Archive for October, 2020

• Morning News: October 12, 2020
  Eddy Elfenbein, October 12th, 2020 at 7:02 am

  EU Crafting Big Tech ‘Hit List’ – FT

  Tech-Giant Tax Negotiations Stumble, Raising Risk of Trade Clash

  Silicon Valley Pay Cuts Ignite Tech-Industry Covid-19 Tensions

  Wall Street Layoffs A Matter Of When, Not If, Sources Say

  Milgrom, Wilson Win Nobel in Economics for Work on Auctions

  Singapore Air’s A380 Restaurant Tickets Sell Out in 30 Minutes

  When Your Last $166 Vanishes: ‘Fast Fraud’ Surges on Payment Apps

  The Obsession With Funders

  Harvard Names Srikant Datar as New Dean of Its Business School

  British Airways Abruptly Replaces Its Chief Executive

  Joshua Brown: Too Much Money, Nowhere To Put It

  Howard Lindzon: Catching Up On All Things SPACs and Collectibles

  Jeff Carter: YCharts Exits to LLM Partners

  Michael Batnick: Animal Spirits: Protecting the Tails & Your Home is Not an Investment

  Ben Carlson: Don’t Take Personal Finance Advice From Billionaires & Some Thoughts For Young People in the Financial Services Industry

  Be sure to follow me on Twitter.

• CWS Market Review – October 9, 2020
  Eddy Elfenbein, October 9th, 2020 at 7:08 am

  “There are two times in a man’s life when he shouldn’t speculate: when he can afford to and when he can’t.” – Mark Twain

  The stock market got dinged on Tuesday when President Trump said he wasn’t interested in pursuing fiscal stimulus until after the election. The markets then rebounded on Wednesday and Thursday when the president clarified that he would sign a stand-alone stimulus bill.

  Just looking at the calendar, it may be too late to get any bill passed before election day. Yet despite the impasse, the stock market has been in a cheery mood of late. The S&P 500 has closed higher eight times in the last eleven sessions. On Thursday, the index finished the day at a five-week high.

  

  Will it last? Frankly, I’m skeptical. The V-shaped recovery is looking wobbly, and this week’s Fed minutes agreed. We also have the Q3 earnings season coming soon, plus there’s the uncertainty of the upcoming election. In this week’s issue, I’ll try to sort it all out for you.

  I’ll also cover the recent earnings report from RPM International, and it was a good one. RPM topped Wall Street’s consensus by 25 cents per share and raised its dividend for the 47th year in a row. Not bad.

  Later on, I’ll unveil our calendar for this earnings season so you’ll know exactly what to expect. But first, let’s look at the recent jobs report and what it says about the economy.

  The U.S. Economy Has Made Back Half the Jobs It Lost

  Last Friday, the government released the jobs numbers for September. The U.S. economy created 661,000 net new jobs last month. That was below Wall Street’s estimates of 800,000. Normally, a gain of more than 600,000 a month is an astounding number. However, in the age of the Covid-19, it’s actually the slowest gain of the last five months.

  What’s happening is that the tremendous bounce back from the economic lockdown is starting to wane. Actually, there have been hints of this for some time, but now we have solid data.

  The unemployment rate fell to 7.9%. Wall Street’s estimate was for 8.2%. Even though the jobless rate has been nearly cut in half since April, it’s still higher than the peak rate hit during the recession of the early 1990s.

  In simple terms, the U.S. economy lost 22 million jobs in two months. In the five months since then, the economy has recovered 11 million jobs. Yes, it’s an impressive recovery, but it’s only about halfway back to the status quo ante.

  Here’s a chart of nonfarm payrolls (black) along with the S&P 500 (red). Both lines dipped, but stocks recovered more robustly than did jobs.

  

  The bottom line is that the US economy is still adding jobs but at a slower rate than it had been before. The private sector added 877,000 net new jobs last month. The labor-force participation rate fell to 61.4% for September. Average hourly earnings rose by 0.1%.

  We got more confirmation of the slowing jobs growth with the latest jobless-claims report. On Thursday, it was reported that 840,000 Americans filed for first-time claims. That was a little higher than Wall Street’s estimate of 825,000. Although it’s another six-month low, this was the sixth weekly report in a row that fell in the range of 800,000 to 900,000.

  In plain terms, the boost from the re-opening is gone, and it looks like the economy is stabilizing within a new, and lower, range. Of course, there are many more variables to consider, and it adds extra attention to the stimulus debate in Washington. This view was confirmed this week by the release of the minutes to the most recent Federal Reserve meeting.

