Archive for November, 2017

  • Morning News: November 6, 2017
    , November 6th, 2017 at 6:56 am

    Euro-Area Economic Boom Spurs Fastest Job Creation in a Decade

    Investors Worldwide Size Up Palace Intrigue in Oil-Rich Kingdom

    Billionaire Olayan Family Said to Put Saudi IPO Plan on Hold

    China is Finally Going After Click Farms and Fake Online Sales

    Amazon Has a Risky Strategy for Cutting Prices This Holiday Season

    Altice Jumps Into U.S. Wireless Business in Deal With Sprint

    Qualcomm Braces for a $100 Billion Fight With Broadcom

    Rebuffed by American Airlines, Qatar Airways Buys Into Cathay Pacific

    Failure of U.S. Deal Hits Deutsche Telekom Shares, Growth Prospects

    Anthem Names Industry Veteran Gail Boudreaux as New CEO

    Zara Customers Find Notes From Employees Inside Clothing

    Donors Use Bitcoin for Tax Benefits and to Keep Tabs on Spending

    Jeff Miller: Is This As Good As It Gets?

    Howard Lindzon: The Future – No Facts, Only Opinions

    Ben Carlson: What If You Only Bought at Below Average P/E Ratios?

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  • CWS Market Review – November 4, 2017
    , November 4th, 2017 at 9:07 pm

    “Necessity never made a good bargain.” – Charlie Munger

    Earlier this week, I was at the Evidence-Based Investing Conference sponsored by Ritholtz Wealth Management. The conference was a lot of fun, and I got to see many great speakers (see here and here for recaps). Unfortunately, my busy travel schedule forced me to write this week’s newsletter a bit later than usual. That actually worked to my advantage, since this was an action-packed week for Wall Street and for us.

    There’s a lot to get to, so let’s start with Jay Powell. President Trump has nominated Mr. Powell to be the new Federal Reserve Chairman. I don’t have much to say about Powell except that he’s very much a part of the establishment. I doubt an observer would be able to notice any difference between a Powell- or Yellen-led Fed.

    This may be a shrewd choice on President Trump’s part because Powell is a registered Republican who was nominated by President Obama—twice, in fact. This is Mr. Powell’s third nomination in the last five years (note that the nomination to Fed chairman is separate from being a Fed member). I doubt he’ll have much trouble winning confirmation in the Senate. I also except to see a continuation of the Fed’s current policies. Wall Street seems pleased.

    We got a good jobs report on Friday. The unemployment rate fell to 4.1% which is the lowest in nearly 17 years. Nonfarm payrolls rose by 261,000. Some of these figures were still impacted by the severe weather we had. The bad news is that wages dipped slightly last month. This is another reason why I’m not terribly concerned about inflation.

    The Federal Reserve met this week. As expected, the central bank didn’t raise interest rates. However, it’s widely believed that another rate hike is coming next month. The weak wages last month won’t change their mind. I don’t see the need for higher rates, but I can’t say they’ll be very damaging. At least, not yet.

    This week, the Conference Board said that consumer confidence was at its highest in 17 years. Last Friday, the government said that the U.S. economy grew by 3% in the third quarter. That’s a good number, and it comes after a decent number for Q2, but I’m not ready to celebrate. The current expansion has had a difficult time stringing together three quarters in a row of decent growth. We seem to be stuck on a 2% trend. I hope this time will be different.

    Now let’s get to our Buy List stocks.

    Axalta Soars on Merger Talks

    The biggest news for us, by far, came last Friday when Akzo Nobel, a Dutch company, was reported to be in merger talks with Axalta Coating Systems (AXTA).

    Let me stress that there’s no deal yet, nor is there a guarantee that a deal will come. But we do know that both companies are discussing the topic. Last Friday, shares of AXTA soared as much as 21%. The stock has recently settled around $33 per share.

    This is good news for us, but let’s recall some recent history. Earlier this year, shares of AXTA got a bump after Akzo Nobel shot down a buyout offer from PPG. The thinking was that PPG might next turn to Axalta. Instead, the suitor was Akzo Nobel.

    Please bear in mind that this could fall apart at any moment. Investors should never bet on buyout deals. They’re nice when they happen (like with CR Bard), but a lot things can go wrong. For now, let’s stick with Axalta and see what happens.

    Fiserv Misses Earnings Again

    On Tuesday, we got an earnings miss from Fiserv (FISV). The company reported Q3 earnings of $1.27 per share, which was four cents below Wall Street’s estimate. This is their second miss in a row.

