Archive for September, 2018

• Happy Birthday to CWS!!
  Eddy Elfenbein, September 28th, 2018 at 10:35 am

  Last Friday, our ETF turned two years old. The AdvisorShares Focused Equity ETF (CWS) started trading on September 21, 2016.

  The fund is specially designed to track our Buy List step-for-step. I want to thank everyone for their support.

  I’m happy to say that the ETF has been a very strong performer, and we recently hit another record high. CWS started at $25 per share, and we’ve been as high as $34.55 per share.

  CWS Two-Year Chart (through 9/21/2018)

  

  Source: MarketWatch. Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. For the most recent month end performance and standardized performance, click https://www.advisorshares.com/fund/cws.

  CWS has also outperformed the S&P 500 for the trailing 12 months. The ETF now has over $15 million of assets under management. If you want to learn more, here’s a clip of me discussing the fund on CNBC.

  CWS is a convenient way to buy our entire Buy List. Best of all, it’s the first ETF to institute a fulcrum fee. That means if we beat the S&P 500, I get a bonus. But if we fail short of the market, then you get a savings. I think this is the future of investing.

  This has been an amazing two years. I hope you’re able to join us. If you have any questions regarding the ETF, you can reach our customer service team at 877-843-3831, as well as get more information by visiting cws.advisorshares.com.

  Thanks! – Eddy

  Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting the Fund’s website at www.AdvisorShares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

  There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual issuers, industries or the stock market as a whole. Shares of the Fund may trade above or below their net asset value (“NAV”). The trading price of the Fund’s shares may deviate significantly from their NAV during periods of market volatility. There can be no assurance that an active trading market for the Fund’s shares will develop or be maintained. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time. Other Fund risks include market risk, liquidity risk, large cap, mid cap, and small cap risk. Please see prospectus for details regarding risk.

  Shares are bought and sold at market price not net asset value (NAV) and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined) and do not represent the return you would receive if you traded at other times.

• CWS Market Review – September 28, 2018
  Eddy Elfenbein, September 28th, 2018 at 7:08 am

  “Investing without research is like playing stud poker and never looking at the cards.” – Peter Lynch

  The big news this week was that the Federal Reserve raised interest rates by 0.25%. The stock market responded with a big yawn. The S&P 500 is still very close to its all-time high.

  In fact, not much has bothered the S&P 500 lately. Not the Fed. Not approaching elections. Not even Elon Musk getting sued by the SEC. Ryan Detrick, one of my favorite numbers guys, recently noted that the past few months have been some of the least volatile on record. You probably wouldn’t have guessed that by looking at the headlines, but the S&P 500 has now gone 66-straight days without a daily move of more than 1% either up or down.

  

  Will the calm market last? I think so. In this week’s CWS Market Review, we’ll take a closer look at this week’s Fed news and what it means for us. We’ll also take a look at the recent earnings report from FactSet. We’ll also preview next week’s earnings report from RPM International. First, though, let’s look at what the Fed’s game plan is.

  The Federal Reserve Raised Rates—What Does It Mean for Us?

  On Wednesday, the Federal Reserve raised interest rates. The move was almost universally expected. This was the Fed’s third increase this year and the eighth of the current cycle. The Fed’s target range for overnight interest rates is now 2% to 2.25%. This means that interest rates are basically in line with inflation. We haven’t had positive real rates in a decade.

  The reason for the Fed hike is actually good news. It means that the economy has been improving. One bit of news was that in the Fed’s policy statement, the FOMC dropped the word “accommodative” in describing its policy stance. There are folks who pore over every letter of every Fed statement, looking for clues. Fed Chairman Jay Powell cut off any speculation. He said the new language doesn’t reflect any change in the path policy. Powell reiterated that the Fed still sees itself following the same path as before: gradual rate hikes.

  Here’s the key part of the policy statement:

  Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

  I know it sounds dry, but that’s about as optimistic as central bankers get. Frankly, I wouldn’t read too much into the Fed’s latest move. In terms of the stock market, higher short-term rates erase some of the allure of high-dividend stocks. That’s only natural. But it’s a mistake to think that a rising rate environment is bad for all value stocks.

  I suspect that the Fed’s policy will cause investors to not be as open to risk as they’ve been. When rates are low, it’s not a big deal to get in on a hi-flying stock. Other financial assets aren’t offering much competition. That’s not so true anymore. (In fact, I suspect that the lack of competition helped drive alternative assets like Bitcoin. That was the only game in town.)

