Archive for January, 2020

• Core Durable Goods Drop 0.9%
  Eddy Elfenbein, January 28th, 2020 at 10:04 am

  The stock market is rebounding after yesterday’s unpleasantness. So far, it appears to be the mirror image of yesterday’s action, just less so. Meaning, the best groups yesterday are the worst today, and the last shall be first. However, the magnitude of the move is far less.

  We have two earnings reports due after the close. Stryker (SYK) will report as well Silgan Holdings (SLGN). Earnings will soon start to roll in. We have 12 reports due over the next ten days.

  This morning’s durable goods report showed an increase of 2.4% for December. That comes after a 3.1% drop for November. The weak spot is that “core” durable goods fell by 0.9% last month. That’s the biggest drop in eight months. Core durable goods is a decent proxy for business spending.

  Is the coronavirus peaking? Alpha Pro Tech (APT) is down 20% this morning. It jumped 120% in six days.

• Morning News: January 28, 2020
  Eddy Elfenbein, January 28th, 2020 at 7:09 am

  Coronavirus Is Unwinding Global Economic Gains

  China Curbs Travel to Hong Kong; Coronavirus Death Toll Exceeds 100

  JPMorgan Keeps Bonuses Flat for Bankers, Traders

  In the Race for Cheap Airfaire, It’s You Vs. The Machine

  Services in Spotlight After Apple Stock Market Value Hits $1.4 Trillion

  Airbus Agrees to Settle Corruption Probes With France, UK, U.S.

  Everyone’s Favorite Climate Solution Has a Fire Problem

  Martin Shkreli Faces New Accusations Over High-Priced Drug

  At Exxon, CEO’s Promised Turnaround Sapped by Chemicals, Refining

  Americans Will Inherit $764 Billion This Year, Mostly Tax-Free

  Silicon Valley Remembers Clayton Christensen, ‘Godfather of Disruptive Innovation’

  Cullen Roche: Growth

  Michael Batnick: Live For Today

  Jeff Carter: When You Ask For Regulation, It’s Not Altruistic

  Howard Lindzon: The Golden Age of Art and Creativity

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• The Worst Day for the S&P 500 in 17 Weeks
  Eddy Elfenbein, January 27th, 2020 at 9:23 pm

  The S&P 500 lost 1.57% today. In historic terms, that’s not much. Still, it’s the biggest drop since October 2 so it may seem worse than it truly is. The index went 74 straight sessions without a 1% decline. That streak is over.

  In terms of relative strength, this was a great day for our Buy List. In other words, we were down but by a lot less. All told, our Buy List fell by -0.70% today. That’s outperformance of 87 basis points which is quite big.

  Talking about relative strength on days like today may seem strange. We’re saying that we had a bad day just not quite as bad as everyone else.

  But here’s the important thing—our outperformance usually comes on the down days. The Buy List typically keeps pace with the stock market in bull markets and beats the market when the bear shows up.

  That’s hard to explain to folks not familiar with the Buy List. Last year, for example, the Buy List matched the S&P 500. That’s actually quite good for us. Our “beta” last year was 0.812. Seven of our 25 stocks closed higher today, and 21 of our 25 stocks beat the market today.

  When people get scared, they run to quality, and that’s us.

• Ugly Monday
  Eddy Elfenbein, January 27th, 2020 at 10:36 am

  In Friday’s newsletter, I said that the S&P 500 hasn’t had a 1% down day in more than three months. Excellent timing. The market is down about 1.3% today. A lot of tech and energy stocks are down especially hard. The defensive stocks, as you would expect, are down the least.

  Last week, I mentioned Alpha Pro Tech (APT), the disaster stock. Its shares have been up as much as 30% today.

  Bear in mind that a day like today is still in the “normal” camp. What’s unusual is how tame the market has been. That’s why today seems like a jolt.

  So far, our Buy List is down much less than the overall market.

• Morning News: January 27, 2020
  Eddy Elfenbein, January 27th, 2020 at 7:04 am

  Global Stocks Slide on Coronavirus Fears

  Behind the Global Race to Contain China’s Killer Bug

  Business Survey Suggests U.S. Labor Market May Have Peaked

  How the G.O.P. Became the Party of the Left Behind

  A $100 Million Bet That Vacationland Can Be a Tech Hub, Too

  Banning Cashless Stores in New York Won’t Fix the City’s Deeper Problem

  AbbVie-Allergan $63 Billion Deal Aided By Nestle, AstraZeneca Buys

  When a Team Jersey Isn’t Enough, Buy a Dolphin or a Titan Missile

  How Under Armour Lost Its Edge

  Regulator Probes Board Role in Credit Suisse Spying Scandal

  Wells Fargo Quashes Hope That Its Scandals Are Nearly Resolved

  Jeff Miller: Weighing the Year Ahead: Positioning for 2020

  Ben Carlson: The Man Who Tried to Sell the Eiffel Tower (Twice)

  Roger Nusbaum: Your Habits Will Determine Your Outcomes

  Jeff Carter: The Second Chance & Poverty, Inc.