    “Fiserv continued to execute well, delivering double-digit adjusted-earnings-per-share growth despite pressure from lower periodic revenue in the quarter,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Sales were solid in the quarter, providing momentum for a strong close to the year.”

    The miss is unpleasant, but the more important news is that Fiserv narrowed its full-year guidance from $5.03 to $5.17 per share to $5.05 to $5.12. That represents growth of 14% to 16% over last year. That means Q4 earnings should range between $1.34 and $1.41. That’s not so bad. Wall Street had been expecting $1.36 per share.

    Shares of Fiserv dropped sharply at Wednesday’s open. FISV came close to falling below $120 per share, but the stock regained its composure later in the week and closed Friday at $127.03 per share. This is a good stock. Fiserv remains a buy up to $131 per share.

    Earnings Beats from Cognizant and Ingredion

    We got two more Buy List earnings reports on Wednesday. First up, Cognizant Technology Solutions (CTSH) reported Q3 earnings of 98 cents per share. Previously, the company had told us to expect Q3 earnings of at least 95 cents per share.

    CTSH also raised its full-year guidance from at least $3.67 per share to at least $3.70 per share. Now the bad news. That implies Q4 earnings of 95 cents per share, which is below the 98 cents Wall Street had been expecting. On the revenue side, Cognizant expects revenues between $3.79 billion and $3.85 billion. Wall Street had been expecting $3.76 billion.

    Traders sent the stock down 7% Wednesday morning, but as with Fiserv, the selling was quickly reversed and the shares only suffered a minor hit. In fact, CTSH closed Friday two cents per share above its closing price from seven trading days before.

    I’m not concerned about this report. CTSH’s numbers are fine. Cognizant Technology Solutions remains a buy up to $74 per share.

    For Q3, Ingredion (INGR) reported earnings of $2.21 per share. That beat the Street by 19 cents, and it was a nice increase over $1.96 per share from a year ago. The company raised the low end of its full-year guidance by 15 cents per share. Ingredion now expects 2017 earnings of $7.65 to $7.80 per share. That implies Q4 earnings of $1.67 to $1.82 per share.

    This has been a tough year for Ingredion, so it’s nice to see some good news. The shares are up 3.7% in the last three days. This week, I’m lifting our Buy Below on Ingredion to $134 per share.

    BDX and ICE Beat the Street

    Becton, Dickinson (BDX) isn’t a Buy List member, but it may be one soon after the merger with CR Bard (BCR) is complete. This week, the medical-device manufacturer reported fiscal Q4 earnings of $2.40 per share, two cents above expectations.

    For the year, BDX made $9.48 per share. For the current fiscal year, which ends next September, Becton, Dickinson expects earnings between $10.55 and $10.65 per share. Wall Street had been expecting $10.46 per share.

    Shares of BDX jumped 7.7% on Thursday which helped BCR edge up 2.7%. Remember that the deal is in cash and stock, so any rise in BDX helps BCR. The merger should happen before the end of the year.

    Also on Thursday, Intercontinental Exchange (ICE) reported earnings of 73 cents per share. That beat the Street by three cents per share. The company also approved a new share-buyback program of $1.2 billion. The stock gained 3.7% on Thursday.

    Unfortunately, on Friday, the company reported light trading numbers for October. That caused the stock to give back nearly all of Thursday’s gain Don’t worry about it. ICE is still a buy up to $66 per share.

    Friday’s Earnings from Cinemark and Moody’s

    On Friday morning, Moody’s (MCO) said they made $1.52 per share for Q3. That beat Wall Street’s estimate of $1.41 per share.

    “Moody’s strong third-quarter financial results were driven by record revenue in Moody’s Investors Service, with corporate and structured finance contributing the largest gains, double-digit organic revenue growth in Moody’s Analytics, and the addition of Bureau van Dijk,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s.

    Moody’s shelled out a lot to get Bureau van Dijk, a Belgian data provider. The company expects the acquisition to help boost earnings soon.

    Moody’s also increased its full-year range to $5.85 to $6 per share. This is the second time Moody’s has raised its full-year guidance. This means the company expects Q4 earnings of $1.28 to $1.43 per share. Wall Street had been expecting $1.38 per share. Shares of Moody’s gained almost 2% on Friday. The stock is now our biggest winner YTD, with a gain of 55%.

    The poor box-office environment was bad news for Cinemark (CNK), but the company is managing it as well as can be expected. The movie-theater chain earned 33 cents per share for Q3. That’s a miss of two cents per share, and it’s down from 56 cents per share for last year’s Q3. The good news is that CNK continues to gain market share. So it was a tough quarter, but it was even worse for other theaters.

