Archive for March, 2021

• Morning News: March 9, 2021
  Eddy Elfenbein, March 9th, 2021 at 6:51 am

  Oil Flirting With $70 Challenges World’s Economic Recovery

  Women Could Give $20 Trillion Boost to Economic Growth by 2050

  Chinese EV Trio Eye HK Listings this Year to Raise Combined $5 Billion

  Why Japan Is Holding Back as the World Rushes Toward Electric Cars

  Americans Paid Off a Record $83 Billion in Credit Card Debt in 2020

  Pandemic Forces F.D.A. to Sharply Curtail Drug Company Inspections

  U.S. Airline Flyers Top 1 Million-a-Day Pace, a Pandemic Rarity

  Airlines and Travel Groups Urge U.S. to Develop Virus Passport

  Drive-Throughs That Predict Your Order? Restaurants Are Thinking Fast

  Brands Hope to Cash in on Clubhouse Audio App Frenzy

  Being Owned by a Billionaire is a Struggling Newsroom’s Dream. But It Can Turn into a Nightmare

  Joshua Brown: Thanks, Elon!

  Howard Lindzon: Momentum Monday – Everybody Out Of The Tech Pool?

  Michael Batnick: A Once-In-A-Career Occurrence & How to Profit from Inflation

  Ben Carlson: The Biggest Economic Experiment in History

  Be sure to follow me on Twitter.

• Growth Is Lagging
  Eddy Elfenbein, March 8th, 2021 at 11:51 am

  The Growth/Value Cycle peaked in September, but it didn’t move very much. Only recently has Growth consistently underperformed Value.

  The cycle last peaked in May 2007. In other words, Growth outperformed Value for more than 13 years.

  This chart shows the Growth ETF divided by the Value ETF:

  

• Some Volatility Has Come Back to the Market
  Eddy Elfenbein, March 8th, 2021 at 10:54 am

  The stock market is up so far this morning. As I write this, the S&P 500 has been as high as 3,865.33. The market has gotten noticeably more volatile recently. Over the last eight days, the S&P 500 has closed higher or lower by 1% or more than six times. In the 12 days prior to that, it didn’t happen once.

  Today’s trading is interesting because the cyclicals are leading the charge with the exception of energy stocks. The energy sector is currently the only sector in the red.

  On our Buy List, Disney (DIS) is up over 3% and it’s close to another new high.

  We also had new highs from AFLAC (AFL), Miller (MLR), Silgan (SLGN) and Middleby (MIDD). I also have to shine a light on Fiserv (FISV). The stock got hit hard during last year’s panic, but it’s picked up over the last month.

  Ross Stores (ROST) said it plans to open 60 stores this year. The company had already said that in its earnings report, but they made it official in a press release today.

  Ross Stores recently opened four Ross Dress for Less® (“Ross”) and three dd’s DISCOUNTS® stores across five different states in February and March. These new locations are part of the Company’s plans to add approximately 60 new stores – 40 Ross and 20 dd’s DISCOUNTS locations – during fiscal 2021.

  “These recent openings reflect our ongoing plans to continue the expansion of our two chains,” said Gregg McGillis, Group Executive Vice President, Property Development. “We now operate a total of 1,866 Ross Dress for Less and dd’s DISCOUNTS locations across 40 states, the District of Columbia, and Guam. As we look out over the long-term, we remain confident that Ross can grow to 2,400 locations and dd’s DISCOUNTS can become a chain of 600 stores given consumers’ ongoing focus on value and convenience.”

  On Friday, shares of Tesla got as low as $539 per share. That’s down from $900 in late January.

• Morning News: March 8, 2021
  Eddy Elfenbein, March 8th, 2021 at 7:03 am

  Iran Slips Record Volume of Oil Into China, Reaches Out to Asian Clients for Trade Resumption

  Oil Giants Prepare to Put Carbon Back in the Ground

  Microsoft Attack Blamed on China Morphs Into Global Crisis

  Rush to Bitcoin? Not So Fast, Say Keepers of Corporate Coffers

  ‘They’re Laying A Trap’: Everything to Know About the New Bitcoin Tax Rules

  Economics: The Art Of Complicating What Is Incredibly Simple

  Goldman Sachs Economists See U.S. Jobs Boom as Virus Curbs Ease

  Lessons From a Year of Pandemic Spending

  ‘Hey, Hey, Money Maker’: Inside the $156 Billion SPAC Bubble

  GE Nears Deal With AerCap to Create Behemoth Aircraft Lessor

  Joshua Brown: The Day the Growth Trade Topped

  Nick Maggiulli: Why Are We Panicking Again?

