Archive for April, 2020

• CWS Market Review – April 10, 2020
  Eddy Elfenbein, April 10th, 2020 at 7:08 am

  There is every reason to believe that the economic rebound, when it comes, can be robust.” – Fed Chairman Jerome Powell

  The stock market is closed today for Good Friday. Traditionally, this is the one day of the year when the stock market is closed while the government and most businesses are open. Of course, this year, many businesses are closed anyway.

  The economic news continues to be dire. On Thursday, the Labor Department reported that first-time jobless claims hit 6.6 million. That means that over the past three weeks, nearly 16.8 million Americans have lost their jobs. That’s roughly 10% of the entire workforce.

  Despite the terrible economic news, the stock market has roared back to life. There appears to be tentative news that the social isolation policies are having an impact. Of course, there’s still a long way to go. Markets are celebrating, and it may be premature. This past week was the best for stocks since October 1974. We’ve now made back half of what we lost.

  

  Monday’s percentage gain for the Dow was its sixth best in the last 87 years but only its third best in the last month. Over the last 13 sessions, the S&P 500 gained 24.7%. That’s an astounding gain for such a short amount of time. Our Buy List has done even better, gaining 27.6%. Some individual stocks have done spectacularly well (off a very low base). Shares of AFLAC (AFL) are 65% above their low from just three weeks ago. In the last four days, Trex (TREX) has gained 26%.

  In this week’s issue, I want to look closer at the market’s rebound. Is it for real, or is it just another head-fake? I’ll also discuss the unprecedented measures the Fed announced on Thursday. We also had a good earnings report from RPM International (RPM). The company beat earnings, and the shares are up more than 15% in the last four sessions. I’ll also update you on some news impacting our Buy List stocks. But first, let’s look at the market’s impressive rebound.

  Don’t Be Taken In By This Rally

  I’ve tried to caution you against getting too impressed by the market’s snap-back. Whenever the market gets killed, there’s naturally going to be a counter-rally. Bear-market rallies are a fact of life, and they can easily fool investors into thinking the bears have run off for good. Still, I have to give this latest surge its due. If this is a “dead-cat” rally, then it’s one darned impressive cat.

  Ryan Detrick notes that in two of the past three weeks, the S&P 500 has gained more than 10%. To put that in perspective, these two weeks now rank in the top six of all weeks going back to World War II.

  Just to give you an example of how strong the rally has been, the S&P 500 Energy has gained 43% since March 23. Of course, that’s after an historically awful period before that. (Get used to seeing a lot of “since March 23.”)

  I have to confess that I have mixed feelings about the rally. It’s nice to see, and it’s been very good to us. But I don’t trust it, and I’m not alone. It’s interesting to note that the Volatility Index remains quite elevated. At one point on Tuesday, the S&P 500 was up by 3.5%, yet it closed down for the day. The market is putting a lot of weight on the improved coronavirus numbers.

  

  It’s especially odd to see rising share prices in the face of such poor economic news. Janet Yellen said GDP could fall by 30%, and unemployment is already at 12% to 13%.

  Last Friday’s jobs report showed a loss of 701,000 jobs, and that’s only through March 12. It’s been much worse since then. Goldman Sachs floated a simple formula. Every 1.5 million in excess jobless claims reflects a 1% hit to GDP. If that’s right, that translates to a knock of 11% to GDP, and we’re not done yet.

  On Thursday, the Federal Reserve unveiled a massive $2.3 trillion program. The central bank is willing to take unprecedented steps to protect the financial system from economic wreckage. The Fed’s balance sheet is now over $6 trillion.

  There are several programs involved, and one includes the Fed’s buying high-yield bond ETFs. One popular high-yield ETF, HYG, jumped over 6.5% on Thursday. Some of Ford’s bonds went from 71 cents on the dollar to 89 cents. The carmaker has $36 billion in bonds outstanding.

  Investors should continue to focus on high-quality stocks. I won’t predict that the rally will soon run out of steam, but it’s prudent to act as if that’s possible. Our stocks are holding up well. Four of our stocks are up for the year, and another seven are down less than 6%. Silgan (SLGN), one of our new stocks this year, came very close to a fresh 52-week high on Thursday.

