Archive for January, 2021

  • Morning News: January 27, 2021
    , January 27th, 2021 at 7:06 am

    Fed on Hold As Officials Weigh Pandemic Against Vaccines, Fiscal Support

    Renewed Demand for Treasurys Quells Fears of Rising Rates—for Now

    The Covid-19 Pandemic Has Added $19.5 Trillion to Global Debt

    Pfizer-BioNTech to Make 125 Million New Vaccine Doses in First-Ever Licensing Deal

    GameStop Extends Meteoric Surge; Melvin Reportedly Closes Short

    They Found a Way to Limit Big Tech’s Power: Using the Design of Bitcoin

    Wall Street Expects Near-Record iPhone Sales Despite Delay, Shut Apple Stores

    How to Pay for College (and Not Lose Your Shirt)

    Walgreens Poaches Starbucks Executive Rosalind Brewer for CEO

    Nick Maggiulli: Let Them Vote

    Cullen Roche: Three Things I Think I Think – Civil WHAT?

    Howard Lindzon: Gamestop Monday….WTF Happened?

    Joshua Brown: 8th Inning for SPACs and IPOs, Tesla Echo Bubbles, Blockchain Collectibles, Reddit vs Hedge Funds

    Michael Batnick: Reflexivity Everywhere

    Ben Carlson: For Better or For Worse, This is a Young Person’s Market Right Now

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  • Silgan Holdings Earns 60 Cents per Share
    , January 26th, 2021 at 6:11 pm

    After the closing bell, Silgan Holdings (SLGN) reported fiscal Q4 net income of 60 cents per share. That’s an impressive number. Wall Street had been expecting 53 cents per share.

    For the full year, Silgan made $3.06 per share. That’s up 42% over last year. It’s also well above Silgan’s earlier estimate of $2.92 to $2.97 per share (which itself was an increase over the prior estimate).

    Cash flow from operations rose 19% to $602.5 million. Silgan had free cash flow of $383.5 million. Q4 net sales rose 17.0% to $1.23 billion.

    Silgan has a bold forecast for this year.

    “While 2020 presented us all with so many challenges, it also provided the Company with the opportunity to showcase the essential nature of our products, the strength and commitment of our team and the power of our performance-based culture, as the Company delivered record adjusted net income per diluted share of $3.06, a 41.7 percent increase over prior year adjusted earnings, and record free cash flow of $383.5 million,” said Tony Allott, Chairman and CEO. “Strong demand for our shelf-stable metal food packaging and our health and hygiene products sustained throughout the year, leading us to expect continued strong volumes in 2021. Therefore, we estimate adjusted net income per diluted share for 2021 for the Company to be in a range of $3.30 to $3.45, a 10.3 percent improvement over the record prior year period at the midpoint of this range. We also expect to continue to generate significant free cash flow of approximately $380 million in 2021, making acquisitions or other value creating uses of our cash an additional near-term opportunity,” concluded Mr. Allott.

    So Silgan sees earnings this year between $3.30 and $3.45 per share.

  • Home Prices Surge at Fastest Pace in Six Years
    , January 26th, 2021 at 11:34 am

    The GameStop Saga continues. Today, shares of the videogame company are up above $86 per share. That’s still below yesterday’s intra-day high of $159.

    The shares are somewhat volatile. Over Friday and Monday, 370 million shares of GME were traded. The float is 47 million.

    Things are much calmer in the rest of the market. The S&P 500 broke out to another all-time high this morning. The index has been as high as 3,870.90 but it’s currently just barely negative.

    This morning’s Case-Shiller report said that home prices rose by 9.5% in November. That’s one of the highest gains on record.

    Prices nationally rose 9.5% in November, compared with November 2019, according to the S&P CoreLogic Case-Shiller Home Price Indices. That is the strongest annual growth rate in over six years, and a significantly stronger gain than in October, when prices were up 8.4%. It also ranks as one of the largest annual gains in the more than 30-year history of the index.

    The 10-city composite annual increase in prices was 8.8%, up from 7.6% in October. The 20-city composite showed a 9.1% year-over-year gain, up from 8.0% in the previous month. Detroit was excluded, however, because of continued data reporting issues due to the pandemic.