  Howard Lindzon: Stimulus (Sentiment) Sunday – The America Rescue Plan.

  Michael Batnick: The Most Important Chart of the Decade & Animal Spirits: The Most Ambitious ETFs

  Ben Carlson: Owning Individual Stocks vs. Owning the Stock Market & Could Inflation Give Us a Wonderful Buying Opportunity?

  Be sure to follow me on Twitter.

• February NFP +379,000
  Eddy Elfenbein, March 5th, 2021 at 8:32 am

  The February jobs report is out. The U.S. economy created 379,000 net new jobs last month. Expectations were for 210,000.

  In the last year, NFP is down by 9.475 million. But it’s better than it was!

  The unemployment rate ticked down to 6.2%. The unemployment rate is now lower than its peak in the 2003 recession. January was revised up to 166,000. The U-6 rate was 11.1%. The labor force participation rate was 61.4%. Bars and restaurants accounted for 75% of the job gains last month.

  The Labor Force Participation Rate has been very stable over the last nine months. Mostly 61.4% or so.

  Nearly all the job gains came from the battered leisure and hospitality sector, which saw an increase of 355,000 amid a relaxation of dining restrictions in some areas. Bars and restaurants gained 286,000 jobs while hotel-related hiring totaled 36,000 and amusement, gambling and recreation businesses added 33,000.

  Despite the gain, the industry is still 3.5 million short of its employment level from a year ago, just before the worst of the pandemic.

  Stock market futures rose sharply following the report, with the Dow industrials pinting to a 235-point gain at the open. Government bond yields also were higher.

  Friday’s report showed that hiring also was stronger in January than initially indicated, with that month’s tally revised up to 166,000 from 49,000. However, December’s count was revised lower from a los of 227,000 to a drop of 306,000.

  Health care jobs in February rose 46,000 while retail added 41,000. Manufacturing also posted a 21,000 increase.

  Here are nonfarm payrolls:

  

• CWS Market Review – March 5, 2021
  Eddy Elfenbein, March 5th, 2021 at 7:08 am

  “There seems to be an unwritten rule on Wall Street: If you don’t understand it, then put your life savings into it.” – Peter Lynch

  Some jitters have come to Wall Street. On Thursday, the S&P 500 closed at its lowest level in more than a month. For the first time in six months, the index had back-to-back losses of more than 1%. Of course, the losses may seem heavier than they were because the rally hasn’t had much pushback. That is, until now.

  Interestingly, the S&P 500 closed below its 50-day moving average on Thursday (the blue line on the chart below). That’s an interesting signal to watch. With one minor exception, the S&P 500 had stayed above its 50-DMA since early November. The index came within a hair of closing below its 50-DMA on Wednesday and again last Friday. But in both cases, the index rallied off the 50-DMA. Not so this time.

  

  All told, the S&P 500 is down a little over 4% from its high, but this is the first time in a long time that the bears appear to have the upper hand. So what’s going on? It seems that higher bond yields are finally making stocks a little nervous. Fed Chairman Jerome Powell backed that up by saying that some inflation could be on its way.

  As for us, we had our final three earnings reports this week. The report from Ross Stores wasn’t so hot, but there’s reason for optimism. The deep-discounter reinstated its dividend. We had very good news from Miller Industries and Middleby. At one point on Monday, Middleby was up over 13% for us. It’s now our #1 performing stock this year with a gain of 24.2%. Miller is looking good as well. I’ll have all the details in just a bit. But first, let’s look at what’s making folks so nervous.

  Expect Some Higher Inflation

  So is the bull taking a little nap, or are we at the start of something worse? Honestly, we can’t say either way just yet. In last week’s issue, I laid out the case for optimism, but that’s for the overall economy. The market can do poorly in a good economy (and vice versa).

  In fact, we had more good news for the economy this week. On Monday, the ISM Manufacturing Index tied for its highest level in 17 years. The concern for the market is that long-term interest rates are creeping higher. On Thursday, the yield on the 10-year Treasury bond closed above 1.5%. That hasn’t happened in over a year.

