Archive for February, 2021

  • CWS Market Review – February 12, 2021
    , February 12th, 2021 at 7:08 am

    ”Most successful investors, in fact, do nothing most of the time.” – Jim Rogers

    The stock market closed Thursday at another all-time high, but it was close. Very close. The S&P 500 beat out Monday’s close by just 0.02%. Annualized, that three-day move comes out to about 1.7%. Still, it’s a new high, and we’ll take it.

    The market has been on quite a run since late October.

    We’re still in the midst of earnings season. We finally broke our streak of earnings “beats” when Cerner merely met Wall Street’s expectations. Fiserv beat earnings and delivered its 35th year in a row of double-digit earnings growth. But the big star this week was Disney. The Mouse House was expected to report a loss for Q4. Instead, Disney made a nice profit.

    Disney is a powerhouse. The company’s Disney+ streaming service now has 95 million subscribers, and it’s rolled out to about two dozen countries, whereas Netflix is available in 190 countries. There’s so much room to grow. I’ll have all the details in a bit.

    I’ll also preview two more Buy List earnings reports for next week. But first, let’s look at an important fact—why this has been a “low quality” rally.

    The Rally in Crap

    One of the interesting features of the current rally, and one of the least commented-upon, is that it’s been a “low-quality” rally. Let me explain what I mean by that.

    Market analysts have many ways they can slice and dice the market. I often talk about the relative performance of value stocks or cyclical stocks. Those are well-known ones, but quality is another one, and it’s often overlooked.

    By quality, we refer to a company’s overall financial strength. The problem with the quality factor is that no one can agree on the precise definition. Still, even without the exact definition, we have an idea where quality lies.

    (As a side note, I’m a little skeptical of how some of these factors are created. I think the process can be overly mechanistic. For example, I’ve discussed in previous issues how the value factor has slowly become a finance and energy factor. I’m not even sure a small-cap factor truly exists.)

    Here’s an example of the quality factor. This is a chart of Fidelity’s Quality Factor ETF (FQAL).

    More precisely, this is the ETF’s relative strength, meaning It’s FQAL divided by the S&P 500. In simple terms, if the line is rising, then high-quality stocks are beating the market. It it’s falling, then quality is lagging.

    The key part of this graph is February to May of last year. That’s when the market started to crash as the coronavirus appeared. Yet FQAL’s relative strength soared. It’s easy to understand why. As everyone was panicking, quality held steady, in a relative sense. When investors get scared, they seek out quality.

    Notice also how the line became very jagged in March. That’s revealing, because it indicates that the quality factor was “in play.” You’ll notice how a major stock either soars or plunges each day. That’s because the thesis becomes in play, and the market wrestles with the next step. That’s what happened after quality soared last year.

    By late-May, the quality rally started to fizzle. Since then, quality stocks have lagged consistently. As the rally has gone on longer, it’s become more dependent on lower-quality stocks. A low-quality rally isn’t necessarily a bad thing. Investment dollars need to flow to marginal businesses. The problem is that investors have become very tolerant of stocks without much going for them.

    I’m not predicting a market top, but we have to be aware of what’s truly driving the market higher. Investors should not be lulled in by the impressive performance of low-quality stocks. When the cycle changes, and it will, many low-qual stocks will not be pleased.

    For now, investors should remain patient. Quality isn’t exciting, but it does well in the long run. Now let’s take a look at some recent earnings news.

    Three Earnings Reports this Week

    Here’s the updated Earnings Calendar:

    Stock Ticker Date Estimate Result
    Silgan SLGN 26-Jan $0.53 $0.60
    Abbott Labs ABT 27-Jan $1.35 $1.45
    Stryker SYK 27-Jan $2.55 $2.81
    Danaher DHR 28-Jan $1.87 $2.08
    Sherwin-Williams SHW 28-Jan $4.85 $5.09
    Church & Dwight CHD 29-Jan $0.52 $0.53
    Thermo Fisher TMO 1-Feb $6.56 $7.09
    Broadridge Financial Sol BR 2-Feb $0.70 $0.73
    AFLAC AFL 3-Feb $1.05 $1.07
    Check Point Software CHKP 3-Feb $2.11 $2.17
    Hershey HSY 4-Feb $1.43 $1.49
    Intercontinental Exchange ICE 4-Feb $1.08 $1.13
    Fiserv FISV 9-Feb $1.29 $1.30
    Cerner CERN 10-Feb $0.78 $0.78
    Disney DIS 11-Feb -$0.42 $0.32
    Moody’s MCO 12-Feb $1.96
    Zoetis ZTS 16-Feb $0.86
    Stepan SCL 18-Feb $1.08
    Trex TREX 22-Feb $0.36
    Ansys ANSS 24-Feb $2.54
    Middleby MIDD 24-Feb $1.40
    Miller Industries MLR TBA n/a