  The minutes said, “Many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated.” That’s unusually bold language for a central bank, but I see their point.

  Again, I urge investors to be cautious. Make sure you’re well diversified and have plenty of dividend-payers in your portfolio. I expect more good earnings news from our stocks once earnings season heats up, but you never know how the market will react. Now let’s look at our Buy List earnings report from this week.

  RPM Beats Earnings and Raises Dividend

  On Wednesday, RPM International (RPM) reported very good earnings for its fiscal Q1. This was for the quarter that ended on August 31. RPM is one of those fairly dull companies that I like. RPM consistently churns out solid numbers.

  For the quarter, sales rose 9.1% to $1.61 billion, and net income increased by 70% to $180.6 million. RPM made $1.44 per share, which was a 51% jump over last year’s Q1. That result beat Wall Street’s estimate by 25 cents per share.

  CEO Frank C. Sullivan said:

  During our fiscal 2021 first quarter, select segments of the global economy began to gain momentum as stay-at-home orders were relaxed, which freed pent-up demand from last year’s fourth quarter. This helped drive our record top-line results, which grew 9.1% over the prior-year period. This was in sharp contrast to the Covid-19-related sales decline we reported for the fiscal 2020 fourth quarter. Our two largest segments, the Construction Products Group and the Consumer Group, posted positive growth in the first quarter, while the other two segments declined.

  Let’s look at the breakdown by RPM’s four business groups. The Construction Products Group saw Q1 sales rise by 2.2% to $547.7 million. Performance Coatings had a sales decrease of 12.6% to $259.8 million. The Consumer Group was the star. It had a sales increase of 33.8% to $641.2 million. Lastly, Specialty Products Group had a sales decrease of 1.3% to $158.0 million

  The strong quarterly results helped RPM’s balance sheet. Cash generated from operations more than doubled to $318.1 million. During the quarter, RPM reduced its total debt by $200 million. That’s good to see.

  For fiscal Q2, RPM expects “sales growth in the low- to mid-single digits with strong leverage to the bottom line for more than 20% adjusted EBIT growth.”

  RPM didn’t provide full-year earnings guidance, but the company believes Construction Products and Performance Coatings could experience sales declines for the next two quarters and then turn positive in the fourth quarter. Specialty Products is likely to see flat sales, while the Consumer Group should experience strong sales growth this year.

  On Thursday, RPM said that it’s raising its quarterly dividend from 36 cents to 38 cents per share. That’s an increase of 5.6%. Moreover, it’s RPM’s 47th annual dividend increase in a row. Only 41 other companies can boast of a streak that long. The dividend will be paid on October 30 to stockholders of record as of October 19. Going by Thursday’s close, RPM now yields 1.7%.

  After the earnings report, the stock gapped up some. On Thursday, it briefly went above $90 per share before pulling back. We now have a 13% gain this year with RPM. The stock remains a good buy up to $90 per share.

  

  Q3 Earnings Calendar

  Over the next few weeks, 21 of our 25 Buy List stocks will report their earnings. Here’s a list of companies along with the earnings dates.

  Also, I don’t have all the earnings dates just yet. As I like to say, some companies are better at shareholder communication than others.

  Stock	Ticker	Date
  Globe Life	GL	21-Oct
  Silgan	SLGN	21-Oct
  Stepan	SCL	21-Oct
  Check Point Software	CHKP	22-Oct
  Danaher	DHR	22-Oct
  Eagle Bancorp	EGBN	22-Oct
  AFLAC	AFL	27-Oct
  Fiserv	FISV	27-Oct
  Sherwin-Williams	SHW	27-Oct
  Church & Dwight	CHD	29-Oct
  Intercontinental Exchange	ICE	29-Oct
  Moody’s	MCO	29-Oct
  Stryker	SYK	29-Oct
  Becton, Dickinson	BDX	5-Nov
  Hershey	HSY	6-Nov
  Disney	DIS	12-Nov
  Ansys	ANSS	TBA
  Broadridge Financial Sol	BR	TBA
  Cerner	CERN	TBA
  Middleby	MIDD	TBA
  Trex	TREX	TBA

  Buy List Updates

  Last week, I mentioned that Eagle Bancorp (EGBN) has resumed buying back its shares. As of June 30, Eagle had 460,000 shares remaining under the buyback authority. By most valuation measures, Eagle is inexpensive. Sadly, it takes more than that to get a stock moving. Lately, Eagle has woken from its slumber. The stock has closed higher for seven days in a row and for ten of the last 11 days. Since September 23, Eagle has rallied 21%. For now, I’m keeping Eagle’s Buy Below at $31 per share. The next earnings report is due out on October 22. The current book value is $36.86 per share.

