Archive for July, 2020

  • Globe Life and Eagle Bank Beat Earnings
    , July 22nd, 2020 at 4:16 pm

    Today was a very good day for our Buy List. We were up 1.09% today which was 0.52% better than the S&P 500.

    The nice earnings reports certainly helped. Silgan Holdings (SLGN) gained 7.8% and Stepan (SCL) was up by 3.4%. Check Point Software (CHKP) had been up by 5% earlier today but it eventually closed down by 1.1%.

    After the closing bell, Globe Life (GL) reported fiscal Q2 operating earnings of $1.65 per share. The beat expectations of $1.53 per share.

    Here are some highlights:

    • Net income as an ROE was 9.4% for the six months ended June 30, 2020. Net operating income as an ROE excluding net unrealized gains on fixed maturities was 13.6%.
    • Life premiums increased over the year-ago quarter by 8% at the Direct to Consumer Division and 7% at the American Income Life Division.
    • Health premiums increased over the year-ago quarter by 7% at the Family Heritage Division.
    • Life net sales at the Direct to Consumer Division increased over the year-ago quarter by 43%.
    • Health underwriting margin increased over the year-ago quarter by 7%.

    Also after the bell, Eagle Bancorp (EGBN) reported earnings of 90 cents per share. That beat expectations of 74 cents per share.

    While the country at large experienced a very challenging environment in the second quarter of 2020 due to the COVID-19 pandemics extensive negative impacts to businesses and the economy in general, the banking industry faced significant related credit and interest rate challenges. In spite of these second quarter headwinds, we believe our Company has managed well, both in terms of our employee base staying healthy as well as staying in close contact with our many business relationships. As a result, we are pleased to report another quarter of overall favorable earnings, highlighted by continued growth in average loans and deposits, favorable operating leverage, and improved noninterest income, noted Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc. Ms. Riel continued, The Companys assets ended the quarter at $9.8 billion, representing 13% growth over the second quarter of 2019. Second quarter 2020 earnings resulted in a return on average assets (ROAA) of 1.12%, return on average common equity (ROACE) of 9.84%, and a return on average tangible common equity (ROATCE) of 10.80%.

    We have two more earnings reports tomorrow.

  • Five New Highs Today for the Buy List
    , July 22nd, 2020 at 11:50 am

    Sherwin-Williams (SHW), Silgan Holdings (SLGN), FactSet (FDS), Stepan (SCL) and Danaher (DHR) made new 52-week highs today.

    A few other Buy List stocks like Ansys (ANSS), Trex (TREX), Moody’s (MCO) and RPM International (RPM) are close to new highs.

    Ansys got five cents away.

  • Three Buy List Earnings this Morning
    , July 22nd, 2020 at 8:58 am

    We have five Buy List earnings reports due today and three came out before the opening bell.

    Check Point Software (CHKP) said that earnings rose 15% to $1.58 per share. That beat expectations of $1.44 per share. Revenue rose 4% to $506 million. Wall Street had been expecting $488 million.

    Stepan (SCL) reported Q2 adjusted net income of $1.65 per share. That’s up from $1.50 per share a year ago. Currency translation pinged them for 11 cents per share. Expectations were for $1.20 per share.

    Silgan Holdings (SLGN) earned 85 cents per share for the second quarter. The beat expectations of 65 cents per share.

    Globe Life (GL) and Eagle Bancorp (EGBN) will report later today.

  • Morning News: July 22, 2020
    , July 22nd, 2020 at 7:05 am

    Froth Returns to China’s Stock Market, Echoing the 2015 Crisis

    Africa Starts to Have Second Thoughts About That Chinese Money

    Insiders Who Nailed Market Bottom Are Starting to Sell Stocks

    Here’s What’s Behind the ‘Perfect Storm’ Sending Silver Prices Surging

    How Tesla Defined A New Era For The Global Auto Industry

    In Electric Car Market, It’s Tesla and a Jumbled Field of Also-Rans

    How to Sell Books in 2020: Put Them Near the Toilet Paper

    Can Remote Work Growth Offset Stalls In Microsoft’s One-Time Deals?

