Archive for February, 2020

• Sherwin-Williams Raises Dividend
  Eddy Elfenbein, February 19th, 2020 at 4:50 pm

  An 18.6% increase.

  The Board of Directors of The Sherwin-Williams Company (NYSE: SHW) today announced a regular quarterly dividend of $1.34 per common share, an increase of 18.6% over the $1.13 paid in the same quarter in 2019, payable on March 13, 2020, to shareholders of record on March 2, 2020. This increase follows 41 consecutive years of dividend increases.

• Morning News: February 19, 2020
  Eddy Elfenbein, February 19th, 2020 at 7:09 am

  In Coronavirus Fight, China Sidelines An Ally: Its Own People

  Chinese Companies Say They Can’t Afford to Pay Workers Now

  Apple Is Handcuffed to the iPhone. Just Like Its Customers

  Puma Chief Puts Brave Face on Coronavirus Retail Crisis

  Cruise Giant Carnival Works to Manage Deepening Coronavirus Crisis

  Fed’s Balance Sheet Dominates What to Watch For in FOMC Minutes

  An Economist’s Guide to Spending Bezos’s Billions on Climate Change

  The Future Of Battery Energy Storage Is Upon Us

  Tesla Solar Roof Superfans Face Long Waits, Install Times

  Bed Bath & Beyond Boss Tries to Declutter Stores

  Wine is Expected to Get a Lot More Affordable Due To An Oversupply of California Grapes

  Nick Maggiulli: Avoid the Zeros

  Joshua Brown: Rooting for a Correction

  Howard Lindzon: Amazon Keeps On Chugging…And The Space Bubble

  Ben Carlson: The Biggest Problem in Finance?

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• Apple Warns on Virus
  Eddy Elfenbein, February 18th, 2020 at 11:22 am

  Yesterday, the financial world got a bit of a shock when Apple (AAPL) warned that due to the coronavirus, they won’t hit their revenue targets for fiscal Q2.

  They didn’t provide new numbers; they just said they won’t hit the old ones. Shares of Apple are down a bit today along with some big-name tech stocks. When you’re worth $1.4 trillion, anything you say will get attention.

  Not much news on our Buy List. I see that Globe Life (GL), Ross Stores (ROST) and Silgan (SLGN) are all at new highs this morning.

  Middleby (MIDD) finally said when it will report its earnings. The date is February 26.

• Morning News: February 18, 2020
  Eddy Elfenbein, February 18th, 2020 at 7:05 am

  China to Grant Tariff Exemptions on 696 U.S. Goods to Support Purchases

  China Races to Contain Job Losses As Coronavirus Batters Economy

  Pessimistic Outlook in Russia Slows Investment, and the Economy

  Fed Doesn’t Want Another Repo Crisis, But Treasury Isn’t Helping

  How Millennials Could Make the Fed’s Job Harder

  Apple Shares Drop After Virus Warning Rattles Tech Investors

  Exclusive Details on Michael Bloomberg’s Plan to Rein in Wall Street

  Franklin Resources Nears Deal to Buy Legg Mason

  A Giant Milk Industry Merger Moves Closer With a $425 Million Deal

  Tesla Bear Morgan Stanley Raises Its Bull Case to $1,200 a Share

  Pier 1 Imports, the Struggling Home Goods Retailer, Files for Bankruptcy

  HSBC Holdings Profit Plunges 53%, Will Suspend Buybacks amid Revamp

  Michael Batnick: A Random Watch Down Wall Street: Margin Call

  Ben Carlson: The Biggest Wealth Levers & Some Lessons From 92 Years of Market Return Data

  Jeff Carter: Investing, Just Do It & VC: Godlike or Service Industry?

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• Morning News: February 17, 2020
  Eddy Elfenbein, February 17th, 2020 at 7:07 am

  Japan’s Economy Shrank Sharply. Now Comes the Coronavirus.

  Slowed by the Coronavirus, China Inc. Struggles to Reopen

  Trump Effort to Keep U.S. Tech Out of China Alarms American Firms

  Lebanon Warned of Implosion as IMF, World Bank Plead for Reforms

  Dubai’s Massive Port Operator DP World is Delisting and Returning to Private Ownership

  GM Shuts Australia, NZ Operations; Sells Thai Plant to Great Wall

  Clock’s Ticking for Nissan Boss Uchida to Show He Has a Plan

  Alstom in Talks for $7 Billion Buyout of Bombardier Train Unit

  New York Drops Fight Against T-Mobile-Sprint Merger

  Facebook Needs Regulation to Win User Trust, Zuckerberg Says

  Crazy Mascots Flooded Japan. Can This Grouchy Boar Survive?