  Members of the Fed also updated their economic projections. This is where things get interesting, because we can assume that the cycle of rate increases is probably closer to its end than its beginning. The Fed sees one more rate hike coming this year. After that, they forecast three hikes next year, one more in 2020 and none in 2021.

  In my opinion, 2021 is way too far out to make a reasonable prediction. But in the near term, the Fed’s forecasts tell us that the economy is very likely on a sound footing. Earlier this week, we learned that consumer confidence is at an 18-year high. This is a very good environment in which to be a stock investor. Now let’s look at our Buy List earnings report from this week.

  FactSet Earned $2.20 per Share for Its Fiscal Q4

  On Tuesday, FactSet (FDS) said it earned $2.20 per share for its fiscal Q4 which ended in August. If you’re not familiar with FactSet, they help Wall Street professionals crunch all the numbers they need to make investment decisions. It’s a very profitable business.

  The Q4 earnings were one penny below expectations. Personally, I had been expecting even more. In the after-hours market, FDS was down sharply. Once trading started on Wednesday, FDS was down as much as 6.2%. But as the day wore on, the shares acted better. By the closing bell, FDS had lost 1.9%.

  

  Let’s dig into the numbers a little bit, because they’re not so bad. For the quarter, organic revenue rose 5.3% to $347.1 million. Annual Subscription Value (ASV), which is the key stat for FDS, increased to $1.39 billion. Organic ASV was up 5.7%. FDS noted that the increase for Q4 was $38.6 million which is the highest in the company’s history. Adjusted operating margin, another key stat I like to watch, inched up to 31.3% compared with 31.2% last year.

  “We are proud to have reached many milestones in fiscal 2018. We celebrated 40 years as a company with 38 years of consecutive revenue growth and 22 years of consecutive adjusted EPS growth. This quarter we had the highest reported quarterly ASV in our history. We enter fiscal 2019 with strong momentum and an expanding suite of innovative workflow solutions to drive our growth plans,” said Phil Snow, FactSet CEO.

  For Q4, FactSet’s effective tax rate was 18.0% compared with 25.3% a year ago. That’s largely due to the tax cuts. Their client count now stands at 5,142. That’s an increase of 167 in the past three months. User count increased by 2,391 to 91,897. Annual client retention is greater than 95% of ASV. As a percentage of clients, annual retention is 91%. Net cash provided by operating activities was $106.3 million, compared with $100.2 million a year ago. Quarterly free cash flow rose 2.1% to $91.2 million.

  For the entire year, FactSet’s organic revenues rose 5.6% to $1.35 billion while ASV rose 5.7% to $1.39 billion. Earnings increased 16.7% to $8.53 per share. Previously, the company said its earnings range was $8.37 to $8.62 per share, so things seem to be working according to plan.

  Annual client count increased by 8.4% or 398 during the year while users grew by 3.4% or 3,051 from the prior year. Free cash flow increased 24.1% to $352.1 million.

  Now let’s look at guidance for fiscal 2019 (ending next August). FactSet expects earnings to range between $9.45 and $9.65 per share. That’s not a bad increase over this year. Wall Street had been expecting $9.61 per share. FactSet sees organic ASV rising by $75 million to $90 million in 2019, and they see operating margins between 31.5% and 32.5%. That’s pretty good.

  Shares of FDS have pulled back over the last few days, but I’m not particularly concerned. The stock had a very strong rally during much of August. FactSet remains a buy up to $242 per share.

  RPM International Earnings Preview

  RPM International (RPM) is due to report its fiscal Q1 earnings on Wednesday, October 3 before the opening bell. Speaking of stocks giving us a head-fake after earnings, RPM was a perfect example three months ago.

  After the last earnings report, RPM opened down 4%. This is why we eschew trading. It’s too irrational. Fortunately, the market came to its senses, and RPM closed higher by 5.3%. The difference between the daily high and low price was nearly 12%.

  For fiscal Q4, RPM earned $1.05 per share which was 13 cents below Wall Street’s consensus. The company blamed “higher raw-material costs and extended winter weather.” Rust-Oleum had to shutter two manufacturing facilities. RPM’s consumer segment was especially weak, while the industrial unit fared better.

  

  As part of the deal with Elliott Management, RPM is going to unveil a comprehensive business plan later this year. I think that may involve major divestments. Because of this, the company will forgo any EPS guidance. Sales-wise, for 2019, RPM expects a mid-single-digits sales increase for its industrials unit. For the consumer unit, they see an increase of mid- to upper-single digits.