  Of course, these bond yields are far from high, but they’re higher than they were. As a very general rule, the bond market tends to lead the stock market by a few months. It’s strange that the stock market would be concerned by a bond yielding just 1.5%.

  This week, Fed Chairman Jerome Powell joined the higher-yields club when he said that more inflation could be on its way. Powell said, “We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects.” For a central banker, saying that qualifies as a freakout. As soon as Powell said that, stocks started to fall.

  Of course, a lot of this is because things are either getting back to normal or are soon expected to be getting back to normal. When the economy is held back, then released, you’re going to see some inflation. In 1946, the inflation rate was 8.3%. That was followed in 1947 by an inflation rate of 14.4%. I’m not expecting numbers like that, but some higher inflation is only natural. Let’s also remember that a $1.9 trillion stimulus is also on the way.

  Here’s a telling chart that explains what’s happening. The blue line is the energy sector, and the red line is financials. Both of them have been beating the pants off the overall market. These are precisely the cyclical and low-quality stocks that I’ve talked about in previous issues.

  

  The green line at the bottom is the S&P 500. What’s interesting is that the purple line is the tech sector. That’s pretty much moving along with the S&P 500. The reason I call this to attention is that in normal times, investors prefer tech because it doesn’t hug the broader indexes.

  Investing in tech is a cheap and easy way to diversify, but now tech is just like everybody else. Nowadays, the different stuff is the energy and financials: “Hey, let’s diversify. Let’s buy Chevron and a bank!” As odd as it sounds, that’s what’s happening.

  Don’t let the jitters scare you. The stocks on the Buy List are sound no matter what the market throws our way. Make sure you have a diversified portfolio of high-quality stocks. Now let’s look at this week’s earnings news.

  Earnings from Middleby, Ross Stores and Miller Industries

  We had our final three earnings reports this week. Here’s the complete Earnings Calendar.

  Let’s start with Middleby (MIDD), as the company had an outstanding earnings report on Monday. For its fiscal Q4, Middleby earned $1.62 per share. That easily beat expectations of $1.41 per share. As I look at the numbers, this was a very good quarter for Middleby.

  A year ago, the stock got demolished during the market selloff. In fact, MIDD underperformed an already terrible market. The company makes industrial-sized kitchen equipment for hotels and restaurants. The lockdowns were very tough on MIDD’s clients. Still, this is a good example of our buy-and-hold strategy working in our favor. As MIDD plunged, I’m sure a lot of investors cut and ran. From the low point, shares of MIDD have quadrupled.

  Adjusting for exchange rates, quarterly sales fell 9.3% in Q4. That’s not much of a surprise. Commercial food service was down 18.9%. The good news is that business is coming back. The company’s backlog now stands at a record $522.7 million. I really like how Middleby has managed itself over the past year. Operating cash flow increased to $208.6 million, compared with $147.7 million for last year’s Q4. Also, MIDD’s EBITDA margin was 20.3%. That’s quite good.

  The shares gapped up strongly on Monday. At one point, MIDD was up 13.6% on the day. That jump came after the stock rallied six days in a row going into the earnings report. The stock rallied again this Tuesday, for a combined eight-day winning streak.

  Middleby is now our top performer on the year, with a gain of more than 24%. This week, I’m raising our Buy Below to $170 per share.

  

  After the close on Tuesday, Ross Stores (ROST) reported fiscal Q4 earnings of 67 cents per share. That was a pretty weak result. Wall Street had been expecting earnings of $1 per share. This was for the 13 weeks ending January 30, so it included the crucial holiday-selling months of November, December and January. For many retailers, the Christmas season defines much of the fiscal year.

  For the quarter, Ross had sales of $4.2 billion. Same-store sales fell 6%. For the year, Ross made 78 cents per share. Total sales were $12.5 billion.

  One of the problems is that Ross has many stores in California, and that state has more stringent lockdown measures. The silver lining is that those stores have greater room to bounce back as the economy gets back to normal.

  CEO Barbara Rentler said that Q4 sales exceeded their expectations. Q4 operating margin declined to 9.5%.

  Now for some good news. Ross is reinstating its quarterly dividend of 28.5 cents per share. Last year, Ross raised its quarterly dividend by 12%, from 25.5 cents to 28.5 cents per share. After the payment last March, the dividend was suspended. Now it’s back.