  Danaher (DHR) has been very strong lately. In the last month, DHR has gained more than 12%. The company is also due to report earnings on October 22. Danaher sees Q3 revenue growth “in the mid- to high-single-digit range.” The stock is now a 43% winner for us this year. DHR is currently out of our $212 Buy Below price. I’ll probably raise our Buy Below, but I want to see the earnings report first.

  That’s all for now. Monday is Columbus Day. The stock market will be open, but the bond market is closed. On Tuesday, we’ll get the inflation report for September. It will be interesting to see if prices have moved up now that the Fed has shown a greater tolerance for some modest inflation. On Thursday, we’ll get another jobless-claims report. Then on Friday, the retail-sales report for September comes 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: October 9, 2020
  Eddy Elfenbein, October 9th, 2020 at 7:02 am

  The Ugly Partisan Truth Behind President Trump’s Stimulus Roadblock

  Huawei Ousted From Heart Of EU As Nokia Wins Belgian 5G Contracts

  Apple Prepares to Launch 5G iPhones Into Unready U.S. Market

  Chevron’s Purchase Could Unlock Israel’s Natural Gas Bonanza

  Hurricane Delta Shuts Most U.S. Offshore Oil Output In 15 Years

  ‘Staggeringly High’: U.S. Jobless Claims Remained Elevated Last Week

  U.S. Bank Stocks Are Fine, If You Are Rich In Patience

  Panic In The Parking Lot For Cash

  IBM Offloads Legacy Business to Focus on $1 Trillion Cloud Industry

  AMD Is in Advanced Talks to Buy Xilinx

  High-end Retailers, Posh Eateries Rebounding After COVID Setback

  Domino’s Quarterly Profit Suffers Due To Higher COVID-19 Costs

  Honda Makes A U-turn To Catch U.S. Truck, SUV Trend

  Ben Carlson: The 7 Things That Matter For Markets Going Forward

  Cullen Roche: Government Bond Markets Aren’t “Free” Markets

  Howard Lindzon: Kelvin Beachum Joins Me On ‘Panic With Friends’ and We Talk Investing and Life as an NFL Player During a Pandemic

  Be sure to follow me on Twitter.

• Jobless Claims Drops to 840,000
  Eddy Elfenbein, October 8th, 2020 at 1:25 pm

  This morning’s jobless claims report came in at 840,000. That’s a little higher than Wall Street’s estimate of 825,000. Although it’s another six-month low, jobless claims appear to be bottoming out in the range of 800,000 to 900,000. This is the sixth report in a row that fell inside that range.

  In plain terms, the boost from the re-opening is gone, and it looks like the economy is stabilizing within a new, and lower, range. Of course, there are many more variables to consider and it adds extra attention to the stimulus debate in Washington.

  

  The stock market is up again today and the S&P 500 broke above 3,440. This could be the index’s highest close in over a month. This is the S&P 500’s eighth daily gain in the last eleven sessions.

  Shares of RPM International (RPM) popped above $90 this morning although it’s given back that gain. At one point, the stock was up 10% for the week. Bank of America raised its price target from $88 to $95 per share but kept its neutral rating on the stock.

  Shares of Eagle Bank (EGBN) are looking at their seventh daily gain in a row. The stock has broken $30 recently but hasn’t been able to close above it.

  

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

  Pandemic Exposes Holes in Sweden’s Generous Social Welfare State

  Investors Eye Discounted U.S. Healthcare Sector As Biden’s Lead In Polls Grows

  Anxious for a Lifeline, the U.S. Economy Is Left to Sink or Swim

  Ant Group’s $35 Billion IPO Unlikely To Be Hurt By Possible U.S. Curbs, Analysts Say

  A New Kind of Fund That Is Stingier With Information

  How To Use Your Heart and Head to Hack Your Personal Finance

  American Technology Is Used to Censor the Web From Algeria to Uzbekistan

  Facebook Widens Ban on Political Ads as Alarm Rises Over Election

  Wait, Wall Street Is Pro-Biden Now?

  JPMorgan Pledges Billions in Spending to Fix Racial Wealth Gap

  Here’s the Real Cost of Stock Splits that Buffett Knows and Apple and Tesla Ignored

  Dutch Firm’s Shareholders Vote Yes to Grubhub Buy, No To CEO’s Pay

  The CDC Is Playing a Game of Chicken With Cruise Lines

  Smaller Hams, Downsized Desserts: Sam’s Club Adds Petite Packs As Americans Plan Smaller Holiday Gatherings During Pandemic

  Ben Carlson: Animal Spirits: Living Through History

  Joshua Brown: Less Tweets, More Checks

  Be sure to follow me on Twitter.