  The consensus on Wall Street expects Q1 earnings of 88 cents per share which is a slight increase over the 86 cents per share they earned in last year’s Q1.

  One last note. I’m dropping the Buy Below on Carriage Services (CSV) down to $24 per share. This move reflects the stock’s recent weakness.

  That’s all for now. The fourth quarter kicks off next week. With the start of the new month, we’ll get some key economic reports. On Monday, the ISM report comes out. The last ISM was the strongest in 12 years. Then on Wednesday, ADP will release its report on private payrolls. Then on Friday we’ll get the September jobs report. The unemployment rate is close to 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

  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!

  Buy These 3 High Yield Clean Energy Stocks While They’re Still Cheap

  Renewable energy sources are a growing part of the total energy sector assets. In the first half of 2018 solar and wind projects accounted for 42% of new power capacity in the U.S. Overall, solar and wind have grown to provide 10% of the total U.S. electric power generation. The power industry uses high yield investment vehicles as one funding source for the growth in renewable energy. These stocks can put a solar powered lift in your dividend income.

  A type of income stock often called a Yieldco has been widely used to own renewable power producing assets. These companies have been formed by energy project developers and electricity utilities to help fund development.

  The system roughly works like this. A company constructs a new wind power windmill project or solar array. Once it is near completion the development company will sell the projects future power production on a long term contract with a utility company or other energy user. Once its up and operating, with power contracted to an end user, the new project will be sold to a Yieldco that is affiliated with the developer. The Yieldco gets an asset with a long term revenue stream to support dividend payments. The developer gets paid back for the development and can put the capital to work developing another project.

  The result is that Yieldco stocks are steady dividend payers with good prospects for dividend growth.

  Here are three to consider for your income portfolio.

  Are Charismatic Founders a Curse or a Blessing For Investors?

  Throughout U.S. corporate history, there have been some very memorable company founders such as JP Morgan and Henry Ford. Fast forward a few decades and we have Bill Gates and Steve Jobs.

  I suspect though that history will less kindly remember the current batch of founders including the likes of Travis Kalarick of Uber, John Schnatter of Papa John’s and Elon Musk of Tesla. These entrepreneurs succeeded initially, but failed to come up with a succession plan to transition to a professional management. And worse, they’ve stayed on too long, becoming both an embarrassment and a hindrance to their respective companies.

  In the case of Musk and Tesla, he may have let his strong dislike of people pointing out the flaws in his company’s finances go so far that he may have committed a crime with his “funding secured” tweet. The U.S. government has launched a criminal investigation into Tesla.

  All of the above examples are companies that failed at the very important task of planning for the replacement of an executive who serves not only as the company’s manager but also as its pitchman and inspiration. These companies should all have planned for a staged withdrawal with the elevation of several key executives to key positions. But Tesla for example, cannot seem to keep an executive for more than a few months.

  However, there are companies that have done things right. Here are two examples.

• Morning News: September 28, 2018
  Eddy Elfenbein, September 28th, 2018 at 7:03 am

  Global M&A Volume Flattens in Third Quarter as Trade Tensions Loom

  How High Can Oil Prices Rise

  Corbyn Went to Brussels and Forgot to Bring Euros

  Japan’s Embrace of Bilateral Trade Talks With U.S. Spares It From Tariffs

  Hank Paulson Says China Trade War Risks Long-Term U.S. Pain

  Leveraged-Loan Buyers Clamor for Crumbs as Market Heats Back Up

  Tesla CEO Elon Musk Is Sued by the SEC in a Move that Could Oust Him

  Tesla’s Board Backs Musk After SEC Sues, Seeks His Ouster

  Insider Trading’s Odd Couple: The Goldman Banker and the NFL Linebacker

  Why Comcast Is Paying Dearly for Britain’s Sky

  How Apple Thrived in a Season of Tech Scandals

  Arby’s Former CEO is Building a Fast-Food Empire

  Lawrence Hamtil: The Remarkable Resilience of the Refining Industry

  Joshua Brown: Should Retail Investors Get Expanded Access to Private Markets?

  Jeff Carter: Sometimes A Quest to “Do Good” Does A Lot of Bad

  Be sure to follow me on Twitter.

