Archive for September, 2018

• Torchmark Lowered to Sell by Goldman
  Eddy Elfenbein, September 10th, 2018 at 10:56 am

  Shares of Torchmark (TMK) are down about 4% this morning after the company was downgraded by Goldman Sachs.

  The stock is being lowered from neutral to sell. The analyst lowered his target price from $92 to $78. Personally, I’m not worried about TMK at all. It’s an excellent stock.

• RPM’s Earnings Date
  Eddy Elfenbein, September 10th, 2018 at 10:47 am

  Here’s a quick follow-up.

  In Friday’s newsletter, I said that RPM International (RPM) hasn’t said when they’ll report earnings yet, but I guessed that the date would be October 3.

  This morning, the company announced that it will be October 3.

  The only two Buy List reports we will get until earnings season starts again in mid-October will be FactSet (FDS) on September 25, and RPM.

• Morning News: September 10, 2018
  Eddy Elfenbein, September 10th, 2018 at 7:13 am

  China Sees Hints of a Past Threat: Inflation

  Bitcoin Tracker One and Ether Tracker One Suspended by U.S. SEC

  Crypto Wipeout Deepens to $640 Billion as Ether Leads Declines

  After Trump Tweets that the Ford Focus Can ‘BE BUILT IN THE U.S.A.,’ Ford Explains Why That Would Make No Sense

  Apple Supplier Shares Slide After Trump Tells Tech Giant to Make Products in U.S.

  Apple to Kick Off Product Blitz With iPhone Xs Line, New Watches

  Amazon’s Antitrust Antagonist Has a Breakthrough Idea

  Jack Ma’s Succession Plan Offers an Important Lesson in Leadership

  Fintech Start-up TransferWise Reports Second Year of Profit, Revenue Almost Doubles

  Volkswagen Trials Offers Hedge Funds a Chance to Settle Old Scores

  CBS’s Moonves Toppled by Harassment Allegations, Redstone Clash

  Ben Carlson: The Other Failure Risk in VC

  Joshua Brown: Instability is Stabilizing.

  Cullen Roche: Potential Problems with Narrow Banking

  Jeff Miller: Inflation Watch

  Be sure to follow me on Twitter.

• The Economy Added 201,000 Jobs in August
  Eddy Elfenbein, September 7th, 2018 at 11:57 am

  Today’s jobs report showed that the U.S. economy created 201,000 net new jobs last month. That’s pretty much inline with the current trend.

  The unemployment rate was 3.9%. Looking at the decimals, the unemployment rate came very close to rounding down to 3.8%. The current unemployment rate is lower than every single month in the 1960s, 1970s and 1980s.

  In the last 102 months, the U.S. economy has created 9.5 million new jobs. In the last year, average hourly earnings are up 2.9%.

  A broad measure of unemployment and underemployment that includes Americans stuck in part-time jobs or too discouraged to look for work fell to 7.4% from 7.5% the prior month.

  Friday’s report showed job gains in the professional and business services sector, along with health care, wholesale trade and transportation. Employment fell in the manufacturing industry, and all levels of government subtracted 3,000 jobs from payrolls last month.

  The average workweek was unchanged at 34.5 hours in August.

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

  “The natural-born investor is a myth.” – Peter Lynch

  Perhaps I should take newsletter breaks more often. While I was out relaxing, the stock market bounced up to another all-time high. Last week, the S&P 500 broke above 2,900, the Nasdaq Composite breached 8,000 and the Dow got over 26,000.

  

  The stock market has pulled back a bit since then, but I’m pleased to report that our 2018 Buy List is at a new high. Our Buy List is now up 9.28% YTD (not including dividends), and we’ve outpaced the overall market by a decent margin since the beginning of August. Best of all, we still haven’t made a single change to our portfolio this year. As usual, a little patience combined with low turnover and high-quality stocks wins the race.

  In this week’s CWS Market Review, I want to highlight some recent economic news. The good news is that there’s good news. In fact, I don’t see any major economic troubles headed our way in the near term. Still, this isn’t a time to be complacent. I’ll also bring you up to speed on news impacting our Buy List stocks. (We now have eight stocks that are up more than 19% this year!) Before we get to that, let’s look at some recent optimistic economic news.

  Jobless Claims Fall to a 49-Year Low

  Later today, the government will release the employment figures for August, and I suspect it will be another good report. Nonfarm payrolls will probably be about 180,000, give or take. There’s even a chance that the unemployment rate could dip down to a multi-decade low. It’s not so outlandish. On Thursday, the jobless claims report came in at 203,000, which is the lowest number since December 1969. This week’s ADP report showed an increase in private payrolls of 163,000 during August. That was a bit lighter than expectations.