    “Recent data are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices. “This may represent a true secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway. Future data will be required to address that question.”

    Our first Buy List earnings report, Silgan Holdings (SLGN), is due out after today’s close. Wall Street expects 53 cents per share.

  • Morning News: January 26, 2021
    , January 26th, 2021 at 7:09 am

    China Asset Bubble Warning Threatens Stock Frenzy in Hong Kong

    Senate Confirms Yellen as Treasury Secretary as Stimulus Talks Loom

    Coronavirus: Seafarers Stuck At Sea ‘A Humanitarian Crisis’

    Sizing Up the Wall Street Bets Phenomenon of Retail Trading

    Investor Payouts and Job Cuts Jar with U.S. Companies’ Social Pledge

    BlackRock Chief Pushes a Big New Climate Goal for the Corporate World

    When Surveillance and Censorship Mean Profits for Private Equity

    GE Surges as Cash-Flow Forecast Shows Turnaround Gaining Steam

    More Carats and Sparkle: How LVMH Plans to Change Tiffany

    Budweiser Joins Coke, Pepsi Brands In Sitting Out Super Bowl

    Black Hangs On at Apollo as Epstein Scandal Costs Him CEO Role

    Howard Lindzon: Momentum Monday…WHY LEAVE YOUR HOME?

    Joshua Brown: Here Is Something You Can’t Understand

    Ben Carlson: How Technology Ate The Stock Market

    Michael Batnick: Timeless Lessons From Today’s Mania

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  • The GameStop Saga
    , January 25th, 2021 at 3:48 pm

    At Bloomberg, Brandon Kochkodin explains how GameStop become the hottest stock on Wall Street. Here’s a sample:

    Before this year, GameStop was a cash register for bearish traders, who borrowed and sold more shares than the company issued. Hedge funds had been winning so long that they overlooked the tinderbox they were creating should sentiment turn.

    Now it has, violently. GameStop, which isn’t expected to turn a profit before 2023, has seen its market value triple to $4.5 billion in three weeks, burning the skeptics whose any attempt to cover is likely to further propel its ascent.

    A notable victim of the shift has been Citron Research’s Andrew Left, once Wall Street’s most celebrated iconoclast for his role hounding Bill Ackman out of another battleground stock, Valeant Pharmaceuticals, five years ago. Today, Left finds himself first among the hunted, his decision to stop publicly bashing GameStop helping drive it up as much as 78% on Friday.

    “Price movement aside, I am most astounded by the thought process that goes in to making these decisions,” Left said in an email to Bloomberg News on Monday. “Any rational person knows this type of trading behavior is short lived.”

  • Shorted Stocks Soar
    , January 25th, 2021 at 11:19 am

    There seems to be two stock markets today. On the surface, the normal stock market appears to be, well, normal. The S&P 500 is down about 1% while the small-cap Russell 2000 is up by 0.5%. Not that much of a big deal.

    On our Buy List, Trex (TREX) and Miller (MLR) are at new highs today. Trex is already a 20% winner for us this year. Both Miller and Thermo Fisher (TMO) are 10% winners this year.

    That’s the normal market. The other market is what’s happening to stocks with strong short positions. Over the last six months, shares of GameStop (GME) have jumped more than 20-fold. Online message boards have led to heavy buying of GME and that’s caused shorts to close their position and buy the stock.

    This has created a cycle that’s caused the stock to leave Earth’s orbit. Shares of GME nearly doubled on Friday and they doubled again today.

    The same thing has happened to Bed Bath & Beyond (BBBY). At one point, it was up close to 60% today.

    AMC Entertainment (AMC), the movie theater stock, more than doubled this morning. The company has managed to avoid bankruptcy (again).

  • Morning News: January 25, 2021
    , January 25th, 2021 at 7:07 am

    Europe’s Bankruptcies Are Plummeting. That May Be a Problem.

    China Wanted to Show Off Its Vaccines. It’s Backfiring.

