Archive for February, 2020

• Morning News: February 26, 2020
  Eddy Elfenbein, February 26th, 2020 at 7:10 am

  World Shares Slump for Fifth Day, Bets Grow on Interest Rate Cuts To Counter Damage

  ‘Not Just an Italian Problem’: Coronavirus Threatens Europe’s Economy

  Fed Official Says Coronavirus Economic Fallout ‘Could Spill Over’

  Coronavirus Shows the Problem With Trump’s Stock Market Boasting

  Reddit’s Profane, Greedy Traders Are Shaking Up the Stock Market

  New Disney CEO’s First Big Challenge Is Coronavirus Crisis

  Lowe’s Quarterly Sales Miss Estimates Despite Strong Market

  Bayer Chairman Quits as Roundup Settlement Talks Progress

  Salesforce Co-CEO Keith Block Steps Down, Marc Benioff to be Sole Chief

  Walmart Steps Up Competition with Amazon by Fulfilling Orders for Third-Party Vendors

  Opioid Manufacturer Reaches Proposed $1.6 Billion Settlement

  Nick Maggiulli: Dollar Cost Averaging vs. Lump Sum: The Definitive Guide

  Ben Carlson: 5 Companies Make up 18% of the S&P 500. Should Investors Care? & Talk Your Book: Small & Mid Cap Growth Stock Investing

  Michael Batnick: What Happens When You Buy the Dip?, Is the Stock Market Going to Crash? & Animal Spirits: Michael’s Worst Investment Ever

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• Morning News: February 25, 2020
  Eddy Elfenbein, February 25th, 2020 at 7:10 am

  Japan to Further Ease Rules on Foreign Ownership of Stocks

  Post-Brexit, Britain Is Going Its Own Way. That Way Looks Expensive.

  Canada Oil-Sands Plan Collapses Over Politics and Economics

  As Trump Visits India, A Trade Deal Remains Elusive

  U.S. Stocks Plunge as Coronavirus Crisis Spreads

  Intuit to Buy Credit Karma to Create Financial Data Giant

  Amazon Expands Physical Footprint With Bigger Cashier-Less Grocery Shop

  Home Depot Earnings Rise on Revved-Up U.S. Housing Market

  Rejected by Wall Street, Ford’s CEO Has Support Where It Matters

  Virgin Galactic Has No Flights or Profits But Investors Love It

  JPMorgan to Maintain Key Growth Targets From Last Year at Investor Day

  Juul Pitches Locked Vaporizer in Bid to Stay on U.S. Market

  Howard Lindzon: Is This A Fintech Bubble?

  Roger Nusbaum: Are We Overreacting To The Corona Virus Or Underreacting?

  Joshua Brown: “Deglobalization is the Most Powerful Theme in the World” & Everything Warren Buffett Said on CNBC This Morning

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• Trex Beats by 10 Cents per Share
  Eddy Elfenbein, February 25th, 2020 at 1:51 am

  After the close on Monday, Trex (TREX) reported Q4 earnings of 61 cents per share. That was 10 cents more than estimates. Sales rose 18% to $165 million. The company had been expecting sales of $160 million.

  For the year, Trex earned $2.47 per share on sales of $745 million. CEO James E. Cline said, “Fourth-quarter results were in line with our expectations for strong double-digit sales growth and sequential gross margin expansion.” This was a very good quarter for Trex.

  For 2020, Trex expects “strong double-digit sales growth.” They expect sales of $200 million for Q1 which is an 11% increase over last year. During 2019, Trex bought back 500,000 shares of stock at an average price of $77 per share.

  One other note. James E. Cline will be retiring as CEO later this year. The board has chosen Bryan Fairbanks to be the new CEO.

• Worst Day in Two Years
  Eddy Elfenbein, February 24th, 2020 at 5:26 pm

  Today was a very rough day for the stock market. Fears of the coronavirus are finally landing hard on the financial markets. The S&P 500 fell 3.35% today. This was the worst day for the index in more than two years. The Dow lost over 1,000 points.

  If it’s any consolation, our Buy List did much better than the overall market. For the day, our Buy List lost -2.30%. It’s not often we beat the market by 1% in a day. Eighteen of our 25 stocks beat the market today although every stock on our Buy List was down.

  There was an unusually wide gap between High Beta and Low Vol today. Low Vol fell -1.76% while High Beta lost -4.80%. The VIX jumped from 18 to 25.

  The futures market now shows slightly better than even odds of a Fed rate cut in April.

