Archive for March, 2021

• New All-Time High; The S&P 500 Closes in on 4,000
  Eddy Elfenbein, March 31st, 2021 at 12:54 pm

  You can’t keep this market down! The S&P 500 hit a new all-time intra-day high today of 3,990.75. Before today, the record was 3,981.83 from Monday. The all-time closing high is 3,974.54 from Friday.

  This morning’s ADP report showed that private sector jobs increased by 517,000 last month. That’s the best month for jobs growth since September. The jobless claims report is due out tomorrow, and the official jobs report will be on Friday. Consensus is for 565,000 jobs.

  The S&P 500 is closing in on 4,000. It first closed above 400 on December 26, 1991. The index first closed above 40 on June 17, 1955 (that was the old S&P 90).

• Morning News: March 31, 2021
  Eddy Elfenbein, March 31st, 2021 at 7:06 am

  China’s Covid Rebound Edges It Closer to Overtaking U.S. Economy

  A Billion Dollars for Every Chip-Maker Who ‘Makes in India’

  Clearing the Suez Canal Took Days. Figuring Out the Costs May Take Years.

  Why the World’s Container Ships Grew So Big

  America’s Imports Are Stuck on Ships Floating Just Off Los Angeles

  Biden Plans $2.25 Trillion Spending Offset by Corporate Tax Hike

  How to Fix SPACs: Keep Their Backers Locked In Longer

  Deliveroo Heads to I.P.O. as Challenges Pile Up

  Billionaire’s Real Estate Empire Risks Unraveling From the Pandemic

  Brevan Howard Runs $50 Billion Unit Like BlackRock’s Aladdin

  Volkswagen of America Said Its Name Was Changing. Now It Admits It Was Just a Disaster of an April Fool’s Stunt

  Howard Lindzon: Active Investing – The Beginning Of The Beginning and A Bear Market Is In The Eye Of The Bagholder

  Joshua Brown: The Spending Surge & Sorry my family office crashed the Nasdaq.

  Cullen Roche: Let’s Talk Some More About Assflation

  Michael Batnick: Yield Shortage

  Ben Carlson: Can the Stock Market Crash During an Economic Boom?

  Nick Maggiulli: If You Play With FIRE, Don’t Get Burned

  Be sure to follow me on Twitter.

• Profile of Bill Miller
  Eddy Elfenbein, March 30th, 2021 at 3:26 pm

  This is nine years old, but it’s a great profile of Bill Miller, of Miller Industries (MLR).

  Here’s a sample:

  HE’S the factory worker’s son who rides a Harley Davidson, employs 2000 people, never wears a suit and has no known interest in football – or soccer as he would call it in his US drawl.

  Meet the Vietnam veteran and espionage expert destined to be new owner of crisis-hit Rangers – semi-retired trucking mogul William “Call Me Bill” Miller.

  A millionaire several times over, he’s one of the wealthiest men in the southern US state of Georgia.

  (…)

  Miller, 65, became a high flyer in industry and his career has brought some high profile disasters along the way. But his rise from factory floor to the boardroom has been spectacular.

  In the 1950s, he was a blue collar boy with the ambition of working as a line supervisor for Ford in Detroit.

  But his dad told him: “At my plant, the guys with college degrees walk around all day doing nothing and making lots of money.”

  That sealed the deal and Miller enrolled at the University of Michigan, where he earned a degree in engineering and later an MBA.

  After college, he worked for various big firms, typically getting involved in troubleshooting in failing departments.

  During national service, he served in Army intelligence where he was an expert codebreaker.

  He was just 12 miles from the Czech border in 1968 when Russian tanks rolled in to quell the Prague Spring uprising.

  Miller – who also studied at the military language school in Monterey, California – again worked for intelligence while in Vietnam.

  (…)

  In 1990, he bought three formerly great tow truck companies that were crippled with debt and combined them to form Miller Group.

  He then set up a series of savage cuts to bring back profitability.

  Miller told business magazine Forbes: “The big companies weren’t geared toward the shareholders. They were geared toward a bureaucracy.”

  In August 1994, a shares flotation brought in $30 million, of which Miller pocketed his original $5 million investment.

  Two years later, a North Carolina tow truck distributor told Forbes that Miller “came along and he healed the sick.”

  But Miller’s run of success was not to last forever. In 1997, he created RoadOne, a US towing company, and then acquired 34 towing service firms. RoadOne, however, crashed in 2005.