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• CWS Market Review – January 24, 2020
  Eddy Elfenbein, January 24th, 2020 at 7:08 am

  “Everyone has the brain power to make money in stocks. Not everyone has the stomach.” – Peter Lynch

  Here’s a factoid for you: When the bull market started, Zion Williamson, the basketball rookie sensation, was just eight years old. Both he and the market have changed markedly over the past eleven years, and I’ll add that both are much wealthier as well.

  How much longer can this market run? I wouldn’t venture a guess, but the market still seems quite healthy. Earlier this week, the S&P 500 broke 3,333.33, and it hit another new all-time high.

  

  Not only that, but it’s been calm as well. The index hasn’t had a 1% down day in more than 15 weeks. In fact, we haven’t seen back-to-back losses for 29 trading sessions. That’s one of the longest such streaks in years.

  In this week’s issue of CWS Market Review, I want to focus on our earnings. Next week, seven of our Buy List stocks are due to report Q4 earnings. I’ll preview them all.

  Next Week’s Buy List Earnings Reports

  Earnings season heats up for us next week. We have seven Buy List earnings reports coming our way. Plus, we have several more in the week after that. This is an important time for our Buy List. Here’s an earnings calendar of when our stocks will report and Wall Street’s consensus.

  Company	Symbol	Date	Estimate	Result
  Eagle Bancorp	EGBN	15-Jan	$1.07	$1.06
  Silgan Holdings	SLGN	28-Jan	$0.38
  Stryker	SYK	28-Jan	$2.46
  Danaher	DHR	30-Jan	$1.25
  Hershey	HSY	30-Jan	$1.24
  Sherwin-Williams	SHW	30-Jan	$4.39
  Broadridge Financial Solutions	BR	31-Jan	$0.71
  Church & Dwight	CHD	31-Jan	$0.55
  Check Point Software	CHKP	3-Feb	$1.99
  AFLAC	AFL	4-Feb	$1.02
  Cerner	CERN	4-Feb	$0.74
  Disney	DIS	4-Feb	$1.48
  Fiserv	FISV	4-Feb	$1.14
  Globe Life	GL	4-Feb	$1.72
  Becton, Dickinson	BDX	6-Feb	$2.64
  Intercontinental Exchange	ICE	6-Feb	$0.95
  Moody’s	MCO	12-Feb	$1.94
  Stepan	SCL	20-Feb	$0.88
  Trex	TREX	24-Feb	$0.51
  ANSYS	ANSS	TBA	$1.98
  Middleby	MIDD	TBA	$1.72

  Now let’s run through what to expect. On Tuesday, Silgan Holdings (SLGN) and Stryker (SYK) are due to report. Silgan is one of our new stocks this year. This company is one of the world’s leading makers of metal cans.

  The recent earnings haven’t been that great. The last report came inline, and that’s probably weighed on the shares somewhat. Three months ago, Silgan said it expects full-year 2019 earnings between $2.12 and $2.17 per share.

  Since they’ve already made $1.78 in the first nine months of this year, that implies a Q4 range of 34 to 39 cents per share. Wall Street expects 38 cents per share. The current share price is quite reasonable, but I’ll be curious to hear any guidance for next year. The stock recently had a seven-day winning streak. Next week’s results may be soft, but I expect to see better results later this year.

  Three months ago, Stryker (SYK) beat earnings by a penny per share. The company had a good 2019. For Q4, Stryker sees earnings of $2.43 to $2.48 per share. For all of 2019, Stryker projects earnings between $8.20 and $8.25 per share. The shares dropped after the report, but Stryker has been trending higher lately.

  Last month, Stryker increased its dividend by 11%. This was the 27th annual dividend increase in a row. Stryker is a very solid company.

  We have three more earnings reports on Thursday. Let’s start with Danaher (DHR). They’ve been pretty busy lately. Danaher recently IPO’d Envista (NVST), which was their dental business. Danaher still owns a lot of the company. Danaher is also buying GE’s biopharma business.

  For Q4, Danaher sees earnings ranging between $1.32 and $1.35 per share. That works out to full-year earnings of $4.74 to $4.77. The shares have rallied more than 21% since early November. In fact, the stock has outrun my Buy Below price, but I want to see the earnings before I make any adjustments.