• Morning News: February 24, 2020
  Eddy Elfenbein, February 24th, 2020 at 7:01 am

  Digital Tax Fight Emerges as Global Economic Threat

  The Fight Over a Gas Pipeline Is Paralyzing Parts of Canada’s Economy

  Take Five: ‘Our Currency, Your Problem’ – All Over Again

  As the Start-Up Boom Deflates, Tech Is Humbled

  Buffett Extols Value of Stock Bets in a Year Without Big Deals

  Trump Says U.S.-India to Sign $3 Billion in Defense Deals

  U.S. Sees No Material Impact From Virus on U.S.-China Trade Deal – For Now

  Stocks Fall on Worries That the Coronavirus May Hurt Growth

  Coronavirus Concerns Spur Odd Market Moves

  Some Samsung, Hyundai Workers Self-Quarantine as Korea Inc Braces for Virus Impact

  SoftBank Leads $165 Million Capital Boost for Liquid Biopsy Firm Karius

  Glass, Once the King of Packaging, Seeks a Comeback

  Jeff Miller: Investors Can Always Learn Something from Mr. Buffett

  Michael Batnick: Levered Long & The Current Media Landscape

  Ben Carlson: Markets Have ALWAYS Been Rigged, Broken & Manipulated, Should You Pay Off Your Mortgage Early With Rates So Low? & A Short History of Advertising

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• All-Time Low
  Eddy Elfenbein, February 21st, 2020 at 10:02 am

  This morning, the yield on the 30-year Treasury fell to 1.886% which is an all-time low.

  

• CWS Market Review – February 21, 2020
  Eddy Elfenbein, February 21st, 2020 at 7:08 am

  “The obvious rarely happens; the unexpected constantly occurs.” – Jesse Livermore

  Wall Street marched to another all-time high this week. On Wednesday, the S&P 500 got as high as 3,393.52 during the day. It seems like nothing can upend this rally.

  Still, I want to urge caution. We’ve had some nice gains, but don’t get too complacent. The bear loves to knock you over the moment you get too comfortable. (Note Mr. Livermore’s quote above.)

  

  Despite the big gains in the stock market, it’s been the bond market that’s been making news lately. The yield on the 30-year Treasury is near an all-time low. Folks are willing to lend their money to the U.S. government for 30 years for less than 2%. Still, that’s a positive yield which is something you can’t say for many other parts of the world.

  In this week’s issue, I’ll discuss what’s been happening. I’ll also talk about our two Buy List earnings reports from this week. We had good news from Stepan and less good news from Hormel Foods. I’ll also preview three more Buy List earnings reports for next week. Plus, we got a nice 18% dividend hike from Sherwin-Williams. It was their 41st annual dividend hike in a row. But first, let’s look at how it’s the U.S. dollar’s world.

  The Surging U.S. Dollar

  One financial side effect of the coronavirus is that investors are seeking the safety of the U.S. dollar. To put it bluntly, the greenback is smashing everything in its way. The dollar rally is acting like a magnetic force that’s disrupting nearly every other market. Even the Japanese yen, which is traditionally seen as a conservative currency, is getting pulled down. With the dollar around, no one is safe.

  Bloomberg (the news service, not the candidate) quoted one strategist, “It looks like huge capitulation by almost anyone who isn’t a dollar bull.” I think that’s right. It’s especially interesting because many folks on Wall Street assumed that following a trade deal with China, the dollar would weaken. Instead, it’s rallied. In fact, the dollar index is close to breaking through 100 which could be an important psychological barrier. To give you an example, the Aussie dollar is at an 11-year low.

  

  Meanwhile in the U.S. Treasury market, the close cousin of the currency market, bond yields are plunging. Earlier I mentioned that the yield on the 30-year Treasury is close to an all-time low: investors are now willing to lend to the U.S. government for 30 years for less than 2% per year. The yield on the 10-year TIPs (Treasury Inflation-Protected Securities) is now negative.

  I think that’s partly what’s helping the U.S. stock market. The WSJ reported that 40% of the market’s gains this year have been in the four mega-cap tech stocks (the “MAGA” stocks). It’s not that growth here is particularly rosy; it’s just that these are companies that deal in dollars.

  But it gets more complicated. For example, gold has been rallying as well. Why? It’s another safe haven. Gold has closed higher ten times in the last 11 sessions. Wall Street is now talking about an “everything rally,” meaning stocks, bonds and gold. A surging dollar, however, isn’t a good thing everywhere. Look at the commodity markets where oil has been falling. As a result, energy stocks have lagged.

  This week, Procter & Gamble warned that the coronavirus will impact their earnings. I suspect that some companies will use the outbreak as a convenient excuse for earnings shortfalls. Of course, there are real disruptions but it’s too early to say what they impact will be.