  Miller’s stock was devalued by more than $100 million before he managed to get the company’s fortunes back into line.

  Now he is America’s top manufacturer of tow trucks and wrecking machines – a massively lucrative market in the motor-obsessed US.

  Away from work, keep-fit enthusiast Miller is known as a family man who likes the outdoor life. He rides a Harley Davidson motorbike and still plays tennis and golf.

  One source in Chattanooga said: “Bill Miller isn’t quite Bill Gates but, in the world of tow trucks, he is a giant.

  “He is known to like the look of once great industries, with a tradition behind them, which have fallen on hard times. He reckons that such a challenge can bring a tidy profit if it’s done right.

• The Long Run at Clorox
  Eddy Elfenbein, March 30th, 2021 at 2:34 pm

  I post these from time to time on Twitter and they seem to be pretty popular. Here’s the long-term chart of Clorox (CLX). The stock is up more than 44-fold in 30 years.

  

  It’s not a complicated business. From their website, Clorox describes themselves thusly:

  The Clorox Company (NYSE: CLX) is a leading multinational manufacturer and marketer of consumer and professional products with about 8,800 employees worldwide and fiscal year 2020 sales of $6.7 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Fresh Step® cat litter; Glad® bags and wraps; Kingsford® charcoal; Hidden Valley® dressings and sauces; Brita® water-filtration products; Burt’s Bees® natural personal care products; and RenewLife®, Rainbow Light®, Natural Vitality Calm™, NeoCell® and Stop Aging Now® vitamins, minerals and supplements. The company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and Clorox Healthcare® brand names. More than 80% of the company’s sales are generated from brands that hold the No. 1 or No. 2 market share positions in their categories.

  The stock hasn’t performed that well recently. CLX reached a high of $239.87 per share last August. CLX is currently at $194.64 per share.

• FactSet Earned $2.72 per Share
  Eddy Elfenbein, March 30th, 2021 at 11:17 am

  FactSet (FDS) reported fiscal Q2 earnings this morning. This is for the quarter that ended on February 28.

  For Q2, FactSet earned $2.72 per share. That’s a 6.7% increase over last year’s Q2. That’s pretty good but it was two cents below Wall Street’s consensus. I’m hardly worried by a two-cent miss but the stock is down about 5% in today’s trading.

  Let’s look at some details. Quarterly revenue increased by 6% to $391.8 million. The key stat for FactSet is Annual Subscription Value (or ASV) plus professional services. For the quarter, that came in at $1.598 billion. I was pleased to see FactSet’s adjusted operating margin increase from 31.8% to 32.6%.

  The company added $206 million to its share buyback program which brings the total to $350 million.

  The most important news is that FactSet didn’t change its full-year earnings outlook. One positive change is that the company raised the low end of its ASV professional services forecast.

  “I am proud of how we executed this quarter, resulting in a solid first half of our fiscal 2021,” said Phil Snow, CEO, FactSet. “In our second quarter we saw a number of key wins validating our strategy for long term growth. Our focus on digital transformation, content expansion, and being an open platform continues to resonate with our clients as they navigate a rapidly evolving landscape.”

  At the end of the quarter, client count stood at 6,103. User count increased by 6,659 to 153,355. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention improved to 90%, year over year. Employee count was 10,660. That’s an increase of 7.8% over the last 12 months.

  CFO Helen Shan said, “We enter our fiscal second half with good momentum and remain focused on delivering significant value to our clients and shareholders.”

  During the quarter, FactSet bought back 221,959 shares for $71.5 million. That’s an average price of $322.11.

  FactSet didn’t alter its full-year guidance. The company expects earnings to range between $10.75 and $11.15 per share. (Their fiscal year ends on August 31.) I suspect that’s probably too low. For the first half of this year, FactSet has made $5.12 per share. The company also sees revenue coming in between $1.57 billion and $1.585 billion. FactSet expects operating margin between 32% and 33%. These are good numbers.