    How Ben & Jerry’s Perfected the Delicate Recipe for Corporate Activism

    Avoid Airline Stocks, Trader Says As United Airlines Reports $1.6 Billion Loss

    Joshua Brown: There Goes the Dollar

    Howard Lindzon: My Favorite Investing Book

    Jeff Carter: Request for Information From FDIC

    Nick Maggiulli: There is Nothing Wrong With a Traditional Career

    Ben Carlson: Generational Wealth Inequality

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  • The Home-Run Stocks Wall Street Doesn’t Know About
    , July 21st, 2020 at 8:33 am

    Imagine there’s a stock that’s up more than 30-fold in the last 20 years and it’s not followed by a single Wall Street investment analyst.

    This investment has crushed just about every hedge fund out there, yet Wall Street is completely unaware of it.

    Worst of all, it’s stock in a company that’s known by many. In fact, it’s a favorite of people who work on Wall Street.

    The stock I’m talking about is Nathan’s Famous (NATH).

    That’s right, the hotdog stand. Nathan’s is not only a great New York institution; it’s been a big long-term winner for investors.

    Nathan’s is what we call an “Orphan Stock.” That means that it has zero or near-zero analyst coverage.

    I love Orphan Stocks. They’re a great place to find overlooked values. Some of the big-name stocks on Wall Street are followed by 20, 30, even 50 analysts. These stocks live in glass fishbowls, but that’s not the case with Nathan’s, which, despite its name, apparently isn’t nearly as famous as I thought.

    There are lots of great Orphan Stocks. Ever heard of Atrion (ATRI)? Don’t worry. You’re not alone.

    Atrion is a medical-products company based in Dallas. Even though it’s small ($1.2 billion market cap), Atrion is strong in some niche markets like soft-contact-lens disinfection cases. Do you wonder who makes valves for life vests? There’s a good chance it’s Atrion.

    Twenty-two years ago, you could have picked up one share of ATRI for $7. Recently, the stock got up to $665 per share.

    Now I’m going to ask you a very easy question: Guess how many firms on Wall Street cover Atrion? I’ll give you a hint. It’s the same as Nathan’s.

    That’s right. Zero.

    The S&P 500’s had a good run over the years and it looks like a flat line in comparison to ATRI.

    How can a stock rise so much for so long and no one on Wall Street has ever thought to start covering it? Part of the reason is they don’t bring Wall Street any investment banking business.

    That’s more of a plus than a minus. It suggests the company hasn’t entered into any unwise mergers. Or taken on too much debt. Or been acquired at a poor price. Not needing a banker is hardly a bad thing.

    Let’s also remember how hard the financial crises blew through Wall Street. The big houses simply don’t have the big research departments like they used to. The budgets have been cut back. As a result, there are lots of companies that get no analyst coverage.

    Four years ago, Jason Zweig highlighted the best-performing stock of the last 30 years. Far from being a well-known large-cap tech stock, the big winner was Balchem (BCPC) of Wawayanda, NY. The company makes “flavorings, fumigating gases and nutritional additives for animal feed.”

    Sexy!

    From 1985 to 2015, Balchem gained over 107,000%. Zweig noted that Balchem didn’t attract a single major institutional holder until 1999. That was after it returned an average of 21.3% for the previous decade. Even today, Balchem is followed by a grand total of two analysts. Compare that with Facebook, which is followed by over 50.

    Every earnings season, investors gather to see what companies have beaten expectations and what companies have fallen short. But for Nathan’s and other Orphan Stocks, there’s no “Street consensus” because no one follows them. For an investor, that’s another bonus. You don’t have to worry about the quarterly earnings game.

    Consider an Orphan stock like Chase Corporation (CCF), which is a specialty-chemical company based in Westwood, MA. Chase is one of those Warren Buffett-style stocks. The only difference is that you have to move the decimal point over a few notches. Chase is a quiet firm that consistently generates strong cash flow. It’s a well-run cyclical, with gross margins typically around 35%. Best of all, Chase doesn’t carry a dime of long-term debt.