• Market U-Turns on Stimulus Hopes
  Eddy Elfenbein, October 7th, 2020 at 2:49 pm

  The stock market is up nicely today. The market got dinged yesterday afternoon after President Trump withdrew from any negotiations regarding a fiscal stimulus. In an apparent U-turn, the president today Tweeted support for stimulus.

  Trump urged Congress to approve airline payroll support, saying that money and aid for small business could be paid for with unused funds from the previous stimulus. Trump also pushed for another round of $1,200 stimulus checks for Americans.

  The market is quite pleased. The Dow has been up as much as 550 points today. The small-cap Russell 2000 is up close to 3%. (The index is tilted towards cyclicals.) Growth and Value are up nearly the same. RPM International is up about 3%. The company reported good earnings this morning.

  

  The Fed released the minutes of its last meeting this afternoon. In it, the Fed showed concern that the economy is slowing down and that will get worse without any stimulus.

  The Fed’s minutes are a study in indefinite pronouns (many, some, a few). Today’s minutes said, “Many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated.”

• RPM International Earns $1.41 per Share
  Eddy Elfenbein, October 7th, 2020 at 9:31 am

  This morning, RPM International (RPM) reported Q1 earnings of $1.41 per share. The consensus on Wall Street was for $1.19 per share. For last year’s Q1, RPM made 95 cents per share. Sales increased 9.1% to a first-quarter record $1.61 billion.

  Adjusted EBIT increased 39.8% to $269.2 million. Cash from operations doubled to a record $318 million.

  RPM isn’t providing earnings guidance for this fiscal year but it expects sales growth “in the low- to mid-single digits with strong leverage to the bottom line for more than 20% adjusted EBIT growth.”

  The stock is up about 2% in early trading.

• Morning News: October 7, 2020
  Eddy Elfenbein, October 7th, 2020 at 7:00 am

  Venezuela, Once An Oil Giant, Reaches the End of An Era

  Trump Abruptly Ends Stimulus Talks After Fed Chair Urges Economic Support

  Trump Urges Congress To Provide $25 Billion Bailout For U.S. Airlines

  End this Recession Now!

  House Lawmakers Condemn Big Tech’s ‘Monopoly Power’ and Urge Their Breakups

  Who Pays For The Toilet Paper? The Big Questions Of The Work-From-Home Era

  Oaktree Deal Crushed a Leveraged Loan and Exposed Market’s Woes

  Google And Oracle’s Decade-Long Copyright Battle Reaches Supreme Court

  Whole Foods Is Left Behind in Amazon’s Pandemic-Fueled Boom

  Teen Spending Drops to Record Low Amid COVID-19 Crisis

  ‘Great Polarization’ May Be Next for World’s Rich, UBS Says

  Nick Maggiulli: The 3 Ways Tax Loss Harvesting Can Save You Money

  Ben Carlson: How Comfortable Are You Holding Stocks For 30 Years?

  Michael Batnick: New WAYT!

  Howard Lindzon: The Reboot Of The Us Economy Will Be Built Around Small Business. The Small Business Reboot Will Be Built On Technology

  Be sure to follow me on Twitter.

• Trump Calls Off Stimulus Before the Election
  Eddy Elfenbein, October 6th, 2020 at 3:07 pm

  President Trump has called off on any stimulus before the election.

  President Donald Trump said Tuesday he has told his administration’s negotiators to end coronavirus stimulus talks with Democrats until after the Nov. 3 election.

  The declaration, if the White House follows through on it, would halt an ongoing push to send trillions of dollars more in relief to Americans as the outbreak rampages through the U.S. and the economy struggles to recover from virus-related shutdowns.

  “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump tweeted on Tuesday.

  You can probably tell when traders got the news.

  

• Eagle Bank Jumps
  Eddy Elfenbein, October 6th, 2020 at 12:12 pm

  I say this very hesitantly but shares of Eagle Bank (EGBN) have bounced recently. Or more accurately, they’re off a very depressed low.

  I feel like a baseball player in the dugout not wanting to mention a no-hitter.

  The bank just said it will release its earnings on October 22. That should make it one of the first Buy List stocks to report this earnings season.

  The consensus of the five analysts who follow Eagle expect Q3 earnings of 81 cents per share. The bank earned $1.07 per share for last year’s Q3.