Archive for July, 2018

• Retail Sales Rose 0.5% in June
  Eddy Elfenbein, July 16th, 2018 at 9:32 am

  The consumer is still behaving well. This morning, the Census Bureau said that retail sales rose 0.5% last month. They also revised the figure for May up to +1.3%. If you take away cars and gas, then retail sales rose 0.3% last month.

  From Bloomberg:

  At the same time, a key subset of the data signaled less momentum: So-called retail-control group sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations, were unchanged in June after an upwardly revised 0.8 percent increase. The median estimate of economists was for a 0.4 percent gain in June.

  A tight labor market and lower taxes have supported solid gains in household purchases, the biggest part of the economy. That, along with steady business investment, are among reasons growth was projected to double in the second quarter from the first three months of the year. Economists expect the pace of gains in household purchases to settle back in coming quarters.

  Americans are increasingly concerned about the effects of Trump administration tariffs, which risk backfiring on consumption and the economy, though the levies largely haven’t yet been passed down to consumers.

  As long as consumers are happy, then the economy will hold on. But all bets are off if this trade stuff gets out of hand.

• Morning News: July 16, 2018
  Eddy Elfenbein, July 16th, 2018 at 7:03 am

  China’s Cooling Economy Spells Trouble Ahead for Global Growth

  China’s Strong Economic Growth Figures Belie Signs of Weakness

  Rebates Protect Canada’s Auto Industry From Retaliatory Tariffs

  Boeing, Airbus Strain to Deliver the New Jets They Have Promised

  Northrop Grumman Upbeat on Talks for German Drone Contract

  Embraer Pushes E2 Jet’s Low Maintenance, Fuel Costs Amid Airbus Rivalry

  Lockheed Martin Reaches ‘Handshake Deal’ Deal for 141 F-35 Jets

  Goldman Expected to Formally Name Successor to C.E.O. Lloyd Blankfein

  Deutsche Bank 2nd-Quarter Results Top Estimates ‘Considerably’

  ZTE Stock Surges as U.S. Supplier Ban Lifted Though Outlook Remains Uncertain

  Amazon’s Curious Case of the $2,630.52 Used Paperback

  Papa John’s Further Shuns Founder, Evicting Him From Offices

  Michael Batnick: The Bottom and The Top

  Jeff Carter: Market Segmentation Works

  Howard Lindzon: Nasdaq 10,000 – India and China…The Next Billion

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• Smucker Raises Dividend by 9%
  Eddy Elfenbein, July 13th, 2018 at 7:13 pm

  After the bell, Smucker (SJM) announced that they’re raising their dividend from 78 to 85 cents per share. The new dividend will be paid on Tuesday, September 4 to shareholders of record at the close of business on August 17. This is SJM’s 17th straight annual dividend increase.

• Check Point CEO on Safeguarding the Midterm Elections
  Eddy Elfenbein, July 13th, 2018 at 10:29 am

• CWS Market Review – July 13, 2018
  Eddy Elfenbein, July 13th, 2018 at 7:08 am

  “Intelligent investment is more a matter of mental approach than it is of technique.”
  – Ben Graham

  On Thursday, the S&P 500 closed at its highest level since February 1. The Nasdaq Composite did even better, closing at an all-time high. Our Buy List is no slouch, either. Since May 31, the Buy List is up 5.8% which is well ahead of the broader market. Buy List stocks like Moody’s (MCO), Fiserv (FISV) and Church & Dwight (CHD) are at new highs.

  

  What’s the reason for Wall Street’s happy mood? This really isn’t a case of good things happening. Instead, it’s the ebbing of the fear that bad things were coming (more specifically, the U.S. engaging in a protracted trade war with the world, especially China).

  In this week’s issue, we’ll take a closer look at the trade news impacting Wall Street. I’ll also preview our Buy List earnings reports coming next week. Second-quarter earnings season is starting now. Get ready because we’re soon going to have a lot of earnings news.

  The Jobs Machine Churns On

  Here’s an interesting stat on our Buy List: In 15 of the last 16 trading sessions, the daily swing in our Buy List has been less pronounced than that of the overall market. In other words, on up days, we’re less up. On down days, we’re less down. In fact, we’ve been much less down.

  In technical terms, this means that our portfolio has a low “beta.” Typically, our beta is low, but it’s been unusually low recently. The reason is that Wall Street is swinging back and forth between two possible outlooks for trade. On some days, it looks good for trade. Then on other days, it doesn’t look so good.