    After the closing bell on Tuesday, Fiserv (FISV) reported Q4 earnings of $1.30 per share. That topped expectations by one penny per share. This was the company’s 35th year in a row of double-digit earnings growth. For 2020, Fiserv earned $4.42 per share compared with $3.96 per share for 2019, so earnings growth came in at 11.6%. Previously, the company said it expected 2020 earnings growth of 11%.

    For 2020, operating cash flow rose by 48% to $4.15 billion. Free cash flow increased 7% to $1.05 billion in the quarter, and 11% to $3.65 billion for the full year.

    For 2021, Fiserv expects revenue growth of 8% to 12%. For earnings, Fiserv sees earnings of $5.30 to $5.50 per share. That’s growth of 20% to 24%. Wall Street had been expecting $5.39 per share. I think it’s very likely we’ll see year #36 in a row.

    More good news. The board approved a new 60-million-share buyback authorization. During Q4, Fiserv bought back 1.8 million shares for $200 million. For the whole year, Fiserv bought back 16.1 million shares for $1.64 billion. The shares pulled back some after the report. Fiserv is a buy up to $120 per share.

    On Wednesday, Cerner (CERN) reported Q4 earnings of 78 cents per share. That matched Wall Street’s estimate. Previously, the company told us to expect quarterly earnings between 76 and 80 cents per share. Cerner is usually pretty accurate with its guidance.

    Revenues came in at $1.395 billion. The company had been expecting between $1.365 billion and $1.415 billion. COVID hit Cerner pretty hard, but the company has managed itself well. For the year, Cerner made $2.84 per share. That’s up from $2.68 per share in 2019.

    “Cerner’s fourth-quarter results reflect a very solid finish to the year,” said Brent Shafer, Chairman and CEO of Cerner. “I’m pleased with Cerner’s execution and commitment to supporting our clients in a challenging environment. Despite these challenges, Cerner delivered on financial goals, continued to make operational improvements, and further refined our growth strategies. As a result of our progress in 2020, we enter 2021 well-positioned to deliver increased value to our clients while also driving profitable growth for shareholders.”

    Now let’s look at guidance.

    For Q1, Cerner expects earnings of 72 to 76 cents per share on revenue of $1.37 billion to $1.42 billion. Wall Street had been expecting 76 cents per share.

    For the whole year, Cerner sees earnings of $3.10 to $3.20 per share on revenue of $5.75 billion to $5.95 billion. Wall Street had been expecting $3.22 per share. Wall Street wasn’t thrilled with this guidance; the stock took a dip, but nothing major.

    Don’t forget how a strong a company this is. In December, Cerner hiked its dividend by 22% to 22 cents per share. I rate Cerner a buy up to $82 per share.

    After the bell on Thursday, Disney (DIS) reported very impressive numbers. Wall Street had been expecting a loss of 42 cents per share. Instead, the entertainment giant reported a profit of 32 cents per share.

    The big number is 94.9 million. That’s the number of Disney+ subscribers. ESPN+ is up to 12.1 million subscribers. Add in Hulu and ESPN, and Disney is up to 146 million direct-to-consumer subscribers. Disney has said that it expects its DTC business to be profitable by 2024. At this rate, I think they can be profitable by 2023, maybe sooner.

    Disney+ is available in about two dozen countries, while Netflix is available in 190 countries. The next test for Disney, Netflix and others is to see how well a new movie can drive subscribers.

    Quarterly revenues hit $16.26 billion, which topped estimates of $15.93 billion. The company said that the impact from COVID was $2.6 billion in lost operating income. Disney had no new theatrical releases during October, November and December.