  Hershey (HSY) had a good quarter for Q3. The company beat earnings, but the chocolate folks didn’t change their full-year guidance.

  Hershey still sees 2019 earnings of $5.68 to $5.74 per share. That’s the same story as three months ago. With the Q2 earnings beat, I thought Hershey would raise guidance, but it didn’t. The company seems to be low-balling Q4.

  The guidance implies Q4 earnings of $1.18 to $1.24 per share. On the bright side, Hershey increased full-year sales guidance by a tiny bit.

  Sherwin-Williams (SHW) had a very strong Q3. The paint people earned $6.65 per share, which beat the Street by 17 cents. The CEO said that the quarter was “driven by continued strength in North American architectural paint markets.”

  For Q3, Sherwin’s gross margin grew by 3% and EBITDA margin improved by 1.5%. This was the second quarter in a row in which all three operating segments saw improved earnings over the year before.

  The best news is that Sherwin increased its full-year 2019 guidance range to $20.90 – $21.30 per share. The previous range had been $20.40 to $21.40 per share. Since Sherwin has already made $16.83 per share for the first nine months of this year, the new range implies Q4 earnings of $4.07 to $4.47 per share.

  Lastly, there are two more earnings reports on Friday. I wasn’t wild about Broadridge Financial Solutions’s (BR) last earnings report. In October, the company missed the Street’s consensus by thee cents per share, and sales fell by 2%. One good note was that recurring revenue rose by 8%.

  I was also pleased to see Broadridge reiterate its previous guidance (their fiscal year ends in June). For FY 2020, Broadridge sees earnings growth of 8% to 12%. That works out to a range of $5.03 to $5.22 per share. I think that’s very doable.

  Shares of BR took a tumble after the October earnings report. Fortunately, BR has gradually made back a lot of lost ground. On Wednesday, the shares touched a six-month high. For Q1, Wall Street expects earnings of 71 cents per share.

  Church & Dwight (CHD) disappointed traders in October even though the consumer-products company reported earnings of 66 cents per share, which was six cents more than estimates.

  The problem was that the revenue figure wasn’t that good. Sales volume actually dropped a bit, but thanks to price increases, sales in dollars rose. Going forward, C&D expects sales growth of 5%, which was below consensus.

  Church & Dwight also kept its full-year guidance at $2.47 per share. You’d think that they’d raise that after a six-cent beat, but they didn’t. The guidance implies Q4 earnings of 54 cents per share. That’s down from 57 cents per share in Q4 2018.

  

  The Upcoming Federal Reserve Meeting

  The Federal Reserve meets again next week. This will be an interesting meeting for a few reasons. One is that by law, a few voting members of the Federal Open Market Committee rotate each year, so with it being January, we’ll see some new faces.

  This also looks to be the second meeting in a row in which the Fed will do nothing. It appears that Chairman Jay Powell and the rest of the FOMC are pleased with rates right where they are.

  The bond market seems to be happy as well (and you don’t want to be on its bad side). In last week’s issue, I mentioned that the two-year Treasury yield is often decent proxy for Fed policy. Right now, the two-year yields 1.51% which is just inside the Fed’s short-term interest target rate of 1.50% to 1.75%.

  We’re also seeing evidence that the lower rates are finally working. Last Friday, for example, the housing-starts report showed an increase of 16.9% in December. Housing starts are now at a 13-year high. That’s good news for a stock like Trex (TREX), the deck folks, which is already a 10% winner for us this year.

  On Wednesday, the existing-homes report showed an increase of 10.8% over last year. This is a nice improvement over the lousy numbers that we had been seeing. Bill McBride, one of my favorite housing analysts, said that this was the sixth month in a row showing a year-over-year increase. That follows 16 straight months of year-over-year decreases.

  Corporate earnings are on the mend as well. We don’t have all the results in yet, but the early numbers point toward a small increase in profit growth for Q4. There is, however, one big caveat to that. Those stats only hold if we ignore the energy sector, where profits are bombing. I mean, really bombing. As a whole, the 28 energy stocks in the S&P 500 are looking at a 40% drop in profits for Q4. The rest of the index is on pace for a small gain.

  The latest data from the futures market shows that traders think there’s an 87% chance that the Fed won’t change rates. In my opinion, that’s about 12.9999% too low. In fact, the futures market currently doesn’t see the Fed making any move until after Election Day. This time, the traders might be right.

  That’s all for now. Lots of earnings next week. Also, the Federal Reserve meets next week, on Tuesday and Wednesday. The policy statement will be out on Wednesday at 2 p.m. ET. On Thursday, the government will release its first estimate for Q4 GDP growth. These figures are often revised, but it will be interesting to see how well the economy was growing at the end of 2019. 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: January 24, 2020
  Eddy Elfenbein, January 24th, 2020 at 7:02 am

  China Locks Down 40 Million People as Anger Grows Over Virus

  It May Be the Biggest Tax Heist Ever. And Europe Wants Justice.