    Over the last 25 years, Chase has gained nearly 6,000%. That’s enough to beat both Microsoft and Intel. Again, no one follows it.

    These aren’t microcaps, either.

    How about the wonderfully named U.S. Lime & Minerals (USLM)? Since 2003, it’s returned more than 30-fold (dividends included). Zero analyst coverage it. In 1990, Century Bancorp (CNBKA) hit a low of $1 per share. Today, it’s at $76 per share, and it’s paid dividends all along the way. Number of analysts. Zero.

    Another benefit of investing in Orphan Stocks it that with fewer eyes watching a stock, there may be a better chance to finding a mispriced stock. I wouldn’t say the market is efficient, but the inefficiencies have a better chance of showing up where others aren’t looking for it.

    Also, these businesses tend to fairly easy to understand. Orphans often don’t have arcane off-balance-sheet items or operating divisions around the world. A hobbyist-investor can invest an afternoon and read through a company’s SEC filings and be well-informed on the business.

    If you have more questions, you can do something few investors think of: call the company and ask to speak to someone. Better-run companies are happy to speak with their investors. After all, the shareholders are the owners.

    You’ll often hear that the type of value investing that Warren Buffett and Charlie Munger made their fortunes on is no longer possible in the world of mass data and Bloomberg terminals. That may be right in terms of amassing a multi-billion fortune, but there are plenty of companies operating well below Wall Street’s radar.

    Here are a few examples of Wall Street Orphans

    Miller Industries (MLR) of Ooltewah, Tennessee. Miller Industries makes and sells towing and recovery equipment. The company makes the wreckers used to move disabled vehicles.

    They also make those multi-tier car carriers that you often see on the road. If a car or truck needs to be hauled out of something or hauled to somewhere, odds are Miller’s got a vehicle that can do it.

    Miller Industries is a good example of a company with a strong “moat.” There are competitors, but it’s the dominant name in the business.

    Since its low in 2000, MLR is up 8,000%. Zero analyst coverage.

    Simulations Plus (SLP) makes software that lets drug companies simulate tests of their products in the virtual world before using any human or animal test subjects.

    This is a big cost-saver for drug companies. Simulations Plus helps streamline the R&D process by making it faster and more efficient. Not only is this cost-effective, but it also helps drug companies deal with time-consuming regulatory hurdles.

    Earlier this month, Simulations reported that net revenues rose 23.8% and gross profit increased 26.5%. Two analysts follow it. It was recently added to the S&P SmallCap 600.

    The Texas Pacific Land Trust (TPL) has a colorful history. It was born over 130 years ago when the Texas and Pacific Railway went bust. The aim of the T&P was to build a southern transcontinental train route. Despite the name, the T&P never made it to California.

    The railway was left with a ton of land of a ton of debt. The trust was formed with 3.5 million acres of land that the railway owned. People who held the railway’s worthless bonds got shares of the new land trust. Some oil came along, the trust made money and everyone was happy. Eventually, the shares started trading on the NYSE in 1927. (On a technical point, Texas Pacific Land Trust is not a REIT. It’s a land trust.)

    In 1995, you could have picked up a share for $3.50. Recently, TPL’s been trading at $585. One analyst follows it.

    The Hingham Institution for Savings (HIFS) dates back to 1834. In 1990, the stock was going for just over $1 per share, adjusted for splits. Today it’s at $178. Hingham has consistently increased its dividend over the last 25 years. I love how this company treats it shareholders. Last year, Hingham paid out a special dividend of 60 cents per share on top of its regular dividend.

    In the chart below, Hingham is the black line. The blue line is Berkshire Hathaway.