    Pandemic-Era Central Banking Is Creating Bubbles Everywhere

    Yellen Passed the Economic Stability Baton to Powell. Now, He’s Handing It Back.

    Fed Set to Look Beyond Possible Post-Pandemic Inflation Shock

    U.S. Corporate Buybacks Are on the Rise, Lifting Investor Hopes

    Goldman Team Sees ‘Unsustainable Excess’ in Parts of U.S. Market

    Investor Payouts and Job Cuts Jar with U.S. Companies’ Social Pledge

    Kuaishou, TikTok’s Rival in China, Could Be the Biggest IPO Since the Pandemic Began

    Taboola, Purveyor of Clickbait Ads, Will Go Public

    Merck Shuts Down Covid Vaccine Program After Lackluster Data

    These Are the World’s Top-Performing Hedge Funds of 2020

    Howard Lindzon: Sunday Sentiment…Tiny Bubbles

    Cullen Roche: Rational Reminder Podcast – Understanding the Modern Monetary System

    Joshua Brown: Dear Samantha & How America Invests (with Vanguard’s Ryan Barrows), Barry Ritholtz Takes a Victory Lap, “That’s fascinating”

    Michael Batnick: Resist the Temptation, Game On & Animal Spirits: Investing in Fixed Income

    Ben Carlson: 9 Uncomfortable Facts About the U.S. Stock Market & Getting Your Stock Picks From Podcasts

    Be sure to follow me on Twitter.

  • CWS Market Review – January 22, 2021
    , January 22nd, 2021 at 7:08 am

    “Never buy at the bottom, and always sell too soon.” – Jesse Livermore

    This week, we got a new president. Also, the stock market rallied to another new all-time high. Although I strongly doubt the former caused the latter. Instead, we’re in the midst of Q4 earnings season, and so far, the results have been pretty good.

    All told, corporate earnings are expected to fall by 15% for 2020. But for this year, Wall Street expects earnings to rebound by 24%. As the Q4 reports come out, we’ll learn more about Corporate America’s outlook for this year.

    None of our Buy List stocks has reported yet, but that will soon change. In this week’s issue, I’ll preview six Buy List stocks that are due to report earnings next week. I’m expecting good results. Later on, I’ll highlight HEICO, one of this year’s new additions. But first, let’s look at this season’s Earnings Calendar.

    Six Buy List Earnings Reports Next Week

    Here’s the Earnings Calendar for this season. Twenty-two of our 25 stocks will report earnings over the next few weeks. I’ve listed each stock’s earnings date and Wall Street’s earnings consensus.

    Stock Ticker Date Estimate Result
    Silgan SLGN 26-Jan $0.53
    Abbott Labs ABT 27-Jan $1.35
    Stryker SYK 27-Jan $2.55
    Danaher DHR 28-Jan $1.87
    Sherwin-Williams SHW 28-Jan $4.85
    Church & Dwight CHD 29-Jan $0.52
    Thermo Fisher TMO 1-Feb $6.50
    Broadridge Financial Sol BR 2-Feb $0.70
    AFLAC AFL 3-Feb $1.05
    Check Point Software CHKP 3-Feb $2.11
    Hershey HSY 4-Feb $1.43
    Intercontinental Exchange ICE 4-Feb $1.09
    Fiserv FISV 9-Feb $1.29
    Cerner CERN 10-Feb $0.78
    Disney DIS 11-Feb -$0.44
    Moody’s MCO 12-Feb $1.94
    Zoetis ZTS 16-Feb $0.86
    Trex TREX 22-Feb $0.36
    Ansys ANSS TBA $2.54
    Middleby MIDD TBA $1.40
    Miller Industries MLR TBA n/a
    Stepan SCL TBA $1.08

    Silgan Holdings (SLGN) kicks off the show after the close on Tuesday when it reports its Q4 earnings. The container company had a solid Q3. Silgan made $1.04 per share. That was up 37% over last year’s Q3. Wall Street had been expecting 95 cents per share.

    The metal-containers business saw volume growth of 17% thanks to more folks eating at home. The closures business was helped by increased demand for household-cleaning products. Their plastic-containers business had volume growth of 14%.