  I like all the stocks on our Buy List, but Hershey (HSY), Ansys (ANSS) and Church & Dwight (CHD) look particularly good here. We’ll know a lot more once earnings season begins. Most importantly, don’t panic and sell. These surges can come at any time. Now let’s look at our one earnings report this week.

  RPM International Beats Earnings

  On Wednesday, RPM International (RPM) reported fiscal third-quarter earnings of 23 cents per share. That beat estimates by two cents per share. This is for the three months ending on February 29, so it was before the coronavirus become a major business issue.

  Previously, RPM said it expected EPS “in the high-teens to low-20-cent range.” Three weeks ago, RPM revised that to say it expects to see earnings “at the higher end” of its previous range. They were right on that.

  For Q3, adjusted EBIT rose 30.4% to $60.5 million, and net sales increased by 2.9% to $1.17 billion. Due to the coronavirus, RPM has decided to suspend its guidance. They’re also canceling any share buybacks. In a tough time like this, that’s the right thing to do.

  On the bright side, RPM made it clear that it’s “well positioned to weather the pandemic due to strong balance sheet, significant liquidity, maintenance nature of products, potential for DIY uptick, and margin improvements from restructuring.” At the end of the quarter, RPM has a position of cash and revolving credit of $1.14 billion.

  RPM’s business is divided into four groups. For Q3, Construction Products had a sales increase of 4.7%. Performance Coatings rose by 1%. The Consumer Group was up 5.4%. Specialty Products, the smallest group, was the laggard as organic sales fell 7.1%.

  RPM’s Chairman and CEO Frank C. Sullivan said:

  “We are pleased with our top-line growth during the third quarter, which typically generates our most modest results each year because it falls during the winter months, when painting and construction activity slow. Market-share gains and pricing contributed to organic-sales growth of 3.0%. This was partially offset by foreign-currency translation of 0.8%, while acquisitions contributed 0.7% to sales. Our year-to-date cash flow from operations improved by $236 million over last year due to better working-capital management and margin improvement from our MAP to Growth program.”

  For the nine months so far of this fiscal year, RPM increased sales by 2.1% to $4.05 billion. Organic growth is up 2.0%, acquisitions added 1.3% and foreign exchange reduced sales by 1.2%. For the first nine months of the year, RPM earned $1.94 per share.

  Now comes the hard part. The previous full-year guidance, which is now canceled, was for earnings between $3.30 and $3.42 per share. RPM said it expects to see a sales drop for Q4 of 10% to 15%.

  This was a good earnings report, and it shows us what a good company RPM is. Since March 23 (see!), RPM has gained more than 40% for us. The company owns Rust-Oleum and makes lots of workshop products. RPM has raised its dividend every year since 1973. This week, I’m lowering our Buy Below on RPM to $71 per share.

  

  Buy List Updates

  First-quarter earnings season is about to begin. I have some of the earnings dates, but not all of them. I hope to have a complete calendar for you next week. Twenty-one of the 25 stocks on our Buy List follow the March/June/September/December reporting cycle.

  Here are some updates on our Buy List stocks. I’m lowering a few of our Buy Below prices to better reflect the current market.

  Ross Stores (ROST) furloughed most of its employees starting on April 5. The board and CEO have agreed to go without a salary. Ross has said there will be no change to employees’ health benefits. That’s good to see. Hopefully, the stores will reopen soon. On Monday, the stock jumped 16%. Ross is a buy up to $100 per share.

  Ansys (ANSS) released a letter to shareholders. There’s too much news to give a decent summary, but the company said it will continue to pay its salaried employees. I’m dropping my Buy Below to $250 per share.

  I mentioned earlier that AFLAC (AFL) has rallied 65% off its low from three weeks ago. Of course, that’s after a nasty downturn. The next earnings report is due out on April 29. I’m dropping AFLAC’s Buy Below to $42 per share.

  This week, Disney (DIS) said that its Disney+ streaming service has surpassed 50 million subscribers. The service is just five months old, and it’s on pace to hit its 2024 target this year. Earnings should be out in early May. Disney remains a buy up to $107 per share.

