Archive for March, 2021

• The Stock Market Is *VERY* Concentrated
  Eddy Elfenbein, March 3rd, 2021 at 2:35 pm

  One of the important facts about the stock market that I try to stress to new investors is just how big the mega-cap stocks are. These are gigantic companies, even compared with other fairly large stocks.

  Apple has a market value in excess of $2 trillion. Google, Microsoft and Amazon are in the $1 trillion club.

  The total market value of the S&P 500 is about $32 trillion. That means that those four stocks make up about 20% of the index.

  Here’s a good chart that shows how concentrated the stock market is. This chart shows the 50 largest stocks in the S&P 500 (red line) along with the S&P 500 (blue line). In other words, the other 90% of the index adds a little diversification, but not much.

  

  A few years ago, I tried to show how you could build a decent index fund with just eight stocks. (Mimicking the index is the easy part, but it’s a classic case of fat tails. That means that one big outlier can completely wreck your index tracking.)

  One of the broad-based indexes is the Russell 3000. They further sub divide that into the 1,000 largest for the Russell 1000. The other 2,000 stocks make up the Russell 2000 which is often a proxy for the small-cap market. My point is that companies in the Russell 2000 are still pretty big. Recently, Apple’s market value surpassed the market value of the entire Russell 2000.

  You can build a portfolio with only a few stocks that closely follows the indexes. You can also build a portfolio with hundreds of stocks that moves entirely differently than the market.

• February ADP = +117,000
  Eddy Elfenbein, March 3rd, 2021 at 12:13 pm

  This is jobs week, and there’s a standard order to it.

  On Wednesday, ADP releases its report on private payrolls.

  Then on Thursday, the government releases its weekly report on jobless claims.

  Finally, on Friday, the government releases the big monthly jobs report.

  This morning, we got the ADP payrolls report and it indicated that the U.S. economy created 117,000 net new private sector jobs last month. That was well below expectations of 225,000. I’ll add that the ADP report doesn’t always line up well with the government’s numbers.

  For this Friday’s government report, Wall Street expects non-farm payrolls to rise by 210,000.

• Q4 2020 Earnings Calendar
  Eddy Elfenbein, March 3rd, 2021 at 12:03 pm

  Earnings season wraps up with 22 of our 25 Buy List stocks having reported their Q4 earnings in this cycle. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.

  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	$1.97	$1.91
  Zoetis	ZTS	16-Feb	$0.87	$0.91
  Stepan	SCL	18-Feb	$1.08	$1.42
  Trex	TREX	22-Feb	$0.36	$0.37
  Ansys	ANSS	24-Feb	$2.54	$2.96
  Middleby	MIDD	1-Mar	$1.41	$1.62
  Miller Industries	MLR	1-Mar	n/a	$1.05

• Morning News: March 3, 2021
  Eddy Elfenbein, March 3rd, 2021 at 7:04 am

  A $21 Trillion Treasuries Mystery Is Bedeviling Global Markets

  Spike in Bond Yields Dented Some Hedge Fund February Returns

  American Factories Are Roaring Back. The Problem? They Can’t Find Critical Parts

  Renewable Diesel Boom Highlights Challenges in Clean-Energy Transition

  The Hottest Amenity From Developers? A Power Plant Made of Batteries.

  Empty Office Buildings Squeeze City Budgets as Property Values Fall

  Return-to-Office Plans Are Set in Motion, but Virus Uncertainty Remains

  Forget GameStop. If You Want Real Risk, Invest in Supercars

  Prices of Scrapped Dr. Seuss Books Skyrocket on eBay

  ‘The Rosa Parks of Wall Street’

  Joshua Brown: Of Course This Ends Badly

  Howard Lindzon: SPAC Week Continues…Why We Launched A SPAC

  Nick Maggiulli: Being Honest About Your Investment Performance

  Ben Carlson: A Bleak Future For Long-Term Government Bonds

  Michael Batnick: Animal Spirits: Never Bet Against America & Housing, We Have a Problem

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• Ross Stores Earns 67 Cents per Share
  Eddy Elfenbein, March 2nd, 2021 at 4:11 pm

  After the close, Ross Stores (ROST) reported fiscal Q4 earnings of 67 cents per share. This is for the crucial holiday-selling months of November, December and January. Wall Street had been expecting earnings of $1 per share. Sales were $4.2 billion. Same-store sales fell 6%.

  For the year, Ross made 78 cents per share. Total sales were $12.5 billion.

  Barbara Rentler, Chief Executive Officer, commented, “While our fourth quarter sales exceeded our expectations, the upsurge of the virus resulted in lower traffic, especially in California, our largest state, where we were subject to more stringent occupancy and operating hour restrictions.”

  Ms. Rentler continued, “Fourth quarter operating margin of 9.5% declined versus last year as an increase in merchandise margin was more than offset by the deleveraging effect on expenses from lower sales, and higher supply chain and COVID-related operating costs.”

  Now for some good news. Ross is reinstating its quarterly dividend of 28.5 cents per share. One year ago tomorrow, Ross raised its quarterly dividend 12%, from 25.5 cents to 28.5 cents per share.

  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.