    Best of all, Silgan raised its full-year guidance range to $2.92 to $2.97 per share. The previous range was $2.70 to $2.85 per share. Last year, Silgan made $2.16 per share.

    For Q4, Silgan now expects earnings of 47 to 52 cents per share. They made 38 cents per share for last year’s Q4.

    CEO Tony Allott said, “While we are still completing our annual budget process for 2021, at this time we anticipate overall operating earnings for the Company remaining at these strong levels.”

    We have two more reports on Wednesday. Stryker (SYK) can’t offer guidance for Q4, but I’m optimistic. Three months ago, the orthopedics company reported solid numbers for Q3. Stryker earned $2.14 per share. That was up 12% over last year. Wall Street had been expecting earnings of $1.41 per share. That was a huge beat.

    For Q3, reported net sales rose by 4.2% to $3.7 billion. Orthopaedics sales rose 4.4% to $1.3 billion. MedSurg sales were up 3.2% to $1.6 billion. Neurotechnology and Spine sales increased 6% to $0.8 billion.

    Stryker is currently above our $240 per share Buy Below price. I may raise it next week, but I want to see the earnings results first. Stryker is an excellent company.

    The big change to Danaher (DHR) this year was the addition of Cytiva. That’s the new name for GE’s biopharma business, which Danaher bought last year. For Q4, Danaher expects revenue growth, excluding Cytiva, in the low-single digits.

    Three months ago, Danaher’s CEO said, “We delivered outstanding third-quarter results, achieving double-digit revenue growth, over 60% adjusted EPS growth, and we more than doubled our free cash flow year-over-year.”

    For Q3, Danaher earned $1.72 per share. That beat the Street by 36 cents per share. For Q4, Wall Street expects $1.87 per share. I’m expecting another earnings beat.

    Abbott Labs (ABT) is one of our new stocks this year, and it’s due to report earnings on Thursday. In October, Abbott reported 98 cents per share for Q3, which topped the Street by seven cents per share.

    I was also impressed to see ABT raise its quarterly dividend by 25%. This marked the company’s 49th annual dividend increase. Many times, stocks with long dividend streaks raise their payouts by a tiny amount just to keep the streak alive. That’s not the case with Abbott.

    In fact, Q3 was so good for Abbott that it raised its full-year 2020 guidance to $3.55 per share. Since the company has already made $2.20 per share for the first three quarters, that implies Q4 earnings of $1.35 per share.

    There was also more good COVID news.

    Abbott Laboratories’ rapid COVID-19 antigen test is highly likely to correctly detect if people have ever contracted the virus and could help with earlier isolation, according to the U.S. Centers for Disease Control and Prevention.

    Sherwin-Williams (SHW) is also scheduled for Thursday. Three months ago, Sherwin reported third-quarter earnings of $8.29 per share. That easily beat Wall Street’s forecast of $7.75 per share. Sales rose 5.2% to $5.12 billion.

    CEO John G. Morikis said, “Continued and unprecedented strength in our DIY business, solid demand across our residential repaint and new residential segments and improving demand in our industrial coatings businesses and regions drove our strong third-quarter results.”

    Let’s look at the breakdown by each business segment. Net sales in The Americas Group increased by 2.8% to $2.98 billion. Consumer Brands Group increased its sales by 23.5% to $838.1 million, and Performance Coatings Group’s net sales increased 1.2% to $1.31 billion. All in all, this was a solid quarter. Sherwin generated $2.56 billion so far this year. That’s up 54% over last year.

    For Q4, Wall Street expects earnings of $4.85 per share.

    Last is Church & Dwight (CHD). The household-products company reported Q3 earnings of 70 cents per share. That beat estimates by three cents per share. You really can’t go wrong with condoms and baking soda.

    C&D’s results were pretty good considering the environment. Q3 net sales grew 13.9% to $1,241.0 million. COVID has actually helped some of C&D’s business.