  Two months ago, I raised our Buy Below on Fiserv (FISV) to $130 per share. The company had just announced its 34th consecutive year of double-digit earnings growth. The reasons were good, but my timing was terrible. I still love Fiserv, but I’m dropping my Buy Below to $107 per share.

  Stryker (SYK) is another stock that’s loving the rebound. Since March 23 (again!), SYK is up 45% for us. Earnings are due out on April 30. I’m dropping my Buy Below down to $200 per share.

  Shares of Trex (TREX) have been all over the place. The good news is that the stock has gained 26% in the last four days. Earnings are due out on May 4.

  That’s all for now. There’s not much on tap for economic news next week. The Thursday jobless-claims report seems to have taken over as the most-watched economic release. On Wednesday, we’ll get the reports on retail sales and industrial production. The first Q1 earnings report will be coming out, although ours won’t start until the following week. 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: April 10, 2020
  Eddy Elfenbein, April 10th, 2020 at 6:38 am

  Global Oil Deal at Risk After Mexico Ditches Saudi-Russia Plan

  Japan’s Battle With Pandemic May Mark End of Abe’s Fiscal Experiment

  EU Finance Chiefs Dodge Coronabonds in $590 Billion Rescue

  Do Pandemic Bonds Work?

  With $2.3 Trillion Injection, Fed’s Plan Far Exceeds Its 2008 Rescue

  Medical Supplies Free-for-All Has States Lashing Out at FEMA

  A Wall Street Bank’s Hard-Driving Culture Pushes Traders Into the Office

  ‘Sudden Black Hole’ for the Economy With Millions More Unemployed

  Boeing Considers 10% Cut to Workforce

  Could the Pandemic Wind Up Fixing What’s Broken About Work in America?

  Quarantine Bakers Are Making Flour a Hot Commodity

  Nick Maggiulli: Has the Dust Settled Yet?

  Ben Carlson: Buying Foreign Stocks After a Fall

  Michael Batnick: I’m Struggling Here

  Joshua Brown: The Fed Finds Another Kitchen Sink to Throw at Us

  Be sure to follow me on Twitter.

• The Fed Gives the Market a Lift
  Eddy Elfenbein, April 9th, 2020 at 11:13 am

  A newsworthy morning. The Department of Labor said that another 6.6 million Americans filed for first-time jobless claims. We’ve now lost 10% of the workforce is just three weeks.

  The Federal Reserve announced details of a $2.3 trillion program designed to help alleviate the economic standstill.

  Among the Fed’s measures were details regarding its Main Street business lending program and several other initiatives it is undertaking to backstop the reeling U.S. economy. The central bank also provided more detail on its market interventions, including plans to buy corporate bonds both at an investment-grade level as well as high-yield, or junk, bonds.

  Under provisions outlined for the first time, the loans would be geared toward businesses with up to 10,000 employees and less than $2.5 billion in revenues for 2019. Principal and interest payments will be deferred for a year.

  The Fed said the programs would total up to $2.3 trillion and include the Payroll Protection Program and other measures aimed at getting money to small businesses and bolstering municipal finances with a $500 billion lending program.

  Stock futures had been trending lower but the Fed’s news turned that around. The S&P 500 has been up as much as 2.3% this morning.

  Interestingly, today’s high for the S&P 500 was almost exactly the midpoint between the index’s recent high and its recent low. In other words, we gained back half of what we lost.

  Shares of Disney (DIS) are getting a nice boost after the company said it’s up to 50 million Disney+ subscribers.

  Shares of Trex (TREX) are up more than 30% over the last four trading sessions.

