AXTA), Cognizant Technology Solutions (CTSH) and Fiserv (FISV) will report.

    Shares of Cognizant have been weak recently, which could be in response to President Trump’s immigration order. The shares have fallen for the last six sessions in a row for a total loss of over 10%. For Q4, Cognizant sees revenues between $3.45 billion and $3.51 billion and EPS ranging between 85 and 88 cents.

    Fiserv said they expect Q4 EPS between $1.15 and $1.18. This stock is usually very consistent. The consensus on Wall Street is for 29 cents per share from Axalta.

    Then on Thursday, February 9, Cerner (CERN) is scheduled to report. Three months ago, the healthcare IT missed estimates by a penny per share, and the stock fell hard. For Q4, Cerner expects 60 to 62 cents per share and revenue between $1.225 billion and $1.300 billion.

    One final item. In last week’s issue, I told you about the great earnings report from CR Bard (BCR). Last Friday, the stock busted through my Buy Below price. It’s already a 5.76% winner this year. This week, I’m raising my Buy Below price on CR Bard to $251 per share.

    That’s all for now. Next week will be pretty quiet for economic reports. Trade balance and job openings will be on Tuesday. Initial claims are on Thursday. Then on Friday, we’ll get reports on the budget and consumer sentiment. 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: February 3, 2017
    , February 3rd, 2017 at 6:56 am

    U.S. Reversal on Transparency Could Sting Canadian, European Oil Companies

    Bank of Japan Whipsaws Markets in Tussle Over Yield Control

    When Deutsche Bank Is the Problem

    Trump to Order Regulatory Rollback Friday for Finance Industry, Wall Street, Top Aide Says

    Nordstrom Says It’s Cutting Ivanka Trump Brand Due to Poor Sales

    Uber C.E.O. to Leave Trump Advisory Council After Criticism

    Snap’s IPO to Be Haunted by Twitter and GoPro

    Amazon’s Profit Jumps, but Sales Growth Disappoints

    Chipotle Looks To Rebuild After Food Scares Bite Into Profit

    Starbucks Responds to Backlash Over Plan to Hire Refugees

    Honda Raises Operating Profit Forecast by 21% on Weaker Yen

    GoPro Is Tanking After Big Misses on Revenue and Guidance

    Challenge For Super Bowl Commercials: Not Taking Sides, Politically

    Josh Brown: Can The Fed Stay Independent?

    Howard Lindzon: Selfies Are Undervalued

    Be sure to follow me on Twitter.

  • Earnings from Snap-on and Ingredion
    , February 2nd, 2017 at 11:42 am

    We had two more Buy List earnings reports this morning.

    For Q4, Snap-on (SNA) earned $2.47 per share. That was six cents better than Wall Street’s consensus. Revenues rose 4.5% to $889.8 million, which was also better than expectations. For all of 2016, Snap-on made $9.20 per share compared with $8.10 per share in 2015.

    Despite the good numbers, traders were not pleased. The stock is currently down about 6%.

    Ingredion (INGR) said it made $1.67 per share last quarter which was three cents better than estimates. The company made $7.13 per share for the year.

    For 2017, INGR sees earnings between $7.40 and $7.80 per share. Wall Street had been expecting $7.54 per share. Still, the stock is getting beaten up today. INGR is currently down about 8%.

  • Some Remarkable Facebook Stats
    , February 2nd, 2017 at 10:58 am

    Yesterday’s high in Facebook’s stock was one penny below the all-time high from October 25. Thanks to very good earnings, the stock broke that at today’s open.

    Here are some remarkable stats on Facebook I got from Bloomberg and the Telegraph.

    Mark Zuckerberg has made $7.5 billion so far this year, including $1.3 billion yesterday. He’s now worth $57 billion.

    Remember when FB’s IPO flopped? It “failed” by falling from $45 to $18. Today, it got to $134.

    “A million dollars isn’t cool, you know what’s cool?”

    385,000 billion dollars.

    That’s FB’s market cap, $385 billion.

    In Q4, Facebook made $4.83 per person. For all of last year, the figure was $15.92.

    Last quarter, mobile ads made up 84% of all FB’s revenue. “By some accounts, Facebook accounts for 43% of all digital advertising growth.”