    The company was able to increase its full-year guidance. Before, they saw reported sales rising by 9% to 10%; now they see them up 11%. Not a big increase, but it’s good to see. Most importantly, C&D sees full-year earnings of $2.79 to $2.81 per share. That’s a slight increase over the previous guidance.

    So far this year, Church & Dwight has earned $2.30 per share, so that implies Q4 earnings of 49 to 51 cents per share. C&D should easily beat that.

    Profile of HEICO (HEI)

    At the start of the year, I added five new stocks to our Buy List. Each week, I’ve taken some time to highlight one of our new stocks. I’ve already profiled Miller Industries and Thermo Fisher Scientific. This week, it’s time for HEICO (HEI) of Hollywood, FL.

    If you’ve been with us for a while, you may recall that HEICO was on our Buy List in 2016 and 2017, before I unwisely decided to sell the stock. (Ugh, what was I thinking?) The stock promptly doubled over the next three years. Once again, I relearned the valuable lesson about buying good stocks and then doing nothing. Yes, even your humble editor is prone to such mistakes.

    HEICO is the kind of niche business I love. With investing, the only thing better than a monopoly is a near-monopoly. (The full-on monopolies tend to get too much government attention.)

    HEICO makes replacement parts for the airline industry. Sexy, right? Well, not exactly, but let’s consider a few things. If a commercial aircraft needs some obscure new part, the airline can’t run down to the local hardware store. Instead, it needs to special-order it. Moreover, there’s a great deal of cost pressure on the airlines to keep the older planes serviceable.

    Also, the aircraft parts often need to meet strict regulatory guidelines. The part maker really has to know what it’s doing. That’s where HEICO comes in. The business is lean and well run.

    HEICO is one of our three “off-cycle” stocks. The company’s fiscal year ended in October, so it reported its Q4 earnings last month. (That’s why it’s not listed in the earnings calendar.)

    Last year, HEICO did $1.78 billion in business. The company would have probably cracked $2 billion this year if not for the economic lockdowns. HEICO’s long-term track record is very impressive—and the stock is still below its high from mid-2019:

    I can’t tell the HEICO story without mentioning the Mendelson family. Larry Mendelson is the current chairman and CEO. In the 1950s, he took a finance class taught by David Dodd. Fans of value investing will recognize Dodd’s name. He was the co-author of Security Analysis with Ben Graham. Security Analysis is probably the foundational text of value investing.

    Mendelson took those lessons to heart. He made a good deal of money in real estate and wanted to diversify his holdings. That led him to invest in an under-performing industrial company. He really didn’t care what he bought, as long as it was cheap and had potential to be retooled for future growth. He chose well.

    HEICO was originally founded in 1957 by Dr. William Heinicke as Heinicke Electronics. By the 1980s, Mendelson controlled a sizeable share in the company and was able to make himself CEO. The still family owns a large chuck of the voting shares, and several family members hold key positions within the company.

    (Important side note: HEICO trades with regular shares and with “A” shares. The A shares afford fewer voting rights for stockholders, which is why they have a lower price. That’s common with business that are controlled by a family. For our purposes, I’m discussing the regular shares.)

    When airplane owners need a new part and go back to the original equipment manufacturer (OEM) to get replacements, they’re often charged a steep price. The profit margins can exceed 30%. That provides enormous opportunity for HEICO. Consider that many aircraft are over 20 years old.

    The aviation industry is broadly diversified, and HEICO is also able to get sales from commercial and military customers. That means that if there’s a drop-off on one end of the business, the other side can pick up the slack. Wherever there’s a demand to cut costs, HEICO has the potential to do well.

    In some respects, I see HEICO’s role as similar to that of a generic drugmaker. HEICO provides a low-cost copy of the original product, which is regulated by the Federal Aviation Administration. By the way, HEICO does more than aircraft parts. They also supply parts for satellites, rockets, missiles and even medical instruments.

    HEICO is in an enviable position and nearly dominates its market. The company sells to 19 of the top 20 airlines in the world, and their customers love them. Like nearly everyone else, though, HEICO has felt the squeeze of the economy, and COVID was especially rough on the airline industry.

