Archive for March, 2019

  • Morning News: March 4, 2019
    , March 4th, 2019 at 7:14 am

    U.S. and China Near Deal That Could End Most U.S. Tariffs

    The U.S. Is Ceding the Pacific to China

    China Plans $90 Billion Cut in VAT for Manufacturers

    Adding to Social Insecurity

    Powell Trashed MMT, But Wall Street Sees Room for U.S. to Try It

    High-Tax States Make It Hard for the Rich to Leave

    Amazon’s Hard Bargain Extends Far Beyond New York

    Qualcomm Launches Patent Challenge to Apple Ahead of Antitrust Case

    AT&T Plans to Revamp CNN’s Digital Arm

    Why Old Navy Is Going Solo

    Volvo to Limit Car Speeds in Bid for Zero Deaths

    With Big Stars and Plans, Luminary Aims to Be the Netflix of Podcasts

    Cullen Roche: MMT’s True Colors Appear & Reconciling Krugman vs Kelton

    Howard Lindzon: Momentum Monday…Biotech Rush

    Jeff Miller: Weighing the Week Ahead: What is “Baked Into” Current Market Prices?

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  • CWS Market Review – March 1, 2019
    , March 1st, 2019 at 7:08 am

    “The market owes you nothing. Take full responsibility for everything that happens and your results will improve.” – Dan Zanger

    February is on the books, and it was another good month for stocks. Last December was the worst December for the market since the 1930s, and that was followed by the best January for the market since 1987.

    While February was a good month for stocks (and even better for us), Wall Street has again fallen back into somnolence. The daily changes have slowed to a trickle. In nine of the last 14 trading sessions, the S&P 500 has moved up or down by less than 0.3%.

    Since January 4, the S&P 500’s seen its largest drawdown, not just its largest fall, but the decline from the closing peak has been less than 1.5%. Ryan Detrick, one of my favorite technical guys, points out that the S&P 500 has closed above its 10-day moving average for 38 straight sessions. That’s the longest such streak in years.

    I’m happy to report that our Buy List is off to a good start for the year. Through February, the Buy List is up 12.25%. That’s compared with 11.08% for the S&P 500. (These results don’t include dividends, although our final numbers are always dividend-adjusted.)

    This week, we had some more good news. Smucker (SJM) rallied on good earnings. Check Point Software (CHKP) broke out to a new high. Continental Building Products (CBPX) rallied after its earnings report. But the biggest news is that Danaher (DHR) is buying GE’s biopharma business for $21.4 billion. Usually, the acquirer sees its stock fall after a big acquisition. Not this time. In the last four days, shares of DHR are up 12%. Let’s take a closer look at this deal and what it means for us.

    Danaher Buys GE’s BioPharma Business

    On Monday, Danaher (DHR) announced that it’s buying General Electric’s biopharmaceutical business for $21.4 billion. The deal is all cash. If you recall, GE’s new CEO is Larry Culp who used to be CEO of Danaher (and a person who helped make a lot of money for us.)

    Nor is this the first GE garage sale that we’ve been a part of. GE sold its transportation unit to Wabtec, a former Buy List stock. That deal was completed this week.

    In April, Danaher had approached GE for a deal, but GE wasn’t interested. This time, they were. Initially, GE had wanted to sell off its entire healthcare business, of which the biopharma business is just a part.

    Danaher’s President and CEO, Thomas P. Joyce, Jr., said, “GE Biopharma is renowned for providing best-in-class bioprocessing technologies and solutions. This acquisition will bring a talented and passionate team as well as a highly innovative, industry-leading product suite to our Life Sciences portfolio, providing an excellent complement to our current biologics workflow solutions.”

    Joyce continued, “We expect GE Biopharma to advance our growth and innovation strategy in an important and highly attractive life-science market. We see meaningful opportunities to harness the power of the Danaher Business System to further provide GE Biopharma’s customers with end-to-end bioprocessing solutions that help enable breakthrough development and production capabilities. We look forward to welcoming this talented team to Danaher.”

    Danaher said the deal should be completed by the fourth quarter. Breaking down the numbers, Danaher said it’s paying 17 times expected earnings. To fund the deal, Danaher will issue a mix of debt and equity. Danaher still has plans to spin off its dental business later this year. The proceeds from that will help fund the GE deal.

    GE has been in a great deal of trouble, and the company needs to raise cash. As a result, it’s ditching assets in an attempt to save the business. The deal is good for both companies. Danaher jumped 8.5% on Monday. In fact, that was more than GE’s jump. This week, I’m raising Danaher’s Buy Below to $136 per share.

    Smucker Rises on Earnings

    Last Friday, JM Smucker (SJM) dropped sharply after the terrible earnings report from Kraft Heinz. But on Tuesday morning we learned that despite the problems at KHC, Smucker is doing just fine.

    For their fiscal Q3, the jelly people earned $2.26 per share which beat Wall Street’s estimate of $2.02 per share. Sales rose 6% to just over $2 billion. The company also stood by its full-year forecast.