• Morning News: March 2, 2021
  Eddy Elfenbein, March 2nd, 2021 at 7:03 am

  China ‘Worried’ About Bubbles in Property, Foreign Markets

  Wall Street Bullishness Is Becoming a Contrarian Sell Signal

  Virus Did Not Bring Financial Rout That Many States Feared

  Saudi and Russia Are at Loggerheads Again, but OPEC Meeting ‘Unlikely to Ruin the Oil Party’

  Oil Trade Group Is Poised to Endorse Carbon Pricing

  Mining Magnets: Arctic Island Finds Green Power Can Be A Curse

  U.S. Airlines Remain in ‘Dire Straits,’ Needs New Government Assistance

  Amazon Workers’ Union Drive Reaches Far Beyond Alabama

  Cathie Wood’s Flagship ETF Roars Back With Near-Record Inflow

  Pandemic Boosts Target’s Growth, at Rivals’ Expense

  The Most Important Gun Lawsuit You’ve Never Heard Of

  Joshua Brown: Only Took 12 Years, But Wall Street Has Finally Gotten Bullish Enough

  Howard Lindzon: Momentum Monday – The Banks and Energy? and Joe Fahmy Is Our Special Guest

  Michael Batnick: Will Higher Interest Rates Kill Growth Stocks?

  Ben Carlson: Shortages Everywhere You Look

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• Middleby Jumps 8.8% Today
  Eddy Elfenbein, March 1st, 2021 at 6:22 pm

  What a day for Middleby (MIDD)! The company reported outstanding earnings results for the fourth quarter.

  The shares rallied 8.8% today. At one point, MIDD was up 13.6% today.

  What makes today even more impressive is that the stock rallied into today’s earnings report. Shares of Middleby had already rallied for six days in a row before today’s big jump.

  MIDD has risen nearly four-fold off its 52-week low. It’s our #1-performing stock this year with a year-to-date gain of 23.6%.

  

• More on the “Rally in Crap”
  Eddy Elfenbein, March 1st, 2021 at 3:44 pm

  In the newsletter from a few weeks ago, I described the rally as being the rally in crap. At Bloomberg, Sarah Ponczek gives more background.

  Rather than cave under the prospect of higher interest rates, a basket of companies with shaky finances fell 0.9%, while a similar group of stocks with sturdier balance sheets dropped 3.4% and the S&P 500 ended the week 2.5% lower, data compiled by Goldman Sachs Group Inc. and Bloomberg show.

  In February, companies with weaker finances outperformed more solid ones by more than five percentage points. That was the third-best performance since May 2009 (the strongest month was last November after the election and positive vaccine news, while the second was in 2010). On a quarterly basis, the start of 2021 coupled with the last three months of 2020 is shaping up to be the best period for firms with weaker balance sheets in more than a decade.

  Back then, companies with more fragile finances led the first big chapter of the stock upswing. The group’s bottom versus their relatively stronger counterparts came in March 2009 — coinciding with an end of the bear market in equities and arriving three months before the onset of an economic expansion that eventually lasted almost 11 years.

• Highest ISM in 17 Years
  Eddy Elfenbein, March 1st, 2021 at 10:33 am

  March is starting on a very strong note. As I write this, the S&P 500 has been up as much as 1.8% today, and it’s a broad-based rally as well. It’s not the kind where only a handful of stocks are doing the heavy lifting.

  We had two economic reports this morning. Construction spending for January increased by 1.7% over December. The increase since last January was 5.8%. That’s very encouraging.

  Also, the ISM Manufacturing report came in at 60.8 for February. That’s a very good number. Expectations were for 58.9. There hasn’t been a higher ISM since May 2004. (February 2018 tied it.)

  Also this morning, Middleby (MIDD) reported fiscal Q4 earnings of $1.62 per share. Expectations were for $1.41 per share. Considering the environment, this was a solid quarter.

  Adjusting for exchange rates, 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 backlog now stands at a record $522.7 million. MIDD’s EBITDA margin was 20.3%. Operating cash flow increased to $208.6 million compared with $147.7 million for last year’s Q4.

  The stock is up over 6% this morning.

• Morning News: March 1, 2021
  Eddy Elfenbein, March 1st, 2021 at 7:09 am

  Central Banks Will Happily Ignore Inflation-Mongers

  China Charges Ahead With a National Digital Currency

  As Crypto Markets Plunge $400 Billion, Coinbase Reveals Major Bitcoin And Ethereum Price Risks

  Warren Revives Wealth Tax, Citing Pandemic Inequalities

  Yes, Bond ETFs Can Go Haywire. But That’s a Good Thing, Says BIS

  SPACs Turn to ‘Stonks’ As Amateur Traders Take on More Risk

  Amazon Union Is a Tough Sell in Town Where $15 an Hour Goes a Long Way

  Texas Energy Co-Op Files For Bankruptcy After Storm, High Bill

  Jane Fraser Rises to Citi CEO Surrounded by Challenges and Deadlines

  How A 10-Second Video Clip Sold for $6.6 Million

  How the Pandemic Stalled Peak TV

  Cullen Roche: How Worrisome is the Rise in Interest Rates?

  Howard Lindzon: SPAC Week On My Blog – Social Leverage Acquisition Corp …And Not Everyone Will Have A SPAC but Roger Fradin Has One!!

  Michael Batnick: Everything is Oversubscribed, Everyone Makes Mistakes & What Happened to Gold?

  Ben Carlson: What If Interest Rates Don’t Matter as Much as We Think?, The Best Time to Give Back & Talk Your Book: Investing in Moonshots

  Joshua Brown: The Burning of Black Wall Street, Stocks do very well during periods of rising rates. Facts, not opinions., Beanie Baby Flashbacks & Podding with Dan Nathan, Guy Adami and Danny Moses

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