• Morning News: April 9, 2020
  Eddy Elfenbein, April 9th, 2020 at 7:09 am

  Europe’s Big Economies Brace for Sharpest Drop Since World War II

  OPEC and Allies to Decide on Historic Oil Production Cut as Coronavirus Ravages Demand

  Unemployment Tally Expected to Surge by Millions

  How A Cascade of Job Losses Left America’s Safety Net in Shreds

  McConnell Sets Up Showdown With Schumer on Small Business Aid

  The $90 Trillion Question Is How to Get People Back to Work

  Wall Street Firm Dangled Up to 175% Returns to Investors Using U.S. Aid Programs

  May is Crunch Time for U.S. Auto Suppliers Amid Coronavirus Shutdown

  Fed Eases Wells Fargo’s Asset Cap to Lend to Small Businesses Harmed by Coronavirus

  Joshua Brown: The S&P 500 is Mostly Concerned With Duration (Chart) & Heroes of the New Bear Market: What Are Your Thoughts?

  Howard Lindzon: The Zoom Seders… An 8-80 Brand Has Been Born

  Cullen Roche: This Isn’t the Next Great Depression

  Roger Nusbaum: Fix It Before It Breaks & Capital Appreciation Or Capital Protection?

  Ben Carlson: What Good is History When Dealing With an Unprecedented Crisis?

  Michael Batnick: Animal Spirits: Some Good News

  Be sure to follow me on Twitter.

• RPM International Beats Earnings
  Eddy Elfenbein, April 8th, 2020 at 2:36 pm

  This morning, RPM International (RPM) reported fiscal third-quarter earnings of 23 cents per share. That beat estimates by two cents per share. This is for the three months ending on February 29 so it was before the coronavirus become a major business issue.

  Previously, RPM said it expected EPS “in the high-teens to low-20-cent range.” Three weeks ago, RPM revised that to say it expects to see earnings “at the higher end” of its previous range. They were right on that.

  For Q3, adjusted EBIT rose 30.4% to $60.5 million and net sales increased by 2.9% to $1.17 billion. Due to the coronavirus, RPM has decided to suspend its guidance. They’re also canceling any share buybacks.

  On the bright side, the company made it clear that they’re “well positioned to weather the pandemic due to strong balance sheet, significant liquidity, maintenance nature of products, potential for DIY uptick, and margin improvements from restructuring.” At the end of the quarter, RPM has a position of cash and revolving credit of $1.14 billion.

  RPM’s business is divided into four groups. For Q2, Construction Products had a sales increase of 4.7%. Performance Coatings rose by 1%. The Consumer Group was up 5.4%. Specialty Products, the smallest group, was the laggard as organic sales fell 7.1%.

  RPM’s Chairman and CEO Frank C. Sullivan said:

  “We are pleased with our top-line growth during the third quarter, which typically generates our most modest results each year because it falls during the winter months, when painting and construction activity slow. Market share gains and pricing contributed to organic sales growth of 3.0%. This was partially offset by foreign currency translation of 0.8%, while acquisitions contributed 0.7% to sales. Our year-to-date cash flow from operations improved by $236 million over last year due to better working capital management and margin improvement from our MAP to Growth program.”

  For the nine months so far of this fiscal year RPM has a sales increase of 2.1% to $4.05 billion. Organic growth is up 2.0%, acquisitions added 1.3% and forex reduced sales by 1.2%. For the first nine months of the year, RPM earned $1.94 per share.

  The previous full-year guidance, which is now canceled, was for earnings between $3.30 and $3.42 per share. RPM said it expects to see a sales drop for Q4 of 10% to 15%.

  The stock is currently up about 4% today. RPM owns Rust-Oleum and makes lots of workshop products. The company has raised its dividend every year since 1973.

  

• Morning News: April 8, 2020
  Eddy Elfenbein, April 8th, 2020 at 7:04 am

  Stock Markets Slip as Grim Economic Data Arrives

  Wobbly U.S. Fiscal Response Could Deepen Coronavirus Recession

  Trump Team Preps Plans to Reopen Economy That Depend on Testing

  Small Business Aid Program Stretches Agency to Its Limits

  Trump Administration Seeks $250 Billion More in Aid for Small U.S. Businesses

  The Virus Changed the Way We Internet

  ‘I Just Need the Comfort’: Processed Foods Make a Pandemic Comeback

  Zoom Sued for Fraud Over Privacy, Security Flaws

  Tesla to Cut Pay as Much as 30% While Virus Idles Production

  Twitter’s Jack Dorsey Pledges $1 Billion to Charity, Including Coronavirus Relief

  Nick Maggiulli: The Flight to Safety

  Cullen Roche: Pragmatic Thinking on COVID-19 – The Podcast

  Jeff Carter: Some Discoveries Are Happening

  Ben Carlson: What Happened to Small Cap Value?