    “We are pleased with the progress that we made in the third quarter to advance our consumer centric strategy for growth, including increasing contributions from new platforms such as 1850™ coffee and Jif® Power-Ups™ snacks,” said Mark Smucker, Chief Executive Officer. “Our results reflect strong sales across all of our key growth brands, including double-digit increases for Rachael Ray® Nutrish®, Smucker’s® Uncrustables®, Nature’s Recipe®, and Sahale Snacks®. We are also pleased with our cost-management efforts, as we continue to deliver on our synergy and cost-savings targets. Across all our businesses, we are executing on our strategic plan focused on meeting consumer and retail trends and delivering sustainable long-term growth.”

    For the full year, which is just one more quarter, Smucker expects sales of $7.9 billion and earnings of $8.00 to $8.20 per share. They’ve already made $6.20 per share for the first three quarters, so that translates to a Q4 range of $1.80 to $2.00 per share. I’m surprised they didn’t increase that due to the big beat for Q3. Perhaps they’re being conservative.

    Let’s look at SJM’s different divisions. Coffee sales were at $561 million. That’s the most profitable division. Retail consumer foods had sales of $422 million. Retail pet food was $759 million, and the international division had sales of $228 million. Yes, it’s a lot more than jelly.

    SJM was up as much as 8% on Tuesday, but it’s given back some of that. Smucker is still a buy up to $114 per share.

    Ross Stores Earnings Preview

    The lousy retail-sales report for December scared a lot of folks. As I said, I suspect the numbers are bogus. Walmart had a very good earnings report, and I figure they know something about retail.

    This Tuesday, after the close, Ross Stores (ROST) will report its fiscal Q4 earnings. Our favorite deep-discounter had a terrible end to 2018. At one point, the shares fell for 10 days in a row, for a loss of 22%.

    Despite that, the Q3 report, just before Thanksgiving, was quite good. Ross earned 91 cents per share, which easily beat their guidance of 84 to 88 cents per share. For Q4, which is the all-important holiday quarter, Ross projects same-store sales growth of 1% to 2%. For EPS, they see that ranging between $1.09 and $1.14 per share. For the entire year, Ross sees earnings of $4.15 to $4.20 per share.

    The stock is currently above our $92 Buy Below price. I may raise that, but I want to see the earnings report first. There’s no need to rush out and buy this one.

    Buy List Updates

    In last week’s issue, I told you about the earnings report from Continental Building Products (CBPX). I thought the numbers were pretty good, and I said, “look for a rebound.” But I probably underestimated how negative the market was on this stock. Apparently, Wall Street was expecting disaster, and they didn’t get it. As a result, the shares vaulted more than 8% on Friday. This week, I’m lifting my Buy Below on Continental Building to $31 per share.

    Check Point Software (CHKP) looks to be a big winner for us this year. The stock cratered late last year, and it’s made back everything it lost. It’s now up 19% for us this year. I’m looking forward to the next earnings report. For Q1, Check Point sees revenues between $460 and $480 million and EPS between $1.28 and $1.34. I’m raising our Buy Below this week to $130 per share.

    There are two Buy List stocks with quarters that ended in February, FactSet (FDS) and RPM International (RPM). This week, FactSet said it will report fiscal Q2 earnings on March 26 before the market opens. I was pounding the tables on this one in December, and it’s done well for us. Wall Street is looking for earnings of $2.33 per share. The stock has run past my Buy Below, but I don’t want to increase it before I get a chance to see the next earnings report.

    RPM hasn’t said when its earnings will come, but it will probably be sometime in early April. For its fiscal Q3, RPM expects earnings between 10 and 12 cents per share. RPM is our only losing stock this year, but it’s only down 1.55%.

    Here’s a good example of how strong Disney (DIS) is. The company won four Oscars this week. On top of that, 21st Century Fox, which is about to be owned by Disney, won another seven Oscars. Disney is a good value here.

    That’s all for now. There are a few key economic reports next week. On Monday, we’ll get construction spending. The report for new-home sales comes out on Tuesday. On Wednesday, we’ll get the ADP payroll report, plus the beige book report. Then on Friday, we’ll get the big jobs report for February. It will be interesting to see if the labor market is still improving. 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

  • Morning News: March 1, 2019
    , March 1st, 2019 at 7:04 am

    German Juggernaut May Face Economic Jam as Tariffs and Brexit Loom

    U.S. Prepares Final China Trade Deal as Hawks Urge Caution

    U.S. Economy Cooled as G.D.P. Grew at 2.6% Rate in Fourth Quarter

    Deepening Downdraft Chills Factory Activity

    One of Wall Street’s Most Popular Trading Strategies Is Now Failing

    Tesla Speeds Up! Why Aren’t You Thrilled?

    Gap to Spin Off Old Navy as Stand-Alone Company, Stock Skyrockets More Than 25%

    What Home Depot Wants You to Know

    Uber and Lyft Said to Offer Drivers a Chance to Participate in I.P.O.s

    Facebook and Telegram Are Hoping to Succeed Where Bitcoin Failed

    Pour One Out for the Fading American Beer Industry

    Martha Stewart Goes to Pot by Teaming Up With Canopy Growth

    Roger Nusbaum: Personal Debt Is Crippling

    Michael Batnick: Killer Vees

    Ben Carlson: Why Are People Miserable at Work? & The Rich Man’s Disease

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