  The key is that our portfolio isn’t so wedded to these competing outlooks. We aim for high-quality stocks that prosper no matter what the environment. As a result, we’ve been sidestepping the trade-related swings of late. Think of the market as a boat that’s rocking in the waves. Our Buy List is nestled near the center of the boat, but lots of investors are perched at either side, getting soundly tossed about each day.

  The S&P 500 has rallied eight times in the last ten days. Last Friday, China and the U.S. imposed tariffs on each other. I think some investors thought that the world would implode. Well, it didn’t happen. It’s as if there’s a sudden realization that life will go on.

  The trade news is bad, but it’s not that bad. The economy will motor on. Later today, some of the big banks will report Q2 earnings. I think we’ll see good results. In fact, the banking sector was especially strong on Thursday. For Q2, corporate profits probably rose more than 20%.

  Last Friday, the government released the jobs report for June, and the numbers were pretty good. The U.S. economy created 213,000 net new jobs last month. The unemployment rate ticked up from 3.8% to 4.0%. I dug into the decimals and the increase was closer to 0.3%. That’s the largest monthly increase in the unemployment rate since November 2010.

  A big uptick in unemployment is a pretty good indicator of a recession, but I doubt it in this case. The reason is more workers joining the labor pool. That creates the oxymoron of more jobs leading to a higher unemployment rate. After nine years of economic expansion, the jobs-to-population ratio isn’t that high. In fact, the ratio is currently lower than it was at any point from 1987 to 2008.

  But with good jobs news, we got some concerns about inflation. On Thursday, the government released the latest inflation figures for June. Consumer prices rose by just 0.1%. What’s notable is that in the past year, inflation is up by 2.87%. That’s the fastest rate since January 2012.

  I also like to look at the “core rate” which excludes food and energy prices. In June, core inflation rose by 0.2%. The year-over-year increase is 2.26%, but that’s up by 0.54% since November. In other words, inflation has effectively erased two of the Fed’s rate hikes in the last few months.

  To sum up, this is a very good time to be an investor. The trouble spots are still a way off. Continue to focus on high-quality stocks like you’ll see on our Buy List. Don’t let a bad reaction to an earnings report faze you. Traders are fickle. So often, our best stocks drop the day after earnings but rally back later on. We also want to pay attention to stocks that reaffirm or increase their guidance. Now let’s look at our first batch of Q2 earnings reports.

  Second-Quarter Earnings Calendar

  Over the next few weeks, 21 of our 25 Buy List stocks will report their earnings. I don’t have all the earnings dates just yet, but here’s a preliminary list of each stock, the earnings date and Wall Street’s estimate.

  Company	Ticker	Date	Estimate
  Alliance Data Systems	ADS	19-Jul	$4.67
  Danaher	DHR	19-Jul	$1.09
  RPM International	RPM	19-Jul	$1.18
  Snap-On	SNA	19-Jul	$2.95
  Sherwin-Williams	SHW	24-Jul	$5.66
  Stryker	SYK	24-Jul	$1.73
  Wabtec	WAB	24-Jul	$0.93
  Check Point Software	CHKP	25-Jul	$1.30
  AFLAC	AFL	26-Jul	$0.99
  Moody’s	MCO	27-Jul	$1.89
  Fiserv	FISV	31-Jul	$0.74
  Becton, Dickinson	BDX	2-Aug	$2.86
  Ingredion	INGR	2-Aug	$1.92
  Intercontinental Exchange	ICE	2-Aug	$0.89
  Carriage Services	CSV	TBA	$0.37
  Cerner	CERN	TBA	$0.60
  Church & Dwight	CHD	TBA	$0.47
  Cognizant Technology Solutions	CTSH	TBA	$1.10
  Continental Building Products	CBPX	TBA	$0.45
  Signature Bank	SBNY	TBA	$2.81
  Torchmark	TMK	TBA	$1.49

  On Thursday, four of our Buy List stocks are due to report: Alliance Data Systems, Danaher, RPM International and Snap-on.

  I’m most curious about Alliance Data Systems (ADS). The loyalty-rewards company has staged a furious turnaround for us. Three months ago, Alliance reported Q1 core earnings of $4.44 per share. That easily topped Wall Street’s estimate of $4.23 per share, however, the estimate had been severely pared back going into the earnings report. Not long before, Wall Street had been expecting over $5.10 per share for Q1.