  • Morning News: July 21, 2020
    , July 21st, 2020 at 7:07 am

    E.U. Adopts Groundbreaking Stimulus to Fight Coronavirus Recession

    The Inside Story of How Europe Landed Its Massive Stimulus Plan

    Coronavirus Threatens the Luster of Superstar Cities

    ‘Less Optimistic’ and ‘More Cautious’: Top C.E.O.s Fret as Virus Cases Rise

    Global Presence An Advantage As U.S. Companies Brace for Second-Half Slump

    Frackers Are in Crisis, Endangering America’s Energy Renaissance

    Fed, Walmart Share The Push To #maskup

    EBay Sells Classified Ad Unit for $9.2 Billion

    Alibaba’s Ant Could Be Bigger Than Some Wall Street Banks — What You Need to Know About the Dual IPO

    Concerts Aren’t Back. Livestreams Are Ubiquitous. Can They Do the Job?

    Discount Grocer Aldi To Open More Than 70 Stores By End Of Year As Part Of National Expansion

    Howard Lindzon: Momentum Monday – From Frothy To Constructive

    Jeff Miller: Weighing the Week Ahead: What is Your Personal Downside Risk?

    Ben Carlson: Mortgage Rates Are Insanely Low

    Joshua Brown: How the S&P 500 Uncoupled From Your Local Economy, Spending By The Unemployed Led The Recovery & Will Tesla Be Added to the S&P 500?

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  • Quiet Monday for Stocks
    , July 20th, 2020 at 9:47 am

    It’s a fairly quiet Monday. We’re heading to the heart of earnings season. On Friday, shares of Ericsson (ERIC) jumped 13% on a good earnings report. It’s up again today. Shares of Trex (TREX) are also near a new 52-week high.

    Oxford University had a coronavirus vaccine that tested well in early trials.

    There’s not much in the way of economic news today. Tomorrow, the Senate Banking Committee will vote on two of President Trump’s nominees for the Federal Reserve Board. One appointee is Christopher J. Waller, and his selection isn’t very controversial.

    However, the other one is Judy Shelton and she may get significant opposition, even from Republicans. She called for a return to the gold standard.

    We’ll have lots of earnings news this week.

  • Morning News: July 20, 2020
    , July 20th, 2020 at 7:06 am

    Global Real Estate Investment Plunges 33%

    It’s ‘Only a Matter of Time’ Before Gold Hits a Record, Citi Says

    Trump’s Hot-Button Fed Pick Faces Senate Committee Vote This Week

    Trump’s Wrong-Track Economy Means Voters Shrug at Stocks Rebound

    When The U.S. Sneezes, The World Catches A Cold. What Happens When It Has Severe COVID-19?

    Businesses Are Supposed to Cut Debt in a Downturn. Why Not Now?

    Some Companies Got Both Government Contracts and PPP Loans

    China’s Ant To Go Public In Dual Shanghai-Hong Kong Listing

    Amazon Says Exports from India-Based Sellers Cross $2 Billion

    With Tourists Gone, Bali Workers Return to Farms and Fishing

    Chevron to Buy Noble Energy in $5 Billion Deal

    Twitter Hack Revives Concerns Over Its Data Security

    Ben Carlson: How Rich People Go Broke & How the U.S. Consumer Became the Most Resilient Force in the Economy

    Michael Batnick: The Most Vulnerable Cities & Waiting for a Fat Pitch

    Joshua Brown: How to Turn a Recession Into a Depression & Universal Basic Income Is Inevitable

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  • CWS Market Review – July 17, 2020
    , July 17th, 2020 at 7:08 am

    “Rapidly changing industries are the enemy of the investor.” – Mohnish Pabrai

    Second-quarter earnings season has finally arrived. Over the next three weeks, earnings reports will dominate the news on Wall Street.

    I’ll warn you now–most reports will be pretty ugly. Of course, it’s not really the fault of the companies. It’s not so easy to make a profit when the whole world, it seems, has been locked down.

    We’ve already seen disappointing results from stocks like Netflix. Delta Airlines reported a staggering loss of $5.7 billion. Wells Fargo bombed its earnings report and slashed its dividend by 80%.

    Since the start of this year, Wall Street has cut its estimate for Q2 earnings in half. The stock market, however, has held up much better, which suggests it sees this as a temporary problem. In fact, the S&P 500 recently got to a five-week high, and it’s not far from a four-month high.