• Morning News: March 30, 2021
  Eddy Elfenbein, March 30th, 2021 at 7:18 am

  Banks Face Billions in Losses as a Bet on ViacomCBS and Other Stocks Goes Awry

  Japan’s Biggest Bank Warns of $300 Million Loss Tied to Bill Hwang’s Fund

  The Suez Crisis Is Over. Now Time to Add Up the Damages

  Giant Next-Gen Container Ships Will Make Ever Given Look Like A Toy

  Big Oil’s Secret World of Trading

  Biden Seeks to Reverse Decades of Disparity in Next Economy Move

  Supreme Court Looks for Narrow Path in Investors’ Suit Against Goldman Sachs

  Amazon Union Vote Enters Final Stretch in Watershed Moment for U.S. Labor

  PayPal Launches Crypto Checkout Service

  German Aviation Startup Lilium to Float In U.S. Via $3.3 Billion SPAC Deal

  JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space

  Family Travel Gets Complicated Without a Covid Vaccine for Kids

  Volkswagen Is Really Serious About EV Foray. To Make That Clear, It’s Renaming US Entity To…Voltswagen

  Inside Nissan’s Battle With Ghosn: A Whistle-Blower Speaks Out

  Howard Lindzon: Momentum Monday – Let Me Introduce You To Some Blockchains and A New Weekly SPAC Update

  Ben Carlson: How Recessions Change the Winners in the Stock Market

  Be sure to follow me on Twitter.

• Hedge Fund Wreck Rattles the Market
  Eddy Elfenbein, March 29th, 2021 at 10:30 am

  This is the final week of the first quarter. The quarter officially ends on Wednesday and the stock market will be closed on Friday for Good Friday.

  First, the good news. That ship has finally been freed in the Suez Canal. The bad news is that a big hedge fund went kablooey last week, and we’re dealing with the aftermath. The hedge fund faced massive margin calls.

  One of my first jobs in the investment industry was making margin calls. I literally called clients on the phone. Fun, eh…not so much. This happens when a client’s position has deteriorated so much that they have to do one of two things. They can either put up more cash (this is the less-preferred option) or, Plan B, they can sell the stock.

  Plan B is what usually happens and that’s what happened to Bill Hwang’s Archegos fund. With the forced selling, we soon found out what stocks the fund was holding. For example, ViacomCBS was not having a good morning. Also, some of the banks that lent to Archegos were also feeling the heat. Credit Suisse was down over 10% this morning.

  One of the issues in these types of events it that you don’t know who is exposed to what and the market can quickly act like a set of dominos. So far, that doesn’t appear to be happening.

  The final few minutes of trading on Friday was an all-out assault by the bulls. The stock market is down a bit this morning. Industrials and staples are in the green while other sectors are mostly down.

• Morning News: March 29, 2021
  Eddy Elfenbein, March 29th, 2021 at 7:02 am

  Billions in Secretive Derivatives at Center of Hedge Fund Blowup

  What Investors Need to Know About Those Huge Block Trades

  Bond Investor Revolt Brews Over Bogus Green Debt Flooding Market

  The Start-Up Enemies of Wall Street Are Booming

  What is Going on with China, Cotton and All of These Clothing Brands?

  Fake Meat Startup Raises $335 Million to Fund Global Ambitions

  The Swift Collapse of a Company Built on Debt

  Visa Becomes First Major Payments Network to Settle Transactions in USD Coin (USDC)

  Deliveroo Shaves $1.3 Billion Off Valuation as Investors Revolt

  Adam Neumann’s Final WeWork Act – Helping SoftBank’s SPAC Deal

  Howard Lindzon: Sunday Reads ….WTF Is Bitcoin Anyway and The Excess of Everything

  Cullen Roche: Understanding Government Liabilities

  Jeff Carter: Provenance of Art & Catching the Second or Third Train

  Ben Carlson: Owning the Best Stocks is Hard & How To Make Up Lost Ground If You Got a Late Start Saving For Retirement

  Michael Batnick: The State of the Stock Market, Have Investors Lost their Minds With Growth Stocks? & Everyone is an Investor

  Be sure to follow me on Twitter.

• CWS Market Review – March 26, 2021
  Eddy Elfenbein, March 26th, 2021 at 7:08 am

  “The great fortunes in stocks have not usually been made by people who give stop orders.” – Charles Dow

  The stock market ran into some minor turbulence this week. The S&P 500 fell four times in five days before an impressive rebound and reversal on Thursday. Once again, the index’s 50-day moving average proved to be the key support level. This isn’t the first time. Over the last two months, the S&P 500 has dipped below its 50-DMA a few times, but not for long. Each time, stocks have rallied back.

  I fear that investors are becoming overly reliant on minor drops quickly reversing themselves. On Wall Street, easy patterns work right until the moment they stop. The stock market has rallied fairly consistently over the last five months. We may be due for a dust up soon. I’m not predicting anything scary, but I am urging caution and patience.