  For now, there’s nothing to fear from the dollar-induced rally. Our stocks are looking very good (here’s the updated Earnings Calendar.) Be sure you have a diversified portfolio of high-quality stocks such as you can find on our Buy List. Now let’s look at some earnings from this week.

  Earnings from Stepan and Hormel Foods

  We had two more Buy List earnings reports on Thursday morning. Stepan (SCL) said it made $1.10 per share for its fourth quarter. Technically, analysts had been expecting 88 cents per share but that’s a consensus of just two analysts. One expected 86 cents and the other expected 90 cents. For the year, SCL made $5.12 per share.

  Stepan is one of our new stocks this year. The company is a major manufacturer of specialty and intermediate chemicals. The company has increased its dividend for 52 years in a row.

  Stepan’s CEO said, “Despite significant challenges during the year, driven by the equipment failure in Ecatepec, the wet weather in the U.S. farm belt, the sulfonation exit in Germany and FX headwinds, the Company exceeded its 2018 record full year adjusted net income and grew adjusted EPS 7%.”

  Stepan remains a buy up to $110 per share.

  The other report came from Hormel Foods (HRL). This is for Hormel’s fiscal Q1 which ended at the end of January. The Spam people report early so their earnings report tends to blend in with the other stocks whose Q4 ended in December.

  For Q1, Hormel made 45 cents per share which matched Wall Street’s expectations. For the quarter, organic sales were up 4%. The company reiterated its full-year 2020 forecast for sales ranging between $9.5 billion and $10 billion and EPS between $1.69 and $1.83.

  Hormel also said it reached an agreement to buy Sadler’s Smokehouse which is a pit-smoked meats company based in Henderson, Texas. Sandler has been a long-time supplier. Hormel paid $270 million for Sadler’s.

  The CEO said, “We have started to see a negative impact on our business in China from the coronavirus outbreak, but we are not yet able to forecast the impact for the remainder of the year.”

  These numbers were basically what I had been expecting, but I think traders are unnerved about any coronavirus news. Shares of HRL pulled back 6% after the report. I’m keeping my Buy Below for Hormel at $48 per share.

  Sherwin-Williams Raises Dividend

  We got good news on Wednesday when Sherwin-Williams (SHW) announced an 18.6% increase to its dividend. The quarterly payout will rise from $1.13 to $1.34 per share. The dividend is payable on March 13 to shareholders of record on March 2. This is Sherwin’s 41st consecutive annual dividend hike.

  Sherwin had a weak Q4 and guidance was below expectations. The CEO noted “softness in certain industrial end markets and choppiness in our international businesses.” For 2020, Sherwin-Williams expects earnings to range between $22.70 and $23.50 per share. Sherwin-Williams is a buy up to $590 per share.

  Earnings Preview for Trex, Ansys and Middleby

  We have three more Buy List reports coming next week and they’re all for new additions to this year’s Buy List.

  Let’s start with Trex (TREX) which is scheduled to report on Monday, February 24. Trex is turning into a major winner for us. Through Thursday, the stock is up more than 18% for us. That’s in less than two months.

  Three months ago, Trex report Q3 earnings of 72 cents per share. That topped estimates by four cents per share. It was an increase of 44% over Q3 from 2018. Trex didn’t provide an EPS forecast for Q4 but the company said it expects net sales of $160 million. That’s an increase of 14% over last year. That should translate into earnings of about 50 cents per share.

  

  Ansys (ANSS) has also been a strong performer for us. It’s our #3 best-performer this year with a YTD gain of 14.2%. Ansys is due to report on Wednesday, February 26.

  Three months ago, the simulation-software company said it made a profit of $1.42 per share for Q3. That easily beat Wall Street’s estimate of $1.26 per share. Quarterly revenue grew by 18%.

  The CEO said, “Once again we delivered an outstanding quarter, with double-digit ACV and revenue growth and strong operating income.” Wall Street liked what it saw. At one point, shares of ANSS closed higher 12 times in 14 trading days. The stock was also recently added to the Nasdaq 100 Index. That means a lot of funds have to buy it. For Q4, Ansys expects earnings to range between $1.87 and $2.05 per share.

  Also on Wednesday, Middleby (MIDD) is due to report. The company makes industrial cooking equipment for restaurants and hotels. This is one of those businesses that most people never even think about but can be very profitable. In November, MIDD said it made $1.72 per share for its Q3. That beat the Street by nine cents per share. For Q4, Wall Street expects $1.71 per share.

  Both Trex and Ansys have outrun their Buy Below prices. I’ll probably raise both next week but I want to see their earnings results first.

  Looking ahead, Ross Stores (ROST) will report on March 3. Then FactSet (FDS) will report sometime in later March, and RPM International (RPM) will probably report in early April. After that, the Q1 earnings season will start in mid-April.