  Jeff Miller: Is It Too Late to Invest in Housing Stocks?

  Cullen Roche: Three Things I Think I Think – Bubbles, Bernie & the Recliners

  Roger Nusbaum: You Need More Optionality, Not Less

  Howard Lindzon: Another E-Commerce Aha Moment….And Amazon Should Still Buy Twitter

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• CWS Market Review – February 14, 2020
  Eddy Elfenbein, February 14th, 2020 at 7:08 am

  “Employment gains have been broad based across all racial and ethnic groups and levels of education. Wages have been rising, particularly for lower-paying jobs.”
  – Fed Chairman Jerome Powell

  A month ago, the daily moves on the stock market were largely determined by whether or not we had good news on the trade front. An optimistic news story could send stocks higher, while a pessimistic take could cause stocks to sour.

  Over the last few weeks, that dynamic has been replaced by news on the coronavirus. I think this is a good instance of Wall Street traders looking for excuses to do what they already intended. That’s not uncommon.

  The good news is that Wall Street had been inching higher of late. On Wednesday, the S&P 500 rallied for the seventh time in eight days to close at another all-time high. The index is already up 4.4% this year.

  This has been a remarkable rally. Four years ago this week, on February 11 to be precise, the S&P 500 closed at a near-term low of 1,829. It’s been a vigorous rally ever since. In fact, if you look at the S&P 500 Total Return Index, which includes dividends, it shows that the stock market has almost exactly doubled in four years and two days.

  

  Our Buy List stocks are joining in the fun. Moody’s is our #1 performer so far this year with a gain of more than 14%. The ratings agency just delivered another outstanding earnings report. I’ll have the details in a bit.

  We also have double-digit gains in some of our newbies this year, like Ansys (ANSS) and Trex (TREX). Later on, I’ll preview the upcoming earnings reports from Stepan (SCL) and Hormel Foods (HRL). But first, let’s look at some recent economic news.

  Make Sure You Own Some Defensive Stocks

  With the troubling news of the coronavirus, there’s been some speculation that the Federal Reserve may cut interest rates. This is interesting because not that long ago, market watchers didn’t see the Fed making any moves before election day. Frankly, I’m still a doubter.

  Fed Chairman Jerome Powell testified before Congress this week. This is part of his semi-annual Humphrey-Hawkins testimony. In this week’s epigraph, I included an interesting statement from the Fed Chairman on the state of the labor market. This is very encouraging news.

  Last week’s strong jobs report was also a good indicator that the Fed is happy with interest rates right where they are. I like to watch the two-year Treasury yield because it’s often a good indicator of what the Fed will do. The two-year yield did dip below 1.35% recently, but it’s come up some. I think the Fed wants to avoid the appearance that they’ll come running to the rescue any time the market hiccups.

  Another point in the Fed’s favor was this week’s timid inflation report. On Thursday, the government said that consumer prices rose just 0.1% last month. The “core rate,” which excludes food and energy prices, rose by 0.2%.

  The Fed’s recent rate cuts were clearly good for the economy, and that’s what the market is responding to. Going forward, however, I urge caution. Defensive stocks got left behind late last year. They came alive again in January, but February has been rough. I think we’ll see more defensive stocks do well later this year.

  By defensive, I mean consumer staples like Hershey (HSY) or Church & Dwight (CHD). In a bit, I’ll preview the upcoming earnings report from Hormel Foods (HRL), a classic defensive stock.

  You also want to make sure you have several dividend payers in your portfolio. There are several good candidates on our Buy List. Dividend-paying stocks have become popular again. In fact, more than 70% of the weighting of the S&P 500 is comprised of dividend payers. That’s the highest percentage since the 1920s.

  Fortunately, Wall Street still sees decent earnings growth for this year. At the start of the year, analysts had been expecting earnings growth of 9.6%. That’s been trimmed back to 8.1%. It’s still a lot better than the 1.7% we got for 2019.

  Now let’s look at the strong earnings report from Moody’s.

  Moody’s Is a Buy Up to $288 per Share

  On Wednesday, Moody’s (MCO) released fourth-quarter earnings of $2.00 per share. That’s up 23% over last year. It also topped Wall Street’s forecast by seven cents per share.