    Disney recently reorganized itself due to its shift towards streaming. This was the first earnings report with the new divisions. The Parks Experiences and Products unit saw its revenues drop by 53% last quarter. Believe it or not, that was actually stronger than expected. Revenues at the Direct-to-Consumer unit rose 73%.

    This week, I’m lifting my Buy Below price on Disney to $200 per share.

    Moody’s (MCO) will report later today. In October, Moody’s raised its full-year guidance range from $8.80 to $9.20 per share to $9.95 to $10.15 per share. For the first three quarters, Moody’s has made $8.24 per share, so that implies Q4 earnings of $1.71 to $1.91 per share.

    Earnings Preview for Zoetis and Stepan

    We’re heading into the backend of earnings season. There are two more Buy List earnings reports next week.

    Zoetis (ZTS) is one of our new stocks this year. The company makes and sells veterinary products. Zoetis helps keep your pets healthy and active. It’s not just pets: they also make medicines for livestock.

    I like this company a lot. For the last earnings report, Wall Street had been expecting earnings of 92 cents per share. Instead, Zoetis made $1.10 per share. In December, the company hiked its dividend by 25%.

    The earnings report is due out on Tuesday morning. In October, Zoetis said to expect full-year earnings between $3.76 and $3.81 per share. Since Zoetis has already made $2.94 per share through the first three quarters, that implies Q4 earnings of 82 to 87 cents per share.

    On Thursday, it’s Stepan’s (SCL) turn. Three months ago, the chemical company delivered a solid earnings report. The company also raised its dividend, making it the 53rd annual dividend increase. The dividend increased from 27.5 cents to 30.5 cents per share

    Stepan has three operating groups. The Surfactants division has been doing well, but Polymers and Specialty Products have been weak. Wall Street expects earnings of $1.08 per share, but only three analysts follow the stock.

    The week after next, Trex (TREX), Ansys (ANSS) and Middleby (MIDD) are due to report. Not only that, but the January cycle reports will start soon. HEICO (HEI) is scheduled to report on February 23. I’ll have more details next week.

    That’s all for now. The stock market will be closed on Monday in honor of George Washington’s birthday. (The NYSE celebrates Washington’s birthday, not President’s Day.) In addition to more earnings news, the retail-sales and industrial-production reports are due out on Wednesday. Also on Wednesday, the Federal Reserve will release the minutes from its last meeting. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: February 12, 2021
    , February 12th, 2021 at 7:03 am

    The Long Hack: How China Exploited a U.S. Tech Supplier

    Two Arrests, Two Outcomes Tell a Tale of Xi Jinping’s China

    UK Economy Slumps by Record 10% in 2020 After COVID Hit

    Australia to Introduce Landmark Google, Facebook Legislation to Parliament Next Week

    Stock Trading Frenzy Has U.S. Volumes Near Peak Panic Levels

    Maryland Nears Country’s First Tax on Big Tech’s Ad Revenue

    Is Elon Musk the New Stock Market Oracle?

    Different Stonks – Why Gang Weed Is Not the Next GameStop

    Bumble Starts Trading After Its $2.15 Billion IPO. Should You Buy?

    Bumble CEO Whitney Wolfe Herd Becomes the Youngest Woman To Take A Company Public

    After A Rough Start, Sweethearts Are Back With A Song

    The New Look of Spring Break

    Joshua Brown: The Best Defense Is A Good Offense…Lately

    Michael Batnick: Markets Are Always Changing

    Ben Carlson: The Defining Trait of All Bubbles: The Willful Suspension of Disbelief

    Howard Lindzon: Angel Investor at Gotham Gal Joanne Wilson Joins Me on Panic with Friends to Discuss How She’s Investing in New York’s Next Big Industries

    Be sure to follow me on Twitter.

  • Disney’s Earnings Are Due After the Close
    , February 11th, 2021 at 11:31 am

    Today is earnings day for Disney (DIS). The entertainment giant usually gets a lot of attention. The report is due out after today’s close. The current estimate is for Disney to lose 42 cents per share. Analysts will pay particular attention to Disney’s latest streaming numbers.

    We broke our string of Buy List stocks beating expectations. Cerner merely met expectations. All the rest have beaten.

