Archive for April, 2017

  • Second-Highest All-Time Close
    , April 25th, 2017 at 5:53 pm

    The market had another good day today. The S&P 500 rose by 0.61% and reached its second-highest all-time close.

    Our Buy List was able to eke out a gain despite the bad news from Express Scripts (ESRX). For the day, ESRX lost 10.8% but our Buy List gained 0.05%. We were helped by a 2.7% gain from Wabtec (WAB).

    We had new highs today from AFL, FISV, MSFT, MCO, SHW and SYK.

  • Stryker Earned $1.48 per Share for Q1
    , April 25th, 2017 at 5:28 pm

    Stryker (SYK) reported Q1 earnings after the closing bell. For Q1, the company earned $1.48 per share. Previously they told us to expect a range between $1.40 and $1.45 per share. Wall Street had been expecting $1.43 per share.

    “Our positive momentum continued in the first quarter, as we demonstrated our ongoing commitment to deliver organic sales growth at the high end of med-tech and leveraged earnings gains,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “Our results were well-balanced across business segments and geographies, and position us well for another strong year in 2017.”

    For Q2, Stryker expects EPS between $1.48 and $1.52. Wall Street had been expecting $1.51 per share. Stryker also maintained their full-year forecast of $6.35 to $6.45 per share.

  • The Skewedness of Stock Returns
    , April 25th, 2017 at 1:39 pm

    I recently read the paper, “Do Stocks Outperform Treasury Bills?” by Hendrik Bessembinder (thanks to a pointer from Michael Batnick), which takes a fascinating look at how skewed stock returns are. When we say that the market returns, say, 10% per year, that’s superficially correct. But as Bessembinder points out, the large majority of stocks don’t do much of anything, and a tiny portion of homerun stocks make up for the entire gain. The numbers are pretty extraordinary.

    Bessembinder looked at 25,782 stocks that traded between 1926 and 2015. That comes to 3.5 million one-month time periods. The average stock gained 1.13% compared with the one-month T-bill rate of 0.38%.

    But that average is very misleading since most stocks didn’t make money for that month, and even more lost to the T-bill. Although, when we weight its market size, the results get a little better.

    After a decade, the “skew” is even more pronounced. The average stock gains 118% while the median stock gains just 14%. Only 37% of individual stocks out perform the market after a decade. Over the course of their lifetime, just 42% of stocks beat the one-month T-bill.

    When we talk about total dollars made, just 0.33% of stocks make up for half of the wealth created by the stock market. Less than 4% accounts for the entire market’s gain. The other 96% combined match Treasury bills.

  • Wabtec Earned 84 Cents per Share
    , April 25th, 2017 at 11:34 am

    Two more earnings reports today. Stryker (SYK) will report after the close and Wabtec (WAB) reported this morning. For Q1, the company earnings 84 cents per share. That beat Wall Street’s estimates by two cents. This is a nice rebound from the awful quarter they had for Q4. I should add that during the quarter, Wabtec completed its acquisition of Faiveley.

    Wabtec also reiterated its full-year guidance numbers. They expect revenue of about $4.1 billion, and EPS between $3.95 and $4.15.

    Raymond T. Betler, Wabtec’s president and chief executive officer, said: “Our first quarter adjusted earnings were in line with expectations, and we expect improvement during the year. As we work to integrate Faiveley and our other recent acquisitions, we are managing our costs aggressively based on market conditions. We continue to invest in our balanced growth strategies and expect to benefit from our diversified business model and rigorous application of the Wabtec Excellence Program.”

    The stock is up about 2.7% in today’s trading.

  • Morning News: April 25, 2017
    , April 25th, 2017 at 5:14 am

    OPEC Cuts Make North Sea Oil Most Alluring in Asia for 7 Years

    ECB Meeting Comes at a Precarious Time for Markets

    Trump Slaps Duty on Canada Lumber, Intensifying Trade Fight

    Trump Seeks 15% Corporate Tax Rate, Even If It Swells The National Debt

    Partisan Divide Over Economic Outlook Worries Ben Bernanke

    FCC’s Pai To Describe Net Neutrality Plans This Week

    Supreme Court Rebuffs G.M.’s Bid to Limit Ignition Switch Lawsuits

    T-Mobile Open To Merger Talks, New Subscribers Top Estimates

    Wells Fargo Shareholders Get Their Chance to Mete Out Punishment

    Novartis Moves M&A Search to Early-Stage Drugs on Price Gain

    Waymo Testing Self-Driving Car Ride Service in Arizona

    Marissa Mayer Will Make $186 Million on Yahoo’s Sale to Verizon

    Not An Inside Job: How Two Analysts Became SEC Whistleblowers

    Cullen Roche: Let’s Talk About Shrinkage and The Most Dangerous Narratives are Usually the Smartest

    Howard Lindzon: All-Time Highs for Nasdaq 100, Poison Pays and The ReBirth of Active Investing

    Be sure to follow me on Twitter.

  • Express Scripts CEO on Anthem
    , April 24th, 2017 at 5:27 pm

  • Express Scripts Earns $1.33 per Share
    , April 24th, 2017 at 4:41 pm

    For Q1, Express Scripts (ESRX) reported earnings of $1.33 per share. Wall Street had been expecting $1.32. Express had previously given a range of $1.30 to $1.34 per share.

    The company is also raising its full-year guidance. The previous range was $6.82 to $7.02 per share. The new range is $6.90 to $7.04 per share.