• Morning News: September 27, 2018
  Eddy Elfenbein, September 27th, 2018 at 7:14 am

  Why India Will Struggle to Join Iran’s Sanctions Busters

  Italy Budget Uncertainty Returns to Haunt Europe

  For the Fed, Ignoring Trump Is Good Policy

  Google Dodges Questions About China During Senate Privacy Hearing

  Watchdogs Can’t Handle Wall Street’s Riskiest Loans

  Jeff Bezos’s Space Startup to Supply Engines for Boeing-Lockheed Rocket Venture

  Apple: Is Warren Buffett Right?

  Ford, BP Call Out Costs of Trump Administration’s Trade Policies

  The World’s Leading Electric-Car Visionary Isn’t Elon Musk

  McDonald’s President Reveals How the Chain is Managing a Potential Fast-Food Identity Crisis

  The Hot Property That’s Next on Tech’s Agenda: Real Estate

  Cheaper Battery Is Unveiled as a Step to a Carbon-Free Grid

  Cullen Roche: 2 Reasons the Surging Deficit Worries Me

  Michael Batnick: Animal Spirits: Looming Disaster

  Howard Lindzon: Make Me Laugh and Smile and Facebook is The New Tobacco

  Be sure to follow me on Twitter.

• The Fed Raises Rates
  Eddy Elfenbein, September 26th, 2018 at 2:04 pm

  Once again, the Federal Reserve raises interest rates. Here’s the policy statement:

  Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators 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 further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

  In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.

  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 maximum employment objective and its symmetric 2 percent inflation objective. 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.

  Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Esther L. George; Loretta J. Mester; and Randal K. Quarles.

  Here are the Fed’s updated economic projections.

• Morning News: September 26, 2018
  Eddy Elfenbein, September 26th, 2018 at 7:16 am

  In a U.S. Manufacturing Hub, No Illusions About Tariffs and Jobs

  Nafta’s Fate Hangs on a Four-Letter Word: Milk

  Fed Dots to Harden Views for December Move: Decision-Day Guide

  Trump Has a Weapon to Lower Oil Prices and It’s Not His Twitter

  As Debt Rises, the U.S. Government Will Soon Spend More on Interest Than on the Military

  One Reason for Slow Wage Growth? More Benefits

  The Man Behind a $1 Trillion Wealth Fund Braces for Trade Rupture

  Instagram Founders’ Exit Means No One to Challenge Zuckerberg

  The Continental Shock of the Kors-Versace Deal

  Daimler Names R&D Head as Next CEO, Zetsche to Become Chairman

  Nike Buzz Created Tough Expectations

  Hold the Donuts, Says Newly Named Dunkin

  Nick Maggiulli: Why You Don’t Know the Price Until You Sell

  Ben Carlson: Undervalued Financial Advice

  Joshua Brown: Make No Mistake

  Be sure to follow me on Twitter.

• FactSet Earned $2.20 per Share
  Eddy Elfenbein, September 25th, 2018 at 8:10 am

  FactSet‘s (FDS) earnings are out, and the company earned $2.20 per share for their fiscal fourth quarter. That was one penny below expectations.

  Let’s dig into the numbers a little bit because they’re not so bad. For the quarter, organic revenue rose 5.3% to $347.1 million. Annual Subscription Value (ASV), which is a key stat for FDS, increased to $1.39 billion. Organic ASV was up 5.7%. FDS noted that the increase for Q4 was $38.6 million, which is the highest in the company’s history. Adjusted operating margin, another key stat, inched up to 31.3% compared with 31.2% last year.

  “We are proud to have reached many milestones in fiscal 2018. We celebrated 40 years as a company with 38 years of consecutive revenue growth and 22 years of consecutive adjusted EPS growth. This quarter we had the highest reported quarterly ASV in our history. We enter fiscal 2019 with strong momentum and an expanding suite of innovative workflow solutions to drive our growth plans,” said Phil Snow, FactSet CEO.

  For Q4, FactSet’s effective tax rate was 18.0% compared with 25.3% a year ago. That’s largely due to the tax cuts. Their client count now stands at 5,142. That’s an increase of 167 in the past three months. User count increased by 2,391 to 91,897. Annual client retention is greater than 95% of ASV. As a percentage of clients, annual retention is 91%. Net cash provided by operating activities was $106.3 million compared with $100.2 million a year ago. Quarterly free cash flow rose 2.1% to $91.2 million.

  For the entire year, FactSet’s organic revenues rose 5.6% to $1.35 billion while ASV rose 5.7% to $1.39 billion. Earnings increased 16.7% to $8.53 per share. Previously, the company said their earnings range was $8.37 to $8.62 per share, so things seem to be working out according to plan.