  This was a solid quarter for Moody’s. Revenues rose 16% to $1.2 billion. For the year, Moody’s earned $8.29 per share. That’s an increase of 12% over 2018. In business, the only thing better than a monopoly is a pseudo-monopoly (folks tend to notice the first). In particular, I’m a big fan of Moody’s Analytics.

  I also like that Moody’s is rewarding its shareholders. During 2019, Moody’s bought back 5.2 million shares at a cost of $991 million. The company is also bumping up its dividend by 12% to 56 cents per share. The dividend will be payable on March 18 to stockholders of record at the close of business on February 25.

  Now let’s look at guidance. For 2020, Moody’s expects earnings to range between $9.10 and $9.30 per share. That’s quite good. I was actually expecting something more conservative. I think Moody’s can hit $10 per share next year.

  The shares dropped at the open but then quickly reversed course. The stock has been a strong performer for us. Since early October, MCO has gained nearly 40%. Don’t be surprised to see Moody’s lag for a bit. Nothing’s wrong. We just have to keep our feet on the ground even when traders aren’t. This week, I’m lifting my Buy Below on Moody’s to $288 per share.

  

  Two Earnings Reports Next Thursday

  We have two more reports next Thursday. Stepan (SCL), one of our new stocks, is due to report before the market opens. Stepan makes specialty and intermediate chemicals. The company has been in business for 82 years, and it’s still barely known. Actually, I kind of like that. Stepan is followed by just two analysts on Wall Street.

  Although Stepan is classified with other specialty-chemical companies, it’s unique in the industry. Stepan doesn’t have a competitor that precisely matches its businesses. It makes surfactants, which are the key ingredient in consumer and industrial cleaning compounds. That includes things like detergents, fabric softeners, shampoos, and lotions. Surfactants make them clean and foam.

  Stepan also makes germicidal quaternary compounds. That’s a scary name for products that kill germs, mold, and mildew. Hospitals and restaurants depend on these products for the safety and hygiene of their premises.

  Stepan also has a polymer group. This is for plastics and polyester products. Think of a laminate board for the construction industry plus coatings, adhesives, and sealants. Stepan has about 2,000 employees.

  In October, Stepan raised its dividend by 10% to 27.5 cents per share which works out to $1.10 per share for the year. This was Stepan’s 52nd annual dividend increase in a row. That’s a remarkable streak. There are very few companies that have longer streaks than that. Speaking of which….

  Also on Thursday, Hormel Foods (HRL) is due to report. Hormel is one of our off-cycle stocks. Their quarter ends at the end of January. Since they tend to report early, their fiscal Q1 report blends in when other companies are reporting their Q4 results.

  Three months ago, Hormel said they made 47 cents per share. That was a penny better than estimates. For the entire fiscal year, Hormel made $1.80 per share. For 2020, Hormel sees sales ranging between $9.5 billion and $10 billion and EPS between $1.69 and $1.83. For Q1, Wall Street expects 45 cents per share.

  In November, Hormel also raised its annual dividend from 84 cents to 93 cents per share. That was the 54th year in a row that the Spam people have increased their dividend. Yes, we found one even longer than Stepan!

  Buy List Updates

  Coming the week after next, we’ll get earnings from Trex (TREX) and Ansys (ANSS). We should also hear from Middleby (MIDD), but they haven’t given us an earnings date yet.

  I also want to make changes to our Buy Below prices. I’m raising the Buy Below of FactSet (FDS) to $304 per share. The next earnings report will be due out in late March.

  I’m also cutting my Buy Below on Eagle Bancorp (EGBN) to $48 per share.

  That’s all for now. The stock market will be closed on Monday for George Washington’s birthday (technically, the NYSE celebrates Washington’s birthday, not President’s Day.) On Wednesday, the Fed will release the minutes from their last meeting. Also on Wednesday, we’ll get the latest housing-starts report. Then on Friday, the report on existing-home sales is due out. 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 14, 2020
  Eddy Elfenbein, February 14th, 2020 at 7:02 am

  German Economy Looks Ill-Prepared for What’s Coming in 2020

  U.S. Accuses Huawei of Stealing Trade Secrets, Assisting Iran

  Judge Halts Work on Microsoft’s JEDI Contract, a Victory for Amazon

  SEC Subpoenas Financial Records From Tesla in New Probe

  Zuckerberg Ready for Facebook to Pay More Tax as Welcomes Rules Review

  Airbnb to America’s Big Cities: See You in Court

  As Boeing Jets Sit Idle, Airbus Can’t Make Planes Fast Enough

  Climate Skeptic Asset Managers Face Pressure to Reveal Donations

  BP Beefs Up Carbon Capture Team in Bid to Meet Climate Goals

  Motorola’s $1,500 Razr Reboot Feels More Prototype Than Premium

  T-Mobile Parent Deutsche Telekom Seeking To Renegotiate Price Of Sprint Merger

  Build Build Build Build Build Build Build Build Build Build Build Build Build Build