  That’s all for now. There’s not much scheduled for next week but there are a few things I want to highlight. On Wednesday, the new-homes sales report is due out. On Thursday, the government will update its estimate for Q1 GDP growth. The initial estimate was for 2.1%. That’s also how fast the economy grew in the third quarter. We’ll also get the durable goods report for January. 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: February 21, 2020
  Eddy Elfenbein, February 21st, 2020 at 7:04 am

  The World’s Biggest Economies Get a Jolt of Government Spending

  Global Central Bankers Scour Shopping Malls, Manufacturers for Coronavirus Playbook

  China Firms in $10 Billion Share Sale Rush as Funding Rules Eased Amid Virus Worries

  Free Stock Trades Are Stirring an Epic Mom-and-Pop Buying Frenzy

  The Liberal Economists Behind the Wealth Tax Debate

  T-Mobile, Sprint Amend Merger Terms, SoftBank Takes a Hit

  Daimler Warns of “Significant Adverse Effects” of Virus Outbreak

  Wells Fargo Nears About $3 Billion Deal to End Federal Probes

  Warren Buffett Poised to Address Missed Deals With Cash Pile Growing

  Gap Is The Latest Retailer to Get Into Resale to Try to Fix Its Business

  Even Billions From Bezos Won’t Solve Climate Change

  A Billion-Dollar Scandal Turns the ‘King of Manuscripts’ Into the ‘Madoff of France’

  Jeff Carter: Chance Versus Risk

  Joshua Brown: How to Start a Hedge Fund From Scratch & Rich Greenfield on All The Streaming Video Plays

  Howard Lindzon: Give Me More Shots On Goal

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• Earnings from Stepan and Hormel
  Eddy Elfenbein, February 20th, 2020 at 10:47 am

  We had two earnings reports this morning. Stepan (SCL) said it made $1.10 per share for its fourth quarter. Analysts had been expecting 88 cents per share. For the year, SCL made $5.12 per share.

  “Despite significant challenges during the year, driven by the equipment failure in Ecatepec , the wet weather in the U.S. farm belt, the sulfonation exit in Germany and FX headwinds, the Company exceeded its 2018 record full year adjusted net income and grew adjusted EPS 7%,” said F. Quinn Stepan, Jr. , Chairman, President and Chief Executive Officer. “For the quarter, Surfactant earnings were up due to the insurance recovery in Mexico and improved margins. The Polymer business had a good fourth quarter driven by global rigid polyol growth of 7%. Specialty Products income was down slightly due to customer order patterns but was up significantly on a full year basis.”

  The stock is up a bit in today’s trading.

  The other report is from Hormel Foods (HRL). This is for Hormel’s fiscal Q1 which ended at the end of January. The Spam people report early so their earnings report tends to blend in with the other stocks whose Q4 ended in December.

  For Q1, Hormel made 45 cents per share which matched expectations. Organic sales were up 4%. The company reiterated its full-year forecast for sales ranging between $9.5 billion and $10 billion and EPS between $1.69 and $1.83. These numbers were basically what I had been expecting.

  “Organic sales growth met our expectations this quarter as three of our four segments delivered volume and sales growth,” said Jim Snee, chairman of the board, president and chief executive officer. “It is encouraging to see Jennie-O Turkey Store deliver a second consecutive quarter of volume, sales and profit growth while continuing to gain back Jennie-O lean ground turkey distribution.

  The shares are currently down about 5% today.

• Morning News: February 20, 2020
  Eddy Elfenbein, February 20th, 2020 at 8:03 am

  Europe, Overrun by Foreign Tech Giants, Wants to Grow Its Own

  Dollar Tramples Yen and Everything Else In Its Path

  U.S. Dollar Nears a Critical Level That May Trigger a Buying Spree

  Trump Administration Sees No Threat to Economy From Monopolies

  Fed Flagged Coronavirus Risk at January Meeting

  Goldman Sachs Warns of Imminent Risk for Stocks Due to Complacency on Coronavirus

  Morgan Stanley to Buy E*Trade Financial in $13 Billion Deal

  When You Click Buy on Amazon, It May Be Sweating the Supply

  Apple Weighs Letting Users Switch Default iPhone Apps to Rivals

  UBS CEO Sergio Ermotti Steps Down, ING’s Ralph Hamers Named New Chief

  In America’s Richest Town, $500k a Year Is Now Below Average

  Victoria’s Secret to Go Private at $1.1 Billion Valuation

  Roger Nusbaum: Optionality Leads To Resiliency

  Ben Carlson: Animal Spirits: What Makes People Happier Than Money

  Michael Batnick: The Natural Progression of Life

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