    “In the last quarter of 2016, Facebook signed up 72 million new monthly users – approximately nine a second.”

  • Morning News: February 2, 2017
    , February 2nd, 2017 at 7:02 am

    Japan Considers Buying More U.S. Energy as Abe Prepares to Meet Trump

    Fed Leaves Rate As Is, For Now

    Contrasting Growth Views Could Unite Trump, Yellen on Rates

    Full Employment May Be Redefined as Trump Attacks U.S. Benchmark

    Sony Rules Out Pictures Biz Sale, Committed to Turnaround

    Deutsche Bank Falls as Client Jitters Hit Trading in Quarter

    Facebook Shares Rise On Fourth Quarter Revenue, Earnings That Blow Away Estimates

    Bourse Investors Join Avocado Lovers in Potential Border-Tax Hit

    Tesla Changes Its Name: Don’t Try This At Home

    Shell’s Falling Debt Burden Shows Worst of Oil Slump May Be Over

    Snap’s Chief Taps Into the ‘Right Now’

    Reckitt Benckiser in Talks To Buy Mead Johnson for $16.7 Billion

    Judge Orders Trump-Owned Golf Resort to Pay Millions

    Jeff Miller: Why You Never See the Best Employment Data

    Roger Nusbaum: Big Changes in Endowmentville

    Be sure to follow me on Twitter.

  • Here’s the Fed’s Statement
    , February 1st, 2017 at 2:04 pm

    Here’s today’s Fed statement:

    Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee’s 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

    In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.

    In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

    The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

    Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Jerome H. Powell; and Daniel K. Tarullo.

  • Poor Earnings Report from AFLAC
    , February 1st, 2017 at 1:40 pm

    After yesterday’s closing AFLAC (AFL) reported soggy results for Q4. The duck stock reported operating earnings of $1.46 per share. That was 17 cents below Wall Street’s estimate of $1.63 per share.

    I have to discuss the important issue of the exchange rate because so much of AFLAC’s business is done in Japan. For the fourth quarter, the yen/dollar exchange rate averaged 109.1. That’s 11.4% stronger (meaning lower) than Q4 of 2015. The stronger exchange rate added eight cents per share to AFLAC’s Q4 bottom line. So after we adjust for currency, their EPS fell by 6.4%.

    For the entire year, AFLAC had operating income of $6.79 per share. That’s up from $6.16 in 2015. However, the exchange rate added 34 cents per share. Adjusting for that, last year’s earnings were up by 4.7%.

    CEO Dan Amos said:

    “As we look to 2017, our guidance remains unchanged since our December outlook call. Our objective is to produce stable operating earnings per diluted share of $6.40 to $6.65, assuming the average exchange rate in 2016 of 108.70 yen to the dollar. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders.”

    Wall Street is not pleased with the earnings report. Shares of AFLAC are currently down about 4%.

  • Morning News: February 1, 2017
    , February 1st, 2017 at 6:35 am

    Jaitley’s Union Budget For India Makes Income Tax More Progressive – A Good Idea

    Japan’s Aso, Abe Reject Currency Restrictions On Trade Pacts

    Theresa May is Trapped Between Brexit and Donald Trump’s America

    Fed’s Message on Portfolio Trimming: Prepare, Don’t Fret

    Trump Spoils Pharma Chiefs With No More Bad News on Drug Pricing

    GE’s Immelt Talks Up Global Ties as Trump Pivots Away From Trade

    Exxon Boosts Capital Budget But Takes $2 Billion Charge From XTO Deal

    Walmart Just Undercut Amazon’s Most Valuable Perk

    Amazon is Building Its Own Air Cargo Hub for $1.49 Billion

    UPS’s Shipping Blues

    Here’s Why Shares of Under Armour Are Plummeting Today

    Ray Dalio Makes Clients $4.9 Billion in 2016 as Paulson, Soros Falter

    Bosch, a Volkwagen Supplier, Agrees to Settle Over Diesel Scandal

    Josh Brown: Protests vs. Stocks

    Jeff Carter: Reading the Tea Leaves

    Be sure to follow me on Twitter.