  For Q1 guidance:

  Ms. Rentler continued, “Comparable store sales for the 13 weeks ending May 1, 2021 are projected to be down 1% to down 5% compared to the 13 weeks ended May 4, 2019. Earnings per share for the 2021 first quarter are forecast to be $0.74 to $0.86, reflecting the deleveraging effect from the projected decline in same store sales, increased supply chain costs, higher wages, and ongoing COVID-related expenses.”

  Wall Street had been expecting 89 cents per share for Q1.

  Ms. Rentler said that they plan to open 60 new locations this year (about 40 Ross Dress for Less and 20 dd’s Discounts.) She also said that Ross is well positioned to gain market share, since so many retailers have gone under during the lockdowns.

  Shares of Ross fell 5.6% on Wednesday. Ross Stores remains a buy up to $120 per share.

  On Wednesday, Miller Industries (MLR) became our final Q4 earnings report. I had been waiting for this one. All things considered, it was a decent quarter. Net sales fell 12.2% to 178.3 million, but net income increased by two cents to $1.05 per share. That’s better than I had been expecting. Miller isn’t followed by any analysts.

  This was a very tough year for Miller, but Q4 wasn’t nearly as bad as previous quarters. For the year, Miller made $2.62 per share, which was a big drop from $3.43 per share in 2019. Net sales fell 20.4% to $651.3 million.

  Jeffrey I. Badgley, the Co-CEO, said:

  In the first half of the first quarter of 2021, we experienced significant delays in deliveries to our distributors caused by changes we made to our legacy business processes during the implementation of our new enterprise software system. During the same period, we also experienced significant supply chain disruptions due primarily to continued impacts from COVID-19, and extreme weather conditions across parts of the U.S. and tightening availability of freight trucks caused delays in delivering products to our facilities as well as to our customers. These factors caused substantial downward pressures on our revenues, margins and earnings during the first half of the first quarter of 2021. The business process improvements critical to developing our new software system are now essentially operational, allowing our delivery schedule to return to meeting current customer demand. The supply chain issues have now been greatly reduced but could recur. Based on our strong backlog and the current status of our process improvements, we believe we have the opportunity to substantially improve our operating results in 2021 beyond the first quarter.

  On Thursday, shares of Miller touched a new 52-week high. We have a gain this year of 9%. I’m raising our Buy Below on Miller to $45 per share.

  Buy List Updates

  After this week, we’re basically done with earnings for the next seven weeks. The lone exception will be FactSet (FDS). This week, the company announced that it will report its fiscal-Q2 results on March 30. The company expects earnings this year to range between $10.75 and $11.15 per share. This week, I’m lowering FactSet’s Buy Below to $340 per share.

  I’m also lowering our Buy Below on Check Point Software (CHKP). I probably should have done this after the last earnings report. The earnings beat expectations, but guidance was soft. For Q1, Check Point sees earnings ranging between $1.45 and $1.55 per share. Check Point is a buy up to $120 per share.

  That’s all for now. There’s not a whole lot on tap for next week. The February CPI report is due out on Wednesday. Even though inflation expectations have risen, there hasn’t been much evidence of higher inflation. At least, not yet. Also on Wednesday, the government will update on the federal budget. On Thursday, we’ll get another jobless-claims report. 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 5, 2021
  Eddy Elfenbein, March 5th, 2021 at 7:01 am

  A Confident China Promises Robust Growth and a Hard Line on Hong Kong

  China Pledges to Build ‘Polar Silk Road’ Over 2021-2025

  Libor Moves to Its ‘Final Chapter’ as U.K. Sets End Dates

  Bond Fires Smoulder, Shares Drop Ahead of U.S. Jobs Data

  A Leading Critic of Big Tech Is Expected to Join the White House

  Bitcoin Storm Brewing Over Trump’s Anti-Money Laundering Push

  Wealth Managers Frustrated Over Bitcoin, Anxious for Piece of the Action

  OPEC And Allies Keep Oil Production Steady As Saudi Arabia Urges ‘Caution’

  Texas Grid Operator Made $16 Billion Price Error During Winter Storm, Watchdog Says

  When Amazon Raises Wages, Local Companies Follow Suit

  BUZZ, the ETF of Social-Media Darlings, Drops in Trading Debut

  Costco Sales Rise 15% in Latest Quarter

  Howard Lindzon: SPAC Week…SPACs Are Here To Stay This Time…BUT….

  Michael Batnick: I’m All In On Audio & It’s Not Different This Time

  Ben Carlson: Investments as a Status Symbol

  Be sure to follow me on Twitter.