    We’ll also get the first of our Buy List earnings reports next week. Four reports are due on Wednesday and we’ll get another three on Thursday. I’m not expecting stellar results this season. Instead, I’m more concerned about how well our companies are managing themselves through this difficult time and I want to hear any guidance for the rest of this year.

    Next Week’s Buy List Earnings Reports

    Over the next three weeks, 22 of our 25 Buy List stocks will report their earnings results. Here’s an Earnings Calendar. I’ve listed each stock along with its earnings date and Wall Street’s current estimate.

    Company Ticker Date Estimate Result
    Check Point Software CHKP 22-Jul $1.43
    Globe Life GL 22-Jul $1.58
    Silgan SLGN 22-Jul $0.64
    Stepan SCL 22-Jul $1.20
    Danaher DHR 23-Jul $1.08
    Eagle Bancorp EGBN 23-Jul $0.74
    Hershey HSY 23-Jul $1.15
    RPM International RPM 27-Jul $1.01
    AFLAC AFL 28-Jul $1.06
    Sherwin-Williams SHW 28-Jul $5.77
    Cerner CERN 29-Jul $0.61
    Intercontinental Exchange ICE 30-Jul $1.05
    Stryker SYK 30-Jul $0.57
    Church & Dwight CHD 31-Jul $0.63
    Trex TREX 3-Aug $0.62
    Disney DIS 4-Aug -$0.63
    Ansys ANSS 5-Aug $1.16
    Fiserv FISV 5-Aug $0.93
    Becton, Dickinson BDX 6-Aug $2.06
    Broadridge Financial Solutions BR 11-Aug $2.08
    Middleby MIDD TBA $0.39
    Moody’s MCO TBA $2.15

    One footnote. RPM International (RPM) is one of our “off-cycle” stocks. RPM’s fiscal Q4 ended in May. With their Q4 reports, companies are allowed a little more time. That’s why RPM is reporting in July.

    Seven of our Buy List stocks are due to report next week. The first four report on Wednesday.

    Check Point Software (CHKP) got my attention in its last earnings report when it said that it had seen an uptick in cyber-attacks since the coronavirus made landfall. For Q1, the cyber-security firm earned $1.42 per share, which beat the Street by four cents.

    The stock recently ran off a streak of closing higher nine days in a row (see the chart below). The share price has sailed above our Buy Below price, and it’s close to a new 52-week high. I’ll probably adjust it next week, but I want to see the earnings results first. It’s never a good strategy to chase after a stock. For Q2, Wall Street expects earnings of $1.43 per share.

    Our three financial stocks are our three worst performers this year. Globe Life (GL) has been the least bad of the three. Shares of Globe Life not only lagged the market through the nasty bear months, but also has lagged during the rally.

    Three months ago, GL had a pretty good earnings report. It beat earnings by two cents per share. At the time, the insurance company cut its full-year guidance. The original range was $7.03 to $7.23 per share. Globe Life cut that to a range of $6.65 and $7.15. Honestly, that’s not that bad. If Globe Life’s guidance is close to being correct, that means the stock is going for about 11 times this year’s earnings. Don’t throw in the towel on Globe Life.

    Silgan Holdings (SLGN) is one of our new stocks this year, and it’s gotten off to a good start for us. SLGN has been trending upward lately. Through Thursday, Silgan is up close to 10% for us this year.

    In April, the metal-container company had a pretty good earnings report. For Q2, Silgan sees earnings between 55 and 70 cents per share. That’s a pretty wide range. Wall Street expects 64 cents per share, which is almost certainly too low.

    For the whole year, Silgan estimates earnings will range between $2.30 and $2.50 per share. That’s an increase from the previous range of $2.28 to $2.38 per share. Not many companies have raised guidance in this environment. I’m expecting good news from Silgan.

    Three months ago, Stepan (SCL) reported Q1 earnings of $1.04 per share. That easily beat Wall Street’s consensus of 78 cents per share. I should add that Stepan is only followed by three analysts, so that’s not much of a consensus.