    For Q2, they’re looking for $1.70 to $1.74 per share. Wall Street was at $1.68 per share.

    Express also updated their status with Anthem. It looks like the two may part ways at the end of 2019.

    The Company’s current long-term PBM contract with Anthem expires on December 31, 2019, and Anthem is currently engaged in a Request for Proposal (RFP) process for a PBM service provider following the end of its contract with Express Scripts. While the Company has not formally participated in the RFP process, in recent months, management for the Company and Anthem have had several conversations in which the Company proposed providing as much as $1 billion in annual value ($3 billion in the aggregate) in the form of price concessions for 2017-2019 in connection with a negotiated contract extension for the period beyond 2019 at prevailing market rates. Although conversations have been ongoing, the Company was recently told by Anthem management that Anthem intends to move its business when the Company’s current contract with Anthem expires on December 31, 2019, and that Anthem is not interested in continuing discussions regarding pricing concessions for 2017-2019 or in receiving the Company’s proposed pricing for the period beyond 2019. As a result, today Express Scripts has elected to provide information as to its financial performance with and without Anthem, without any obligation to do so, in order to demonstrate that the Company’s core PBM business, excluding Anthem, is well positioned for future growth. See Appendix A for additional details regarding the Company’s relationship with Anthem and the history of the agreement between the parties.

    “It is difficult for us to understand why Anthem has not recognized the potential value which could be brought forth by engaging in meaningful discussions regarding a mutually beneficial pricing arrangement for the remaining term of our contract and beyond,” said Tim Wentworth, President and CEO of Express Scripts.

    The shares are down about 11% in the after-hours market.

  • Some Numbers on Today’s Market
    , April 24th, 2017 at 4:21 pm

    A very good day for us. Here are some numbers.

    The S&P 500 rose 1.08% to close at 2,374.15.

    Our Buy List today gained 1.83%, thanks to a 19.50% gain for CR Bard. Without BCR, the rest of the Buy List was up 1.05% which was basically inline with the market. By the way, Becton, Dickinson (BDX) fell 4.44% today.

    For the year, our Buy List is now up 8.75% compared with 6.04% for the S&P 500. That doesn’t include dividends.

    We hit new highs today in AFL, ADS, BCR, FISV, MSFT, MCO, SHW and SYK.

    The broader market saw new highs for the Nasdaq. It’s not far from breaking 6,000. Among S&P 500 sectors, we had new highs in Industrials, Consumer Discretionary and Tech. Among S&P 500 stocks, new highs beat new lows 78 to 2.

  • The Stunning Success of Tobacco Investing
    , April 24th, 2017 at 12:53 pm

    The Wall Street Journal has an article today on the amazing profitability of tobacco stocks. This seems to be a fact well-hidden from everyone except us stock-pickers. After all, the tobacco biz goes all the back to the founding of the country.

    The WSJ article has several factoids. Here are a few:

    “Americans spent more at retail stores on cigarettes in 2016 than they did on soda and beer combined.”

    “The number of cigarettes sold in the U.S. fell by 37% from 2001 to 2016.”

    “Over the same period, though, companies raised prices, boosting cigarette revenue by 32%, to an estimated $93.4 billion last year.”

    “An average pack in the U.S. cost an estimated $6.42 in 2016, up from $3.73 in 2001.”

    “The operating profits of U.S. tobacco manufacturers have grown 77% since 2006 to $18.4 billion in 2016.”

    “In 2000, U.S. tobacco companies’ price-to-earnings ratios were about a third of their consumer-staples peers’. Today, they’re roughly 10% higher.”

    “The S&P 500 Tobacco Index fell 22% between 1998 and 2002. Over the past decade, it’s up 178%, outperforming the broader S&P 500, which climbed 58%.”

    “The industry sells 5.5 trillion cigarettes each year to the world’s one billion smokers.” (Can that be right? Wow. That means the average smoker smokes 5,500 cigarettes each year, or about 15 per day.)

    “About 42% of the average U.S. pack price is tax.” In Britain, it’s 82%.

    “The adult smoking rate in the U.S. fell to 15% in 2015, from 25% in 1995. The rate among high-school students dropped to 11% from 35%.”

    I was recently reading the Hendrik Bessembinder paper, “Do Stocks Outperform Treasury Bills?” He ran the numbers of all the stocks listed in the CRSP database. He found that the top-performing stock from July 1926 to December 2015 was Altria. The gain was 2,029,630.4%.

    Here’s a look at how tobacco stocks as a whole have performed over the last 17 years.

    That’s a 1,300% gain for the sector. Tobacco has done so well that the S&P 500 looks like a flat line in comparison. If anything, that chart understates tobacco’s gain because it doesn’t include dividends.

  • CR Bard Opens at $303.65
    , April 24th, 2017 at 11:04 am

    Shares of CR Bard opened today at $303.65. That’s a nice increase of $50.58 over Friday’s close.

    Going by Friday’s close for BDX, the buyout price for BCR is $317.

    As I write this (at 11 am), BCR is at $304.52 while shares of BDX are currently down about 3.7% to $178.49. Since part of the deal is in BDX shares, that drops the buyout price down to $313.55. Note that shares of acquirers typically drop after a deal is announced.

    That means that BCR (at $304.52) is going for 2.88% below its buyout price. That’s not a big surprise since the deal is probably about six months from closing. There’s also probably a small discount priced in if the deal falls apart. That’s possible but very unlikely.