    This morning’s jobless claims report came in at 793,000. That’s down from 812,000 from last week but it was above Wall Street’s estimate of 760,000.

    In last week’s jobs report, the unemployment rate fell to 6.3%. That surprised a lot of people. The reason for the fall is that fewer people are looking for jobs.

    Yesterday, Fed Chair Jerome Powell gave a speech and said, “Correcting this misclassification and counting those who have left the labor force since last February as unemployed would boost the unemployment rate to close to 10 percent in January.”

    I would estimate that the U.S. economy is about 10 million jobs from full employment.

  • Morning News: February 11, 2021
    , February 11th, 2021 at 7:04 am

    Twitter Blocks Accounts in India as Modi Pressures Social Media

    Biden Administration Pauses Trump’s TikTok Ban, Backs Off Pressure To Sell App

    The Economic Case for Regulating Facebook

    Investors Lukewarm on Tesla’s $1.5 Billion Bitcoin Splurge

    Big Companies Unlikely to Follow Tesla’s Bitcoin Lead, JP Morgan Says

    How GameStop Missed Out on Capitalizing on the Reddit Rally

    G.M.’s Profits From Trucks and S.U.V.s Fuel Its Electric Quest

    Toyota to Bring 3 New Electrified Vehicles to US Market

    Can Jane Fraser Fix Citigroup?

    Shell’s Falling Oil Output Ends Century-Long Business Model

    Billionaire Beau Wrigley Says His Cannabis Company Will Be Bigger Than The Family Candy Business

    Hormel to Buy Planters From Kraft Heinz for $3.35 Billion

    Joshua Brown: How the Stock Market Works

    Michael Batnick: Animal Spirits: Money Tree

    Howard Lindzon: Robinhood, Etoro and Coinbase Proxies – The Private and Public Markets Can Be Very Connected…And The Rise Of Crossover Funds

    Be sure to follow me on Twitter.

  • Cerner Earned 78 Cents per Share
    , February 10th, 2021 at 4:09 pm

    After today’s closing bell, Cerner (CERN) reported Q4 earnings of 78 cents per share. Previously, the company told us to expect quarterly earnings between 76 and 80 cents per share. Cerner is usually pretty accurate with its guidance.

    Revenues came in at $1.395 billion. The company had been expecting between $1.365 billion and $1.415 billion.

    Covid hit Cerner pretty hard, but the company has managed itself well. For the year, Cerner made $2.84 per share. That’s up from $2.68 per share in 2019.

    “Cerner’s fourth quarter results reflect a very solid finish to the year,” said Brent Shafer, Chairman and CEO, Cerner. “I’m pleased with Cerner’s execution and commitment to supporting our clients in a challenging environment. Despite these challenges, Cerner delivered on financial goals, continued to make operational improvements, and further refined our growth strategies. As a result of our progress in 2020, we enter 2021 well-positioned to deliver increased value to our clients while also driving profitable growth for shareholders.”

    Now let’s look at guidance.

    For Q1, Cerner expects earnings of 72 to 76 cents per share on revenue of $1.37 billion to $1.42 billion. Wall Street had been expecting 76 cents per share.

    For the whole year, Cerner sees earnings of $3.10 to $3.20 per share on revenue of $5.75 billion to $5.95 billion. Wall Street had been expecting $3.22 per share.

    In December, Cerner hiked its dividend by 22% to 22 cents per share.

  • How Disney+ Became a Streaming Service Heavyweight
    , February 10th, 2021 at 3:45 pm

  • A Note About Twitter
    , February 10th, 2021 at 1:07 pm

    I have a Twitter account and I use it a lot. I’m lucky enough to have gained a decent-sized following.

    Thanks to Twitter, I’ve been able to connect with countless people who are smart, kind, funny and passionate about investing.

    As much as I enjoy Twitter, I don’t take it that seriously. I say this because there’s a small minority of people, perhaps less than 1%, who take Twitter seriously. Very seriously.

    That’s not me. I have to confess that I’m a person who is incapable of being offended. Whatever that gene is, I don’t have it. Due to this shortcoming, I occasionally, and always inadvertently, upset people on Twitter.