    The stock pulled back 2.3% in Friday’s trading. I’m lowering my Buy Below price on Cinemark to $38 per share.

    Next Week’s Earnings Report and New Buy Below Prices

    Next Thursday, Continental Building Products (CBPX) will issue our final Buy List earnings report of this cycle. The stock has been in a nice uptrend since the summer even though they missed earnings in August. The consensus for Q3 is for 29 cents per share.

    Lastly, I want to lift my Buy Below prices on two other stocks. I’m raising Stryker’s (SYK) to $165 per share and Danaher’s (DHR) to $99 per share. Both stocks had very good earnings this season.

    That’s all for now. Next week probably won’t be as action-packed as this week. I expect President Trump’s tax plan will get most of the coverage. We still have more earnings reports to hear. Tuesday is Election Day though it’s mostly minor races since this is an off year. Also on Tuesday, we’ll get the consumer credit report. On Thursday, we’ll see the latest jobless claims report. This series recently touched a multi-decade low. 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

  • October NFP +261,000; Unemployment 4.1%
    , November 3rd, 2017 at 8:37 am

    The U.S. economy created 261,000 net jobs last month. Economists were expecting 313,000. The unemployment rate dropped to 4.1%. Revisions added 90,000 jobs.

    The jobless rate last month edged down to 4.1%, the lowest reading since December 2000. That low rate, however, reflects that fewer Americans were working or seeking work during the month. The labor-force participation rate slipped to 62.7% from 63.1% in September. The prior month’s reading was the highest in years—and the participation rate slipped in October back to a level recorded this spring.

    Average hourly earnings slipped by a penny to $26.53 in October. It was disappointing showing for wages, which had appeared to break out the prior month. From a year earlier, hourly pay rose a lackluster 2.4% in October. Many economists are waiting to see wages rise at a faster pace given the historically low unemployment rate.

    A broad measure of unemployment and underemployment known as the U-6, which includes people stuck in part-time jobs and others, was 7.9% in October. That was the lowest monthly reading since 2006.The rate has been declining this year in concert with the narrower unemployment rate, known to government statisticians as the U-3.

    The unemployment rate is lower now than it was during the entire 70s, 80s and 90s. The only exceptions are January 1970 and December 1999.

  • Morning News: November 3, 2017
    , November 3rd, 2017 at 7:04 am

    As a Debt Deadline Looms for Venezuela, Maduro Is Defiant

    Trump’s Risky Ecnomic Handoff

    Under Powell, Wall Street Can Expect Steady Wins on Regulation

    U.S. Weighs Suit Against AT&T’s Deal for Time Warner

    T-Mobile and Sprint Haven’t Given Up on Their Potential Merger—Yet

    EVs From Tesla and GM May Start Losing Their Tax Credits

    Broadcom’s U.S. Homecoming Is Trumped Up

    Starbucks Tanks on Revenue Miss, to Sell Tazo Tea Brand to Unilever

    Apple CEO Cook Breathes New Life Into Old iPhones

    Teva’s CEO Was $2.8 Billion Down on His Second Day on the Job

    Tableau Plummets 12% as Shift to Subscriptions Hits Forecast

    Chinese Buyer Told World’s Most Expensive Scotch Dram Was Fake

    Howard Lindzon: Apple Is My Favorite Crypto Asset

    Cullen Roche: Let’s Talk About Taxes and the Fed

    Mark Hines: Stock Exchange: Pullback Fear? Consider Uncorrelated Stocks

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  • 60 Years Ago in the New York Times
    , November 2nd, 2017 at 4:40 pm

    November 3, 1957:

    To the Editor:

    Atlas Shrugged is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should. Mr. Hicks suspiciously wonders “about a person who sustains such a mood through the writing of 1,168 pages and some fourteen years of work.” This reader wonders about a person who finds unrelenting justice personally disturbing.

    Alan Greenspan, NY

  • Morning News: November 2, 2017
    , November 2nd, 2017 at 7:01 am

    A Disappearance in Berlin Clouds a Trade Deal in Vietnam

    Powell to Lead Fed Overseeing Trump Economy Fraught With Risks

    Bitcoin: What’s Coming in the Year Ahead

    U.S. SEC Warns Over Crypto ICO’s & ‘Potentially Unlawful’ Celebrity Promotion

    Amazon’s Cryptocurrency Domain Names

    Even the Russians (Mostly) Can’t Slow Facebook’s Money Machine

    Credit Suisse Posts Solid Q3 Profit, Plans Meeting With Activist RBR Capital

    Shell Takes Exxon’s Cash-Flow Crown as Earnings Beat Estimates

    Apple Market Value: We May Need a Bigger Chart

    Yelp Drops 9%: Q3 Beats, Q4 Revenue View Misses

    Does General Electric’s Stock Belong In The Teens?