    Still, Larry Mendelson managed HEICO well during a rough patch. For last year, HEICO’s operating margin was 21%, which is quite good, and the company’s cash flow exceeded $409 million. Historically, HEICO has used its cash flow to buy out smaller operators. HEICO currently pays a very small semi-annual dividend of eight cents per share.

    Last year’s bear market was brutal on HEICO. In two weeks, the stock plunged 48%. The shares have come back a long way, but I still have some concerns about how quickly the airline industry will rebound. With so few planes flying, not as many will need repairs. I currently rate HEICO a buy up to $140 per share. The company’s fiscal Q1 earnings report will be out sometime in late February.

    That’s all for now. The Federal Reserve gets together again next week, on Tuesday and Wednesday. I don’t expect any policy change, but it will be interesting to hear what the central bank has to say in its policy statement. On Thursday, the government will report its first estimate for Q4 GDP growth. I suspect that it will be worse than what Wall Street is expecting. 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: January 22, 2021
    , January 22nd, 2021 at 7:00 am

    Eurozone on Brink of Another Recession Amid Covid Wave

    Wall Street Hedges Against Possible Bumps in U.S. Vaccine Rollout

    Continuing Job Losses Put Spotlight on Economic Relief

    Biden Seeks Immediate Help for Millions as Big Stimulus at Risk

    Yellen Vote in U.S. Senate Committee to Test Support for Biden Economic Plan

    Fed to Taper Asset Purchases in 2022 or Later, Say Economists

    U.S. Is Losing the Battery Race Despite Having the Right Stuff

    The N.R.A. Wants to ‘Dump’ Its Regulators via Bankruptcy. Will It Succeed?

    China Cracks Down on Fake Divorces That Let People Buy More Properties

    Judge Refuses To Reinstate Parler After Amazon Shut It Down

    Instacart is Firing Every Employee Who Voted to Unionize

    Google Parent Alphabet to Shut Down Loon, Its Internet-Beaming Balloon Project

    Joshua Brown: “That’s Fascinating!” with Barry Ritholtz

    Howard Lindzon: The Stock Market and Crypto Market Are The Ultimate Platform and Game

    Michael Batnick: Can Growth Go Out Of Style?

    Ben Carlson: Markets That Are Definitely NOT In A Bubble & Animal Spirits: Micro Bubbles

    Be sure to follow me on Twitter.

  • Trex and Miller Breakout to New High
    , January 21st, 2021 at 11:46 am

    The stock market is mostly unchanged this morning although the S&P 500 did make another new all-time intra-day high. The index got as high as 3,861.45.

    The earnings parade continues. Bank of America said that its Q4 earnings fell by 22%. On Wall Street, however, it’s all about expectations and B of A topped Wall Street’s forecast. The bank earned 59 cents per share last quarter but that beat Wall Street’s consensus by four cents per share.

    On our Buy List, several of our stocks are close to new 52-week highs but only Trex (TREX) and Miller Industries (MLR) have managed to punch through.

    This morning’s jobless claims report showed that 900,000 Americans filed for jobless claims. To have the same jobs-to-population ratio that we had before the pandemic, we would need about 10 million more jobs. The current stats roughly divide that in half. They show unemployment rising by 5 million and another 5 million people who have left the jobs market. (If you’re no longer looking for work, you’re not counted as unemployed.)

    Earlier this week, Janet Yellen, President Biden’s pick to lead the Treasury, made the case for fiscal stimulus:

    Forget about the amount being borrowed, Yellen, a former Federal Reserve chair, told members of the Senate Finance Committee. Focus instead on the interest rate being paid and the returns it will generate, an approach that argues the country’s future economic potential can support more borrowing today and makes the roughly $26.9 trillion in U.S. IOUs seem less formidable.

    “The interest burden of the debt as a share of (gross domestic product) is no higher now than it was before the financial crisis in 2008, in spite of the fact that our debt has escalated,” Yellen said. “To avoid doing what we need to do now to address the pandemic and the economic damage that it is causing would likely leave us in a worse place … than taking the steps that are necessary and doing that through deficit finance.”

    The Senate will vote on Yellen’s appointment tomorrow.