  

  Honestly, this is a fairly quiet time for Wall Street. The Fed just had its meeting, and the Q1 earnings season is still a few weeks away. Volatility is low, and the VIX is back below 20. This week, Federal Reserve Chairman Jay Powell and Treasury Secretary Janet Yellen testified on Capitol Hill about the economy. Both reiterated the position we’ve been making for a few weeks, which is that the economy is doing pretty well, and the higher bond yields are a reflection of that.

  In this week’s issue I want to cover some of the recent economic news. It’s been a bit soggy, but nothing to worry about. I also want to preview what to expect when Q1 earnings season starts. Wall Street has a lot riding on this. I’ll also preview FactSet’s earnings report, which is due out on Tuesday. I also have some Buy List updates for you. But first, let’s take a closer look at some recent economic news.

  February Was Tough, but the Economy Is Getting Better

  On Thursday, the government said that jobless claims fell to 684,000. It’s odd saying that’s good news, but in the Age of the Coronavirus, that’s good news. That’s a post-pandemic low, yet it’s still higher than the highest claims number from 12 years ago. Context is everything.

  This week, we got reports on new- and existing-home sales. Both reports were fairly weak, but harsh February weather probably held back those numbers. Overall, the housing market remains fairly strong. In fact, housing inventory is at very low levels. The CEO at Redfin said that lack of inventory was like a Soviet-era supermarket. Housing inventory usually runs around six months’ supply. Now it’s close to one or two months. This is happening in housing markets all across the country.

  The durable-goods report was also below expectations. During the initial lockdown, the durable-goods numbers took a big hit, but they had been improving since then. That is, until February. Expectations were for an increase of 0.4%. Instead, durable goods declined by 1.1%.

  Economists also like to look at “core” durable goods, which excludes aircraft. Core durable goods fell 0.8% last month. Again, weather was clearly a factor. But I think it points at the broader view that while the economy is improving, it’s not happening at an even pace.

  On Thursday, the government revised the Q4 GDP growth report up to 4.3%. That’s an annualized number, and it’s adjusted for inflation. The previous estimate was for growth of 4.1%. The economy is going through something like a V-shaped recovery, but we’re still well below the level we reached one year ago. Financial markets have improved, and that’s good for us, but for a lasting recovery, we need to see improvements in the real economy.

  

  As I’ve said before, Covid news is now economic news. As soon as the economy can fully reopen, we will see much broader improvement. You can’t install drywall over Zoom.

  In a few weeks we’ll get our first look at the Q1 GDP, and it could be very strong. Goldman Sachs is expecting growth of 8%. There’s talk of 10% growth. Even the Fed is optimistic, and they hate everything. Now let’s look at some numbers for Q1 earnings season.

  Looking at the Numbers for Q1 Earnings Season

  The Q1 earnings season will start in early- to mid-April. This is a crucial time for Wall Street. The economy has improved, and investors will want to see improved profits as well.

  This is also important because Wall Street has gambled that things are getting better and will continue to get better. Right now, you may see a lot of scare items in the news media about how expensive the overall market is. Well, those valuation ratios are correct, but they’re missing the point in how unusual the current market is.

  Investors are looking past the dismal numbers we’ve had. That’s why we have skyward valuations. Stock prices are forward-looking and earnings are backward looking. With such a gap between today and tomorrow, of course the valuation metrics look scary.

  Actually, the Q4 earnings season was pretty good. In the S&P 500, 384 stocks beat guidance, 18 met expectations and 98 missed estimates. (No, it doesn’t add up to 500.) Regarding sales, 368 of 498 stocks beat on sales.

  For Q4, the S&P 500 made $38.18 per share. That’s the index-adjusted figure. Before the pandemic hit, analysts had been expecting something close to $50 per share. Then everyone got scared. At one point, expectations fell all the way to $35 per share.

  For Q1, Wall Street expects the S&P 500 to earn $38.99 per share. That’s almost exactly double last year’s Q1. If you recall, it was really the second half of Q1 (or the second eighth, if you prefer) that was impacted by the lockdowns.

  The analyst community currently expects the S&P 500 to have full-year earnings of $172.43 per share. Going by today’s level, that means the S&P 500 is trading at 22.67 times this year’s expected earnings. That’s high, but it also needs to be put in context. The earnings yield (the inverse of the P/E Ratio) is 4.41%. That compares pretty favorably with the 10-year yield at 1.61%.