  Michael Batnick: No, This is Not the Great Depression

  Be sure to follow me on Twitter.

• Don’t Think the Coast Is Clear
  Eddy Elfenbein, April 7th, 2020 at 2:12 pm

  The stock market is up again today. While the market has bounced impressively over the last two weeks, I encourage investors not to think the coast is clear.

  Yes, there’s been better news about the battle against corona, but there’s still a long way to go. It’s a simple fact that the market likes to retest its lows. I hope this is an exception, but it’s safe to be prudent.

• Morning News: April 7, 2020
  Eddy Elfenbein, April 7th, 2020 at 6:38 am

  Christine Lagarde’s $810 Billion Coronavirus U-Turn Came in Just Four Weeks

  Billions Idled at Banks After Regulators Balk at Following Fed

  Trump Says OPEC Has Not Asked Him For a U.S. Oil Production Cut

  Oil Companies Are Collapsing, but Wind and Solar Energy Keep Growing

  Trump Eases Covid-19 Export Ban Amid Backlash Around World

  Coronavirus Muddies U.S. Economic Data as Business Closures Push Down Response Rates

  Greed and Fear Collide: Wall Street Calls Traders Back to Office

  Michael Burry of ‘The Big Short’ Slams Virus Lockdowns in Tweetstorm

  Some Insurers Offer a Break for Drivers Stuck at Home

  Zoom Video Stock Falls On School Ban As Microsoft Teams Gains Traction

  Joshua Brown: What if the Bull Market Didn’t Actually End? & Apple Shipping 1 Million Face Shields to Hospitals This Week

  Howard Lindzon: Momentum Monday…How Did We Miss The Crash? …And PATIENCE

  Roger Nusbaum: Did Congress Just Give Us A Free Pass To Access Our 401ks? & What Are You Learning From The Pandemic?

  Michael Batnick: Is the Bull Market Over?

  Ben Carlson: Does Experience Matter During a Bear Market?

  Be sure to follow me on Twitter.

• Sixth-Best Day for the Dow in 87 Years.
  Eddy Elfenbein, April 6th, 2020 at 10:53 pm

  This was a very strong day for the stock market. The S&P 500 gained 7.03%. The Dow increased by 7.73%.

  Today was the sixth-best percentage gain for the Dow in the last 87 years, but only the third best in the last month.

  Today was also a fairly broad rally. Lately, it seems like small-caps have lagged every uptick. The S&P 500 Equal Weight Index was up by 7.61% which is basically in line with the rest of the market.

  On our Buy List, Ross Stores (ROST) gained more than 16%. Ansys (ANSS), Fiserv (FISV), Stryker (SYK) and Globe Life (GL) were all up by more than 10%.

  Shares of AFLAC (AFL) are now up over 50% from their low reached less than three weeks ago.

  Today was the highest close for the S&P 500 since March 13. Going by closing numbers, the S&P 500 lost 33.92% from peak to trough. Off the low, the index has gained 19.05%. Today’s close is down 21.34% from the highest close.

  The S&P 500 has gained back roughly 3/8th of the points it lost.

  

• Two Weeks Since the Low
  Eddy Elfenbein, April 6th, 2020 at 1:06 pm

  The stock market is having a very good day so far. The S&P 500 is currently up more than 5%. It’s now been two weeks since the market made its low.

  There were some signs, and I don’t want to overstate this, that the virus may be peaking in different parts of the world. Of course, we’re a long way from victory. This could be the toughest week.

  The yield on the two-year Treasury is all the way up to 0.25%. I know that’s puny but it’s the highest yield in a week. Ross Stores (ROST) is up 16% today.

  Homebuilding stocks are doing especially well today. Today’s rally is pretty broad, which is nice to see. The minnows are joining in, not just the big fish. The S&P 500 needs to close above 2,630.07 to reach a post-low high.