  We also had two economic reports this week that really surprised me. On Tuesday, the ISM Manufacturing Index came in at 61.3. That’s the strongest number in 14 years. I like to pay attention to this report for two reasons. It comes out on the first business day of the month. A lot of key economic reports come after a generous lead time. I prefer getting the info fast. Also, the ISM Index has a good track record of lining up with recessions. I’ve found that any number around 45 or below usually signals a recession. We’re not even close.

  On Thursday, we got a look at the ISM Non-Manufacturing Index, which came in at 58.5. That’s also very good, and it’s up 2.8 from July. I was curious to see how the bond market would react, but it seems as quiet as ever. The yield on the 10-year Treasury is still below 2.9%. I’d be concerned by any sudden jump in bond yields.

  When we look at the stock market to see if it’s too expensive, the first question to ask is “compared to what?” A good proxy, in my opinion, is the 10-year TIPs. That’s the inflation-protected bond. The 10-year TIPs currently yield just 0.80%. I’ve found that the stock market performs well as long as the 10-year TIPs yield less than 2.43%. I’m not claiming that’s an iron rule for markets, but it’s a good reminder that higher stock valuation can be justified with lower bond yields.

  

  On the Friday before Labor Day, the government revised Q2 GDP growth up to 4.2%. That’s only a slight change from the original report, which was 4.1%. How does Q3 look? That’s tough to say just yet, but it could be pretty good. The Atlanta Fed now says it expects Q3 GDP growth of 4.4%.

  The bottom line for us is that the economy continues to do well. I’d be concerned if bond yields were rising or the housing market was breaking down, but we’re not there yet. This is also an excellent environment for corporate profits. Investors should continue to focus on a diversified portfolio of high-quality stocks such as you’ll find on our Buy List. Two names that look particularly good right now are Torchmark (TMK) and Alliance Data Systems (ADS). And remember to pay attention to our Buy Below prices!

  Welcome the Communications Services Sector

  There’s an important change coming soon to Wall Street. Standard & Poor divides the S&P 500 into 11 different sectors. This is a handy way to keep track of what’s doing well and what isn’t. The problem is these sectors kinda match reality, but not exactly. Personally, I’ve never liked the Telecommunications Sector. It’s basically AT&T and Verizon, and that hardly makes a sector.

  Apparently, someone at S&P agrees with me. They’ve decided to rebrand Telecom as the Communications Services Sector. The change will go into effect at the close of business on September 28. The new sector will have AT&T and Verizon, plus some big-name stocks will be migrating there from other sectors. For example, Facebook, Google and Netflix will go in. So will Disney. Also, the Information Technology Sector will now be known as the Technology Sector. S&P will divide the Communications Services Sector into two industry groups: Media & Entertainment and Telecommunications.

  These changes may sound like an overly technical part of investing, and to some extent, they are. However, there’s an important lesson for investors here. How does a company describe what business it’s in? That’s not as simple as it looks. With modern investing, a company’s industry is becoming harder to pin down.

  When I was a kid, AT&T was the phone company. Ma Bell. Now AT&T owns Time Warner. So what industry are they in now? I dunno. Media? Maybe. Entertainment? I guess. Content? I really don’t know. The same can be said of Disney, which now owns Fox. The world has changed, and both of those companies have to compete with their digital rivals. As a result, the precise definition for what they do is blurred. This is more common than many investors realize. The business world is in constant flux, and you should always remember that an innovation can upend the ways things have always been. Now let’s look at some of our Buy List stocks.

  Buy List Updates

  Speaking of lessons, here’s a good one on why we focus on high-quality stocks and ignore short-term drama. In our last newsletter, I discussed the fiscal Q2 earnings report from Ross Stores (ROST). The numbers were quite good, and as usual, Ross gave conservative guidance. I wasn’t bothered at all.

  I didn’t know what the market’s reaction would be, but we had a clue since Ross was down 5%, placing it near $90 per share in Thursday’s after-hours market. Of course, that’s just after-hours; there’s no law that says that’s where the stock will open.

  In the newsletter, I said that reaction “seems overdone to me.” I was right. The stock gapped up and down after the earnings report, but it’s now settled down, and Ross is well above where it was prior to the earnings report. On Thursday, shares of ROST got as high as $98.24 per share, which is a new all-time high.

  

  This has been a very good stock for us. Last August, I told you that Ross is “a good value here.” The stock is up nearly 80% since then. This week, I’m raising our Buy Below on Ross to $104 per share.