  Going out even further, Wall Street analysts expect 2022 earnings of $200 per share. I’m leery of forecasts going out that far. Still, if a robust recovery is coming our way, I don’t believe equity prices are unreasonably high.

  FactSet Earnings Preview

  FactSet (FDS) is due to report its fiscal Q2 earnings report on Tuesday, March 30. The stock hasn’t done particularly well over the last several months. Shares of FDS reached their peak of $363 in August. Since then, they’ve gradually drifted lower.

  For Q1, FactSet earned $2.88 per share. That beat Wall Street’s estimate of $2.75 per share. That was an improvement of 11.6% over last year’s Q1.

  I was impressed with the details. Adjusted operating margin improved 0.4% to 34.3%. The key stat for FactSet is Annual Subscription Value or ASV. For its fiscal Q1, ASV plus professional services rose 5% to $1.56 billion. The company’s user count increased by 5,187 to 138,238. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention was 90%.

  For this year, FactSet expects earnings to range between $10.75 and $11.15 per share. (Their fiscal year ends on August 31.) That’s probably too low. The company also sees revenue coming in between $1.57 billion and $1.585 billion. FactSet expects operating margin between 32% and 33%. That’s very good, and it’s one of the key reasons why I like this stock.

  Unfortunately, the company didn’t provide quarterly guidance, but Wall Street expects Q2 earnings of $2.74 per share. That sounds about right to me. There’s a decent chance the company will raise its full-year guidance.

  FactSet is not a cheap stock, but it’s cheaper than it was, and its business has improved. I’m a big fan of FactSet.

  Buy List Updates

  Here are some updates on a few of our Buy List stocks.

  First off, I had a typo in last week’s issue. Thanks to the many readers who caught this. The correct Buy Below for Danaher (DHR) is $230 per share. My apologies for the error. The shares have firmed up some recently.

  Shares of Moody’s (MCO) have also been improving lately. The stock came close to touching a six-month high. I expect another solid earnings report in a few weeks. This week, I’m raising our Buy Below on Moody’s to $320 per share.

  Sherwin-Williams (SHW) is due to split next week. If you own SHW, you’ll get two more shares for each one you currently own. Unfortunately, the share price will drop by two-thirds. Our Buy Below price will fall to $250 per share. The split will take effect on April 1.

  I don’t write about Hershey (HSY) as much as I should, but what is there to say? They have a simple business model that works. The stock has perked up in the last few weeks, and it’s close to a new all-time high. Hershey remains a buy up to $160 per share.

  

  That’s all for now. The stock market will be closed next Friday, April 2 for Good Friday. This is a rare day when the market is closed and most government offices are open. Despite the holiday, Friday will be jobs day. That’s when we’ll get the unemployment rate and nonfarm payrolls for March. For February, the U.S. economy created 379,000 jobs and the unemployment rate fell to 6.2%. As usual, the ADP payroll report will be due out on Wednesday. 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: March 26, 2021
  Eddy Elfenbein, March 26th, 2021 at 7:03 am

  Suez Blockage Sets Shipping Rates Racing, Oil and Gas Tankers Diverted Away

  In Suez Canal, Stuck Ship Is a Warning About Excessive Globalization

  Using Shame, Lending Apps in India Squeeze Billions Out of the Desperate

  BOE Says Artificial Sterling Libor Could Continue for a Decade

  Money No Object As Governments Race to Build Chip Arsenals

  One Ultra-Rare Metal Is Doing Much Better Than Bitcoin This Year

  Larry Summers Warned About Inflation. Fed Officials Push Back.

  Athletes Pitch Wall Street’s Hot New Toy, but Not Just to Their Fans

  Robinhood Mulls Platform for Buying Into IPOs

  Burberry Becomes First Luxury Brand to Suffer Chinese Backlash Over Xinjiang

  WeWork Agrees to SPAC Deal That Would Take Startup Public

  Pepsi’s Newest Flavor Has Peeps In It

  Joshua Brown: Non-compete

  Howard Lindzon: The State Of Venture Capital

  Cullen Roche: Stocks Don’t “Only Go Up”

  Ben Carlson: How Much Money Do You Need To Make To Be Considered Rich?

  Michael Batnick: Investing in the Gig Economy

  Be sure to follow me on Twitter.