  EU, China, 15 Others Form Alliance to Settle Trade Disputes

  Trump to Sign USMCA Trade Deal Wednesday at the White House

  Bargain Hunters Fire Up Rally in Cannabis Stocks

  As FICO Updates Its Scores — Here’s What You Need to Know About Credit Scores

  Boeing 777X Takes First Flight Into Troubled Skies for Jumbos

  Goldman to Refuse IPOs If All Directors Are White, Straight Men

  Women Shattered the ESG Glass Ceiling, Now the Men Want In

  She’s Taking on Elon Musk on Solar. And Winning.

  Wells Fargo’s Ex-Chief Fined $17.5 Million Over Fake Accounts

  Why the Jeff Bezos Phone Hack is a Wake-Up Call For the Powerful

  Joshua Brown: Three Things You Can Learn This Week

  Ben Carlson: Asset Allocation Quilt Redux

  Howard Lindzon: Doom and Gloomers… & Feeding The Ducks…

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• Morning News: January 23, 2020
  Eddy Elfenbein, January 23rd, 2020 at 7:06 am

  Gas Exports Have a Dirty Secret: A Carbon Footprint Rivaling Coal’s

  Climate Change Could Cause the Next Financial Meltdown

  How Tech Taxes Became the World’s Hottest Economic Debate

  China Expands Travel Restrictions as Virus Deaths Climb

  China Poised to Buy More From U.S., at the Expense of U.S. Allies

  U.S. Hits New Low in Global Corruption Index

  Trump Said the Fed Prevented 4% Growth. That Isn’t True.

  United States Cautions Britain Over Huawei

  They Changed the Way You Buy Your Basics

  Major Insurers Pledge $55 Million to Try to Lower Generic Drug Prices

  Amazon Asks Court to Pause Microsoft’s Work on Pentagon’s JEDI Contract

  Bezos Hack Began With Saudi Goodwill Tour, Intimate Dinner

  Ben Carlson: 2018 vs. 2019 in the Stock Market

  Michael Batnick: Animal Spirits: Short Squeeze & Three Dollar Questions

  Jeff Carter: Do Credit Cards Have Staying Power?

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• Alpha Pro Tech: The Diaster Stock
  Eddy Elfenbein, January 22nd, 2020 at 1:44 pm

  Check out the chart of Alpha Pro Tech (APT):

  

  Notice a pattern. APT spikes any time there’s fear of a virus outbreak. APT shot up 40% on Tuesday. Here’s a description from Hoovers:

  Don’t look for Alpha Pro Tech’s gowns on the Paris runway; this designer stresses function over fashion. The firm makes and sells protective apparel and related products used in the cleanrooms of drugmakers, lab researchers, and semiconductor makers, as well as in hospitals, nursing homes, and dentists’ offices. Its disposable products include coveralls, gowns, lab coats, and shoe covers. Its infection control products include face masks, eye shields, and medical bed pads. Its Alpha Pro Tech Engineered Products subsidiary manufactures building supply products used to weatherize houses. The firm sells its products, primarily in the US, under the Alpha Pro Tech and ChemTech brands and private labels.

• Morning News: January 22, 2020
  Eddy Elfenbein, January 22nd, 2020 at 7:12 am

  As World Economy Shifts Gears, Trade Growth Slows

  Trade War’s Pain May Deepen Even as Tensions Abate

  China Seeks to Contain Virus as Case Reported in Hong Kong

  Renewable Energy Prices Hit Record Lows: How Can Utilities Benefit From Unstoppable Solar And Wind?

  Saudi Crown Prince Hacked Jeff Bezos’s Phone, Analysis Suggests

  New Low-Cost iPhone to Enter Mass Production in February

  Boeing Pushes Back 737 Max Return Again

  G.M.’s Cruise Unveils a Self-Driving Car. Don’t Look for It on Roads.

  Tesla Crosses $100 Billion Stock Market Valuation in Extended Trading

  Netflix Forecasts Tough Start to 2020; Disney+ Going Global

  IBM Earnings Hint at Signs of Turnaround

  Google CEO Eyes Major Opportunity in Healthcare, Says Will Protect Privacy

  Nick Maggiulli: This Climb is Different?

  Cullen Roche: The Investors Podcast – Contrarian Investing Ideas

  Joshua Brown: The Next Trillion Dollar Stocks: What Are Your Thoughts? & How High Above the 200-Day Can the S&P 500 Get?

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