    Singapore Airlines to Bump Up A380 Seat Count in Revenue Push

    Michael Batnick: A Closer Look at Ray Dalio’s 1937 Scenario

    Joshua Brown: 99% of Small Cap Growth Funds Underperformed Benchmark Over 15 Years

    Roger Nusbaum: Ditch That Nine to Five Now, While You Still Can!

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  • Today’s Federal Reserve Policy Statement
    , November 1st, 2017 at 2:01 pm

    The Fed didn’t raise rates. Here’s the Fed statement:

    Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft. On a 12-month basis, both inflation measures have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; 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. Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment, and inflation in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

    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 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant 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 balance sheet normalization program initiated in October 2017 is proceeding.

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

  • Earnings from Cognizant and Ingredion
    , November 1st, 2017 at 11:25 am

    October was another up month for the S&P 500. This makes seven winning months in a row, and except for a very small loss, this was nearly our 12th-straight up month in a row.

    This morning, we got the ISM report for October. I like this report because it comes out on the first business day of each month. For October, the ISM was 58.7, which was a little bit below expectations. Any reading above 50 means the manufacturing sector is expanding. The ISM for September was 60.8 which was the highest in 13 years.

    The ADP payroll report said that 235,000 private sector jobs were added last month. That’s more than economists had been expecting. The ADP report is always a preview of the official jobs report, which comes out on Friday. Wall Street is expecting that 310,000 jobs were created in October. The issue here is that it reflected the rebound from the hurricane-impacted report for September.

    We got two more Buy List earnings report this morning. First up, Cognizant Technology Solutions (CTSH) reported Q3 earnings of 98 cents per share. Previously, the company had told us to expect Q3 earnings of at least 95 cents per share.

    CTSH also raised their full-year guidance from at least $3.67 per share to at least $3.70 per share. Now the bad news. That implies Q4 earnings of 95 cents per share which is below the 98 cents Wall Street had been expecting. Traders didn’t like that and the stock is down around 5% this morning.

    “We are making consistent progress in executing the plan to accelerate our shift to digital services and solutions,” said Francisco D’Souza, Chief Executive Officer. “We’ve systematically built the significant capabilities needed to help our clients transform their business, operating, and technology models ̶ a transformation we call digital at scale. We believe our long-term relationships with clients and deep understanding of their priorities puts us in a privileged position to help them adapt, compete, and grow.”

    On the revenue side, Cognizant expects revenues between $3.79 billion and $3.85 billion. Wall Street had been expecting $3.76 billion. I’m not concerned about this report. CTSH’s numbers are fine.

    For Q3, Ingredion (INGR) reported Q3 earnings of $2.21 per share. That beat the Street by 19 cents and it’s a nice increase from $1.96 per share a year ago. The company raised the low-end of its full-year guidance by 15 cents per share. Ingredion now expects 2017 earnings of $7.65 to $7.80 per share. That implies Q4 earnings $1.67 to $1.82 per share. The stock is currently up 3.6%.

  • Morning News: November 1, 2017
    , November 1st, 2017 at 7:03 am

    Why the Dow Jones Industrial Average Crushed the S&P 500 in October

    Consumer Confidence Highest In 17 Years

    Fed Likely on Hold, but Could Give Clues on Possible December Rate Rise

    Trump’s Trade Endgame Could Be the Undoing of Global Rules

    The Financial Lessons Behind the Allegations Against Paul Manafort

    The Daily Prophet: What Does CME Know That Jamie Dimon Doesn’t?

    Buffett Streak of ‘Free’ Insurance Money May Be Ending

    Under Armour: Down 67% Since June 2015

    Walmart Wants You to Party in Its Stores This Christmas Season

    Cognizant Beats Earnings Estimates on Digital Services Strength

    Starbucks Releases a Color-It-In-Yourself Holiday Cup

    Mylan Top Executive Engulfed in Alleged Price-Fixing Ring

    Howard Lindzon: The Great Digital Pyramid Rally of 2017 – Bitcoin and Egypt at All-Time Highs

    Jeff Carter: Where The Puck Is Going With Big Data

    Ben Carlson: The Increasing Importance f the 401k

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