  Regarding Q1, Alliance’s CEO said, “This quarter’s pro-forma revenue growth of 4 percent and core EPS growth of 13 percent should reflect our softest quarter of the year. Specifically, higher reserve levels required to cover the transitory impacts of the internal recovery investment was an approximate $0.60 hit to core EPS for the first quarter. Moving forward, recovery rates should move in our favor.”

  

  ADS reiterated its full-year guidance of $22.50 to $23 per share with revenue of $8.35 billion. If those numbers are right, then ADS is going for a decent valuation. For Q2, Wall Street expects earnings of $4.67 per share.

  Danaher (DHR) had a very good report for Q1. The company made 99 cents per share. Initially, the company provided Q1 guidance of 90 to 93 cents per share. They followed that up by saying that thanks to strong results from their Life Sciences and Diagnostics platforms, “specifically at Cepheid,” they’ll beat their guidance. They were right.

  For Q2, Danaher sees earnings of $1.07 to $1.10 per share. In April, the company raised its full-year guidance. The old range was $4.25 to $4.35 per share. The current range is $4.38 to $4.45. In 2017, DHR made $4.03 per share.

  RPM International (RPM) is usually one of our quietEst stocks, but it’s been making a lot of noise lately. Since April 2, shares of RPM are up nearly 30%. The recent spark came when the company said they reached an agreement with Elliott Management.

  According to the agreement, RPM will add two new board members. The board will also form an Operating Improvement Committee. The OIC will “focus on operational and financial initiatives to create and enhance shareholder value. Certain of these initiatives will center around setting and achieving new company margin targets based on top-performing industry standards and optimization of RPM’s balance sheet, including streamlining working capital and implementing new capital allocation guidelines and capital return plans.”

  The idea is that RPM will be more transparent regarding its financial goals. They’ll provide an update for shareholders by November 30. Traders approved the deal. The stock jumped 9% on the Elliott news.

  I should mention that RPM is an off-cycle stock. Their fiscal Q4 ended in May.
  For Q4, they expect consolidated revenue growth in the “mid-to-upper” single digits. In April, RPM narrowed its full-year guidance from $3 – $3.10 per share to $3.05 – $3.10 per share. This is a good company going for a good valuation. Let’s also remember that RPM has raised its dividend for the last 44 years in a row. That’s a nice streak.

  Snap-on (SNA) was our surprise winner last earnings season. The company reported Q1 earnings of $2.79 per share, seven cents more than estimates. The shares jumped more than 6% that day.

  Lately, I’ve been concerned by weakness in Snap-on’s tool group. Fortunately, their other business units are picking up the slack. Wall Street currently expects Q2 earnings of $2.95 per share.

  I’m also going to include Signature Bank (SBNY). Officially, the bank hasn’t said yet when they’ll report earnings, but they usually report early. I’m guessing it will report on Thursday. The stock just dipped down to an eight-month low. The New York-based bank took a massive charge during Q1 for its medallion loans. The other headwind SBNY is facing is the narrowing yield curve. Wall Street expects Q2 earnings of $2.81 per share.

  Ingredion (INGR) won’t report until August 2, but after the bell on Thursday, the company warned that its Q2 results will be between $1.63 and $1.68 per share. Wall Street had been expecting $1.92 per share. They also lowered their full-year guidance from $7.90 to $8.20 per share, down to $7.50 to $7.80 per share. That’s the second time they’ve lowered guidance this year. Ingredion also announced an aggressive cost-cutting program. That usually makes me suspicious. A good company should always be looking to cut costs. I’m not pleased with Ingredion. I’m dropping my Buy Below price to $100.

  That’s all for now. Earnings season will start to heat up next week. We’ll also get some key economic reports. The retail sales report comes out on Monday. Then on Tuesday, we’ll get a look at industrial production. The data series has improved over the last two years. Then on Wednesday, the housing starts report comes out. Also, Fed Chairman Jerome Powell will deliver his semiannual Congressional testimony on Tuesday and Wednesday. 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

  Syndication Partners

  I’ve teamed up with Investors Alley to feature some of their content. I think they have really good stuff. Check it out!