    If you’re not familiar with Stepan, the company is a major manufacturer of specialty and intermediate chemicals that are used in a broad range of industries.

    Although Stepan is classified with other specialty-chemical companies, it’s unique in the industry. Stepan doesn’t have a competitor or competitors to precisely match its businesses because its products have a specific focus. (Note this week’s epigraph.)

    The CEO said that Stepan had a solid start to the year. Last quarter, Stepan paid out $6.2 million in dividends and bought back 260,605 shares for $7.2 million. The company has increased its dividend every year for 52 years. For Q2, the “consensus” is for earnings of $1.20 per share.

    There are three more earnings reports on Thursday.

    Danaher (DHR) is having another great year for us. Through Thursday, the stock is up over 23% this year. Earlier this year, Danaher closed its very big deal to buy GE’s biopharma business for $21.4 billion. That business is now called Cytiva. Last year, Danaher IPO’d Envista, its dental business. Wall Street expects earnings of $1.08 per share.

    Eagle Bancorp (EGBN) has been one of our problem stocks this year. However, the earnings results have been fine. The problem is that Eagle’s legal bills have weighed on it. The important point is that the folks who caused the problems are no longer with Eagle.

    Wall Street expects Q2 earnings of 74 cents per share which would be a big drop from the $1.06 per share Eagle earned in last year’s Q2. Even if Eagle’s earnings are a bust this year, the bank is currently going for 7.5 times last year’s earnings. The bank is not going out of business. It just needs to move past its scandal.

    Last is Hershey (HSY). The chocolatier has badly lagged the market over the past three months. Part of that is simply because Hershey is a defensive stock. Much of the rally has been folks pouring out of defensive stocks and into tech shares.

    I like Hershey, but I was disappointed with its last earnings report. Sales were flat, and earnings came in eight cents below the Street.

    In January, the company said it expected full-year earnings between $6.13 and $6.24 per share. Hershey later withdrew that guidance, although the company said it stands by its long-run goal of growing EPS by 6% to 8%. For Q2, the consensus on Wall Street is for earnings of $1.15 per share.

    Before I go, I want to make two adjustments to our Buy Below prices. Shares of Hormel Foods (HRL) have been improving lately. This week, I’m going to bump up our Buy Below price to $53 per share.

    Shares of Ross Stores (ROST) have been sliding downward for the last few weeks. I think Ross may be one of the best bargains on our Buy List. I’m dropping our Buy Below to $92 per share. That’s not in any sense a downgrade. I simply want to the Buy Below to better reflect the current market environment.

    That’s all for now. There’s not a lot in the way of economic reports next week. Most attention will be on earnings. On Wednesday, the existing-home sales report is due out. On Thursday, we’ll get another jobless-claims report. The last 17 in a row have topped one million. On Friday, the report on new homes 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: July 17, 2020
    , July 17th, 2020 at 7:03 am

    Where Did All The Bulls Go? Rallies Stall As EU Summit Begins

    Coronavirus Surge, Renewed Lockdowns Fan Fresh Worries About Global Fuel Demand

    The U.S. Set Up These Programs to Offset Covid Hardship. They’re All About to Expire

    Consumers Came Back in June, but for How Long?

    For Owners of Century-Old Businesses, Shutting Down Brings a Special Pain

    Mortgage Rates Drop Below 3% for First Time, Tempting Home Buyers

    Twitter Struggles to Unpack a Hack Within Its Walls

    Netflix Stock Tumbles as the Covid Subscriber Boom Comes to an End

    British Airways Is Grounding Its Fleet of 747 Jets for Good

    ‘Let’s Go Fly, for God’s Sake.’ Behind American Airlines Chief’s All-In Strategy

    German Finance Minister Knew of Wirecard Issues a Year Before Collapse

    Voices From Travel’s Frontlines: ‘We Walk in Fear, We Work in Fear’

    Ben Carlson: The Greatest Danger Investors Face

    Howard Lindzon: Ultimate Freedom

    Jeff Carter: $300 Billion; 51 Million Students

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