  Ben Carlson: The Biggest Risk in Crypto Today

  Michael Batnick: When You Were Born > Everything Else

  Joshua Brown: What New Investors Should Focus On

  Be sure to follow me on Twitter.

• Tesla to Raise $2 Billion from a Stock Offering
  Eddy Elfenbein, February 13th, 2020 at 9:10 am

  Shares of Tesla (TSLA) are down a few dollars this morning after the company said it will float $2 billion in stock.

  I have a simple rule in these matters. A company may raise as much as they can get away with. By this I mean, raise as much to the point that it won’t hurt their stock.

  Outside of a few percentage points today, shares of Tesla have rallied spectacularly since June. As such, it’s completely responsible to raise money from new investors. If people want to overpay for your stock, the company has every right to benefit from that.

  On this issue, I’m a complete pragmatist. Companies shouldn’t worry about what economic models say. If the market is cool with it, then you’re right. If it’s not, then you’re wrong.

  I wouldn’t be surprised if Tesla closes up today.

  By the way, this raises an interesting theoretical point. If we view the market as a contest between a stock’s market price and its true underlying value, what Tesla is doing blurs that line.

  An overvalued company can use its rich stock price to raise more capital which in turn raises its true underlying value. In turn, that can raise the share price.

  During the dot-com bubble, we saw empty companies use their exalted share prices as currency to buy other empty companies. This was a great strategy, until it wasn’t.

• Modest Inflation for January
  Eddy Elfenbein, February 13th, 2020 at 8:56 am

  This morning, the government said that consumer prices rose 0.1% last month after increasing by 0.2% for the prior three months.

  The “core rate,” which excludes food and energy prices, rose by 0.2%. Or to be somewhat more precise, 0.2423%. In the last 12 months, the core CPI is up 2.3%.

  In January, gasoline prices fell 1.6% after jumping 3.1% in December. Food prices gained 0.2%, matching December’s increase. Food consumed at home ticked up 0.1%.

  Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3% after rising 0.2% for two consecutive months. The shelter index rose 0.4% after climbing 0.2% in December.Healthcare costs rose 0.2% last month after surging 0.5% in December. Apparel prices jumped 0.7% after increasing 0.1% in December. But new vehicle prices were unchanged in January after rebounding 0.1% in the prior month. Prices for used motor vehicles and trucks fell 1.2% after decreasing 0.4% in December.

  We also learned this morning that initial jobless claims rose by 2,000 to 205,000. That’s still very low. Last week, claims were 203,000 which was the lowest since November.

  There are still two Fed vacancies. Trump has appointed Christopher Waller and Judy Shelton. Waller is a conventional choice, but Shelton is controversial. (Gold standard et al.) Both will appear before the Senate Banking Committee today.

• Morning News: February 13, 2020
  Eddy Elfenbein, February 13th, 2020 at 7:10 am

  Iran’s Economy Is Bleak. Its Stock Market Is Soaring.

  Jump in Coronavirus Cases Yanks Rally Into Reverse

  IEA Sees First Global Oil Demand Drop in a Decade

  With Harsh Words, China’s Military Denies It Hacked Equifax

  Retirement Millionaire Crowd Swells to Record in Roaring Market

  A Wall St. Giant Says Sanders Would ‘Ruin’ the Economy

  Despite $1 Trillion Deficits, Trump Tax Cuts Will Still ‘Pay For Themselves’: Mnuchin

  Andy Rubin’s Start-Up, Essential Products, Shuts Down

  Investment Bank Loss Mars Thiam’s Final Act at Credit Suisse

  James Staley, Barclays C.E.O., Faces U.K. Probe on Jeffrey Epstein Ties

  MGM Resorts CEO Jim Murren Departing Casino Company

  Jeff Bezos Buys David Geffen’s Los Angeles Mansion for a Record $165 Million

  Joshua Brown: The Bull Market for Financial Advisors

  Ben Carlson: Animal Spirits: Everybody’s Trading

  Michael Batnick: How We Measure Performance

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