  Annual client count increased by 8.4% or 398 during the year, while users grew by 3.4% or 3,051 from the prior year. Free cash flow increased 24.1% to $352.1 million.

  Now let’s look at some estimates for fiscal 2019 (ending next August). The company expects earnings to range between $9.45 and $9.65 per share. That’s not a bad increase over this year. Wall Street had been expecting $9.61 per share.

  FactSet sees organic ASV rising by $75 million to $90 million in 2019, and they see operating margins between 31.5% and 32.5%.

  Update: FDS dropped sharply today. At one point, it was down 6.2% on the day. The shares recovered some and closed down 1.90%.

• Morning News: September 25, 2018
  Eddy Elfenbein, September 25th, 2018 at 6:57 am

  Jamie Dimon Says It Will Take 25 Years for Bailouts to Be Forgiven

  Future of Last U.S. Nuclear Plant Remains Uncertain Amid Talks

  Despite Big Merger, Investors Still Cautious on Gold Mining Companies

  The Future of 5G Mobile Data Could Hinge on a Battle Over Utility Pole Fees

  Instagram’s Co-Founders to Step Down From Company

  Comcast Knows What It Is. Investors Aren’t So Sure.

  Sears CEO Proposes Plan to Avoid Bankruptcy, as Options and Cash Run Low

  Fish-Oil Heart Medicine Is Rarest of Drug Breakthroughs

  Starbucks Plans ‘Significant Changes’ to Company’s Structure

  Walmart Requires Lettuce, Spinach Suppliers to Join Blockchain

  Why Tilray’s Plunge Continued Today

  Tokyo Whale Sells $230 Million of Bitcoin in Mt. Gox Wind-Down

  Michael Batnick: The Next Generation

  Howard Lindzon: Momentum Monday…The Calm Before The Calm?

  Jeff Carter: You Always Will Have a Job if You Can Sell

  Be sure to follow me on Twitter.

• The Silent Bear Market
  Eddy Elfenbein, September 24th, 2018 at 10:59 am

  While the S&P 500 continues to be near all-time record highs, there’s a group of stocks, many related to trade, that are languishing well below their highs.

  The Wall Street Journal notes that stocks like Harley-Davidson, Whirlpool, Stanley Black & Decker and Caterpillar haven’t done much of anything. The list also includes consumer staples like General Mills and our own, J.M. Smucker. Apple and Amazon make up 30% of the S&P 500’s gain so far this year.

  Investors have ranked a trade war as the top tail risk to the markets for four consecutive months, Bank of America Merrill Lynch said in its September survey of global fund managers. Fears that tighter trade policies could crimp growth also have hit fund managers’ global outlooks, with 24% of investors expecting global growth to slow in the next year, up from 7% in August.

  “There’s a number of money managers who’ve been hesitant to be involved with the [companies] that are going to be potentially affected by the tariffs, whether they’ll be able to export fewer goods or be buying less from China,” said Mark Grant, managing director and chief global strategist at B. Riley FBR Inc.

  Sentiment towards tech may be changing. September could be the worst month for tech stocks since March. In the modern economy, it’s hard to draw a bright line between trade stocks and non-trade stocks. To a certain extent, they’re all trade stocks.

• Morning News: September 24, 2018
  Eddy Elfenbein, September 24th, 2018 at 7:04 am

  App-Only Banks Rise in Europe and Aim at Traditional Lenders

  America’s Libor Alternative Is Gaining Traction on Wall Street

  Home Modems, Routers Hit by U.S. China Tariffs as ‘Smart’ Tech Goods Escape

  JPMorgan Is Strategizing in Case of ‘a Major Miscalculation From Sanctions’ by Trump

  Congress May Force Airlines to Install Bigger Seats, Ban Involuntary Bumping

  In Beating Disney for Sky, Comcast Remains in the Game

  Barrick Gold, Randgold in Advanced Talks on Merger

  Singapore Imposes Fines, Restrictions Over Uber-Grab Deal

  Google CEO: ‘We Do Not Bias Our Products to Favor Any Political Agenda’

  Dell to Interview Banks for IPO in Lieu of Tracking-Stock Acquisition

  Michael Kors Is Close to Buying Versace for $2 Billion

  Harley Is Winning in Europe—Without a Trade War

  Ben Carlson: The New Gilded Age?

  Howard Lindzon: BTFD China? and Congrats Microsoft

  Jeff Carter: Democratizing Food

  Be sure to follow me on Twitter.