    I find this frustrating. More often than not, I’m baffled by how some tweet could have offended anyone. It’s usually a joke that misfires. Or someone gets angry about the political slant of the tweet.

    In these cases, the intent is entirely lacking on my part. I’m amazed at the political angle that some people can unearth in a seemingly benign tweet. To us un-offendables, it’s like people speaking a foreign language that’s somewhat similar to English but you can’t quite follow the whole thing.

    If you think I’m exaggerating, this is from the day of the Capital Gazette shooting.

    I have other examples.

    Still, I’m not here to upset people. Nor am I a professional comedian. As I see it, my principal goal is to share market news and observations. I’ll add some corny jokes well. That’s it. If someone gets upset by a Tweet, I’ll usually delete it.

    Twitter can be a lot of fun. But if you follow me, always bear in mind that it’s not that serious.

  • 10-Year Breakevens Highest Since 2014
    , February 10th, 2021 at 12:42 pm

    With the government spending so much money, I’ve been concerned about a resurgence of inflation. So far, there hasn’t been much evidence of higher prices. Still, I’m not the only one who’s concerned.

    I like to follow the “breakeven” rates. This is basically the market’s view of expected inflation. It’s the difference between, in this case, the 10-year Treasury yield and the 10-year Inflation Protected bond. The Federal Reserve often discusses the breakeven rates since the central bank doesn’t want to see expectations get out of control.

    During the worst part of the market crash last year, the 10-year breakeven rate fell to 0.5%. That’s very low. Since then, it’s rallied much higher. The breakeven rate has recently gotten as high as 2.22%. That’s the highest in six-and-a-half years (see below).

    This morning, the government said that inflation rose by 0.3% in January which matched expectations. The core rate was unchanged.

  • Morning News: February 10, 2021
    , February 10th, 2021 at 7:00 am

    The Power Balance Is Shifting in London’s Commercial Real Estate

    In Canada, Americans Are Missed, With Limits

    Biden’s Next Economic Challenge: Getting Manufacturing Jobs Back

    U.S. Chamber of Commerce Names Its First New Leader in 24 Years

    A U.S. Housing Crisis Could Be Looming on the Horizon

    Microsoft CEO Says Big Tech Needs Clearer Laws on Online Speech

    Elon Musk Wants Clean Power. But Tesla’s Carrying Bitcoin’s Dirty Baggage

    King of Supply-Chain Finance Expands, and Controversy Follows

    Chase Coleman Leads $23 Billion Payday for 15 Hedge Fund Earners

    Toyota Powers Ahead of Rivals With Much Brighter Outlook

    Coca-Cola Earnings Top Estimates as Cost Cutting Offsets Pandemic’s Blow to Sales

    Aunt Jemima No More; Pancake Brand Renamed Pearl Milling Company

    Nick Maggiulli: The Test of Time: Art as an Investment

    Ben Carlson: The Investment Strategy That Makes Your Life Easier

    Joshua Brown: Explorer & How SPAC Issuers Earn 1,000% Returns

    Michael Batnick: So Much Time and So Little To Do & An Inside Joke for the Super-Rich

    Be sure to follow me on Twitter.

  • Fiserv Earned $1.30 per Share
    , February 9th, 2021 at 4:30 pm

    After the closing bell, Fiserv (FISV) reported Q4 earnings of $1.30 per share. This was the company’s 35th year in a row of double-digit earnings growth. For 2020, Fiserv earned $4.42 per share compared with $3.96 per share for 2019, so earnings growth came in at 11.6%. Previously, the company said it expected to see 2020 earnings growth of 11%.

    For 2021, Fiserv expects revenue growth of 8% to 12%. For earnings, Fiserv sees earnings of $5.30 to $5.50 per share. That’s growth of 20% to 24%. Wall Street had been expecting $5.39 per share. I think it’s very likely we’ll see year #36 in a row.

    For 2020, operating cash flow rose by 48% to $4.15 billion. Free cash flow increased 7% to $1.05 billion in the quarter and 11% to $3.65 billion for the full year.

    More good news. The board approved a new 60-million-share buyback authorization. During Q4, Fiserv bought back 1.8 million shares for $200 million. For the whole year, Fiserv bought back 16.1 million shares for $1.64 billion.