  A few small items. JM Smucker (SJM) completed the divestiture of its Pillsbury baking division. That brings in $375 million for Smucker. There were two recent merger deals involving our Buy List stocks. Moody’s (MCO) said they’re buying Reis (REIS), a firm that deals in real-estate data. It’s an all-cash deal that values Reis at $278 million or $23 per share. The deal is expected to close in Q4.

  Also, Stryker (SYK) is buying K2M Group Holdings (KTWO) at $27.50 per share. That works out to $1.2 billion. KTWO is a big player in the spinal biz. According to the WSJ, “Stryker said the deal wouldn’t affect earnings this year. It expects to report adjusted earnings of $7.22 to $7.27 this year.”

  Of the 25 stocks on our Buy List, two stocks had quarters that ended in August: RPM International (RPM) and FactSet Research (FDS). These will be our only two earnings reports until the Q3 earnings season gets going in mid-October. FactSet is due to report on September 25. On Thursday, shares of FDS hit a new all-time high of $233.71. This week, I’m lifting our Buy Below on FactSet to $242 per share. RPM International hasn’t said yet when they’ll report, but it will probably be around October 3.

  Hormel Foods (HRL) did almost an exact repeat of Ross Stores, only perhaps more so. Two weeks ago, the stock dropped 3% after its earnings report. It’s up more than 10% since then, including six up days in a row. On Thursday, Hormel hit another new high. I’m lifting my Buy Below on Hormel Foods to $44 per share.

  

  In addition to Ross Stores, FactSet and Hormel, we also had new highs on Thursday from Church & Dwight (CHD), Fiserv (FISV) and Sherwin-Williams (SHW).

  That’s all for now. The August jobs report is due out later this morning. I expect to see more good results, but we need to see better numbers on wages. There’s not much in the way of economic reports next week. On Wednesday, the Beige Book comes out. On Thursday, the CPI figures are released. So far, inflation has been largely contained. I suspect this will continue. The retail-sales report comes out on Friday. 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!

  3 Recession Proof High-Yield Dividend Stocks

  As the stock market indexes continue with history’s longest bull market, investors are becoming concerned that the bull is on its last legs and they need to start preparing for the next bear market. I am not predicting the end of the bull market. Nobody can. What you can do is start to add stocks to your portfolio that are more resistant to economic recession and stock market bear markets.

  It’s important to understand that a stock market bear market will take down the value of all stocks, with very few exceptions. The companies you want to own are the ones whose businesses will continue to operate, generate strong revenue, and grow through a recession or bear market. These companies can continue to pay dividends and the share prices will recover after the down turn. You as an income focused investor continue to collect dividends while other investors worry about how they are going to recover from their losses.

  Our search for recession/bear market resistant dividend stocks focuses on the business operations. We want companies whose operations should at least stay level and hopefully thrive in all economic conditions. These will be more conservative income stocks, with the trade off of lower current yields. Here are three for your further research.

  Buy These 3 Growth Stocks on Robinhood and Pay NO Commission

  As editor of Growth Stock Advisor, I’m always on the lookout for disruptors…trends that will change forever the way things are done. And of course, the companies that are at the forefront of the disruption and that will benefit from it.

  One such disruption is occurring right now in my former field of employment – the brokerage industry and commission-free trading. It is perhaps apropos that the first disruptor in the sector is a company called Robinhood, which sent shockwaves through the brokerage industry in 2015 when it launched, offering free stock trades.

  Robinhood is adding 250 ADRs (American depositary receipts of companies from Japan, China, Germany, the U.K. and elsewhere. ADRs are stocks of foreign companies that trade and settle in the U.S. market in dollars, allowing investors to avoid having to transact in a foreign currency. Here are three ADRs that I like right now….

• Morning News: September 7, 2018
  Eddy Elfenbein, September 7th, 2018 at 7:05 am

  It Looks Like Trump Has Found the Next Big Target in His Trade War — Japan

  U.S. Businesses Make Last-Ditch Push to Avoid Planned Tariffs

  Williams Says Fed Shouldn’t Be Afraid to Invert the Yield Curve

  HNA, Under Pressure From Beijing, to Sell Its Overseas Empire

  CBS Negotiating Moonves’ Exit and Viacom Merger Standstill

  Broadcom Gives Upbeat Sales Forecast on Data-Center Growth

  Why Micron Technology Stock Fell as Much as 11% Today

  Barnes & Noble Sales Slide Continues as It Looks to Stabilize Business

  How Big Of a Deal Could Marijuana Be for Constellation Brands?