  Sell These Drug Retailers About to Get Amazoned

  Here are Three Companies Profiting from New Uses for Blockchain Technology

• Morning News: July 13, 2018
  Eddy Elfenbein, July 13th, 2018 at 7:06 am

  Trade War With China in Aisle 12

  Inflation Hits 6-Year High, Wiping Out Wage Gains for the Average American

  Fed’s Powell Says the U.S. Economy in ‘Good Place’ But Trade Is a Risk

  Commerce Secretary Ross to Sell All Stocks After Ethics Office Warning

  AT&T Appeal Seen as High-Stakes Shot at Redemption for Enforcers

  The Disney-Comcast Fight Switches to Sky

  Broadcom Loses $19 Billion in Market Value After Bid to Buy CA

  Starbucks’ Plastic Straw Ban Is More Important Than You Think

  Fast-Food Chains Back Away From Limits On Whom They Hire

  Gogo’s Revamp Means Airlines Must Pay More For Wi-Fi

  There Will Only Be 1 Blockbuster in America Soon

  Johnson & Johnson Told to Pay $4.7 Billion in Talcum Powder Case

  Ben Carlson: Concentration in the Stock Market

  Cullen Roche: Inflation Update – Still Not Flatin’ Too Much

  Blue Harbinger: What Motivates Traders To Trade?

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• Quick Updates
  Eddy Elfenbein, July 12th, 2018 at 11:39 am

  Here are some items that aren’t really connected but that I wanted to pass along:

  Broadcom is buying CA Technologies for $18.9 billion. CA was a former Buy List stock. It was on our list from 2012 to 2014.

  U.S. Poised to Pass Saudis, Russia as Top Oil Producer

  Why Are U.S. Bond Yields So High?

  Weekly unemployment claims fell to 214,000. That’s just above the 209,000 from April which means we’re close to another 50-year low.

  Microsoft Is Smoking Amazon In The Cloud

• Inflation Hits Six-Year High
  Eddy Elfenbein, July 12th, 2018 at 11:32 am

  This morning, the government reported on consumer inflation for the month of June. The CPI rose by 0.1% last month and is up 2.9% over the last twelve months. That’s the fastest rate since 2012.

  The core rate rose by 0.2% and is up 2.3% in the last twelve months. Here’s the Fed funds rate based off of core inflation:

• Morning News: July 12, 2018
  Eddy Elfenbein, July 12th, 2018 at 7:56 am

  U.S. Poised to Pass Saudis, Russia as Top Oil Producer

  Trump Has Access to a Little-Used Tool That Could Lower Oil Prices

  Fed Could Avert an Inverted Yield Curve. But It Won’t.

  Broadcom to Buy CA Technologies for $18.9 Billion

  China’s ZTE Clears Hurdle to Lifting U.S. Ban

  Battling Fake Accounts, Twitter to Slash Millions of Followers

  Blockchain Startup Raises $3 Million To Become The Wikipedia Of Data

  Pfizer Separates Consumer Health Unit in Business Rejig

  Microsoft Is Smoking Amazon In The Cloud

  Mercedes-Benz Self-Driving Taxi Pilot Coming to Silicon Valley in 2019

  Toyota Picks Hawaii for Its First App-Controlled Ridesharing Effort

  Is Netflix Producing Too Much Content?

  Michael Batnick: 57 Points & Animal Spirits: Ring the Bell

  Roger Nusbaum: What Kwai Chang Caine Can Teach US About Portfolio Management

  Joshua Brown: The Nine Essential Conditions to Commit Massive Fraud

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• Morning News: July 11, 2018
  Eddy Elfenbein, July 11th, 2018 at 7:16 am

  Oil Prices: Could Iran Push Crude Back Into the Triple Digits?

  Trump’s Tariff Barrage Pushes China Fight to Point of No Return

  Mobius Says Trade War Is Just a Warm-Up Act for Financial Crisis

  Employers Are Calling All Workers Off the Benches

  Welcome to China, Tesla. Now Time to Cough Up

  Pfizer Agrees To Postpone Drug Price Hikes After Trump Tweet

  Murdoch’s Fox Ups Sky Bid to $32.5 Billion, All Eyes on Comcast

  Univision Explores Sale of Gizmodo, Deadspin, The Onion, and 10 Other Assets

  Nvidia’s AI to Power Daimler Robotaxi Fleet by 2020

  Why This Chinese Company Will Make Electric-Car Batteries in Germany

  Cisco Chief Executive’s New Mantra: Simplify Computer Networks

  Criminal Case Sheds Light on Apple Self-Driving Car Technology

  Nick Maggiulli: The Peak and The End

  Ben Carlson: Are You Sure Your Investments Appropriate For You?

  Howard Lindzon: Good Reads on China Internet, Netflix and ESports

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