• The S&P 500 May Close Below Its 50-DMA
  Eddy Elfenbein, March 4th, 2021 at 12:51 pm

  Yesterday the stock market closed right at its 50-day moving average. This is one of those silly rules that actually is important. I would guess that if you told someone unfamiliar with the stock market that the average of the previous 50 days plays an important part in the market, they might not believe you.

  

  Yesterday was actually the second recent close near the 50-DMA. Also this morning, the initial jobless claims report came in at 745,000. Expectations were for 750,000. We’re close to our lowest level in nearly a year. We’re coming up on the one-year anniversary when everything fell apart. Last March, the Dow Jones had its 4th and 11th best days in history and its 2nd, 5th and 13th worst days in history.

  Miller Industries (MLR) reported its earnings yesterday. This morning, the stock popped to $44.06, which is a new high.

• Morning News: March 4, 2021
  Eddy Elfenbein, March 4th, 2021 at 7:07 am

  Asia’s Ultra-Rich Are Piling Investments Into Blank-Check Firms

  Bond Scares Linger, Investors Look to Powell

  Investors Are Focused on Treasurys. Here’s What the Fed Could Do.

  Jittery Stocks, Jumpy Bonds: Why Investors Are Troubled by Signs of Growth

  New Biden Economic Hires Point Toward Infrastructure, Manufacturing Emphasis

  Texas Farmers Tally Up the Damage From a Winter Storm ‘Massacre’

  Robinhood Faces a Feared Regulator With Even More Tools Than the SEC

  Inside Pfizer’s Fast, Fraught, and Lucrative Vaccine Distribution

  Disney Shuttering At Least 20% of Disney Stores as It Shifts Focus to e-Commerce

  As Online Shopping Surged, Amazon Planned Its New York Takeover

  Amazon in Talks to Carry Many NFL Games Exclusively on Prime Video

  Private Equity Firm Acquires Michaels in $5 Billion Deal

  Joshua Brown: They Will Flood the Market with Collectibles & The New New Bull Market

  Howard Lindzon: SPAC Week Continues…Bigger, Louder, Faster…The SPAC Locomotive Continues…For Now

  Michael Batnick: The Stock Market Is Usually Right

  Be sure to follow me on Twitter.

• Miller Industries Earned $1.05 per Share
  Eddy Elfenbein, March 3rd, 2021 at 4:39 pm

  Better late than never. After the closing bell, Miller Industries (MLR) became our final Q4 earnings report. For the fourth quarter, net sales fell 12.2% to 178.3 million, but net income increased by two cents to $1.05 per share. That’s better than I had been expecting. Miller isn’t followed by any analysts.

  This was a very tough year for Miller but Q4 wasn’t nearly as bad as previous quarters. For the year, Miller made $2.62 per share which was a big drop from $3.43 per share in 2019. Net sales fell 20.4% to $651.3 million.

  Jeffrey I. Badgley, Co-Chief Executive Officer of the Company stated, “During the fourth quarter of 2020, we experienced steady improvement and I am encouraged by the underlying strength of our business and the resilience of our customer demand despite the ongoing impact of the COVID-19 pandemic.”

  Mr. Badgley continued, “While we were encouraged to finish the year with such strong operating results, the start to the first quarter of 2021 has not been without its challenges. As we discussed in greater detail in our Form 10-K filing, in the first half of the first quarter of 2021, we experienced significant delays in deliveries to our distributors caused by changes we made to our legacy business processes during the implementation of our new enterprise software system. During the same period, we also experienced significant supply chain disruptions due primarily to continued impacts from COVID-19, and extreme weather conditions across parts of the U.S. and tightening availability of freight trucks caused delays in delivering products to our facilities as well as to our customers. These factors caused substantial downward pressures on our revenues, margins and earnings during the first half of the first quarter of 2021. The business process improvements critical to developing our new software system are now essentially operational, allowing our delivery schedule to return to meeting current customer demand. The supply chain issues have now been greatly reduced but could recur. Based on our strong backlog and the current status of our process improvements, we believe we have the opportunity to substantially improve our operating results in 2021 beyond the first quarter.

  Overall, I am extremely proud of our employees’ continued commitment to providing industry leading customer service and I am confident that we will continue to capitalize on all future growth opportunities despite the headwinds we experienced in the first quarter of 2021.”