  Tencent and Alibaba Bring Their Battle for Supremacy to Coffee

  Justice Department Probing Wells Fargo’s Wholesale Banking Unit

  The Regrets of Lewis Ranieri

  Roger Nusbaum: Making Your Reality Work

  Blue Harbinger: Do You Buy At All Time Highs?

  Howard Lindzon: Informational Or Actionable and Goodbye Twitter

  Be sure to follow me on Twitter.

• Morning News: September 6, 2018
  Eddy Elfenbein, September 6th, 2018 at 7:33 am

  Turbulence Roils Emerging Markets In The Shadow Of A Strengthened U.S. Dollar

  Cryptocurrencies Widely Plunge After Report Goldman is Rolling Back Plans

  Hospitals Are Fed Up With Drug Companies, So They’re Starting Their Own

  Justice Department Nearing Antitrust Approval of Health Mergers Combining CVS-Aetna, Cigna-Express Scripts

  How Tesla Will Fare Against Mercedes, Porsche and Other Competitors

  Starbucks’ Italian Dream Comes True, But It Is Not Cheap

  Pot Firms’ Surge More After Constellation Remarks

  Facebook, Under Rising Scrutiny, Picks Singapore for First Asia Data Center

  Walmart Tries Out Own Home-Delivery Service

  Lululemon: By This Measure, Maybe It’s Not So Expensive

  Burberry, After Provoking an Uproar, Will Stop Burning Unsold Stock

  These Are the Cities With the Most Ultra-Rich People

  Nick Maggiulli: An Investment to Die For

  Michael Batnick: Animal Spirits: Do We Need a Recession?

  Ben Carlson: Is Real Estate a Non-Correlated Asset Class?

  Be sure to follow me on Twitter.

• Ross Stores Hits New High
  Eddy Elfenbein, September 5th, 2018 at 7:17 pm

  A few days ago, Ross Stores (ROST) reported earnings that looked fine to me. The stock, however, dipped after the report.

  Here we are a few days later, and the shares are near a new high. This is one of the many reasons why we prefer not to argue with a short-term market.

  

• Morning News: September 5, 2018
  Eddy Elfenbein, September 5th, 2018 at 7:36 am

  No Relief in Sight for Emerging Markets as Rand Leads Sell-Off

  Erdogan Has Limited Options to Save Turkey From Financial Crisis

  China to Play Waiting Game as U.S. Trade Pain Worsens

  U.S. Factory Gauge Jumps to 14-Year High as Orders Pick Up

  Facebook and Twitter Have a Message for Lawmakers: We’re Trying

  Amazon at $1 Trillion: Buy, Sell, or Hold?

  Transocean Agrees to Acquire Ocean Rig UDW for $2.7 Billion

  Mercedes Unveils First Tesla Rival in $12 Billion Attack

  GM Posts Steep Sales Drop on Dialed-Back Discounts

  Toyota Recalls More Than 1 Million Vehicles Over Fire Risk

  Unilever Confronts the ‘Chairdrobe’ as Consumers Rethink Laundry

  Blood-Testing Firm Theranos to Dissolve

  Joshua Brown: Two Things You Can Ignore For The Rest Of Your Life

  Cullen Roche: My View On: The FIRE Movement

  Howard Lindzon: Weed Good…Greed Bad and Nike Will Be Fine

  Be sure to follow me on Twitter.

• Amazon Hits $1 Trillion
  Eddy Elfenbein, September 4th, 2018 at 12:14 pm

  First, Apple made the $1 trillion market cap club. Now Amazon has joined.

  Here’s a remarkable stat about Amazon. Since the IPO, the stock has gained 1%, on average, every 258 hours for 21 years. And what’s even more amazing is that that includes a 95% price crash.

  Here’s an article I wrote on Amazon for their 21st birthday.

  Amazon.com went public 20 years ago today. There was so much demand for Jeff Bezos’s “online bookstore,” as it was then referred to, that the underwriters raised the offering price twice. They settled on $18 per share.

  There was some concern whether an online bookseller could truly compete with industry stalwarts such as Barnes & Noble and Borders. Would people really buy books on the Internet? The idea seemed farcical. But two decades later, Amazon has done pretty well for itself.

  On Friday, the shares closed at $961.35. And that doesn’t include three stock splits totaling 12-for-1. In 1997 terms, one share of Amazon is currently worth $11,536.20.

  In simpler terms, the stock has vaulted 640.9-fold in 20 years. If you had invested $16,000 in Mr. Bezos’s little project, you would now be sitting on a cool $10 million.