Archive for May, 2021

• Fastest Home Price Growth in 15 Years
  Eddy Elfenbein, May 25th, 2021 at 10:48 am

  This morning’s Case-Shiller report said that home prices rose at their fastest pace in 15 years. Over the 12-month period ending in March, home prices increased by 13.2%. In the 12-month period ending in February, prices were up 12%.

  Amazon sad it’s buying MGM. This is interesting news from the standpoint of business history.

  Louis B. Mayer was the CEO of MGM (and the second M). He was the titan of Hollywood and the highest-paid man in America.

  Oddly, MGM was a subsidiary of Loews. Marcus Loew ran a theater company. He bought Metro Pictures. Then Goldwyn pictures, and finally Mayer Pictures. Loew put Mayer in charge.

  From the 1930s through the 1950s, MGM used its star system to help establish the Golden Age of Hollywood. Mayer was forced out in 1951, and soon television took its toll on the movie business.

  In 1948, there was a landmark anti-trust case, U.S. vs. Paramount, wherein the Supreme Court said movie studios couldn’t own the theaters. In fact, that case is often used as a good example of “vertical integration.”

  That means if you own business A, you can’t use your position to get control of business B. I can make Eddy Cars, but I can’t say they only run on Eddy Gas.

  The effect of this decision is that Loews had to sell off its theaters business.

  Now with Amazon buying MGM, the content maker and content distributor are being brought back together again.

  I was not aware of this but there are firms in Asia that allow 100-to-1 margin accounts for crypto trading.

  Brian Kelly, CEO of BKCM, pointed to firms in Asia such as BitMEX allowing 100-to-1 leverage for cryptocurrency trades. Robinhood does not allow traders to use margin for cryptocurrency, and Coinbase only allows it for professional traders.

  “You get this crowd factor — everybody’s liquidation price tends to be somewhat near everyone else’s– when you hit that, all of these automatic sell orders come in, and the price just cascades down,” Kelly, told CNBC.

  Bitcoin traders liquidated roughly $12 billion in levered positions last week as the price of the cryptocurrency spiraled, according to bybt.com. This mass exodus wiped out about 800,000 crypto accounts.

  “Selling begets more selling until you come to an equilibrium on leverage in the system,” said JMP analyst Devin Ryan. That selling begins to “compound” as leveraged positions are liquidated, because they can’t meet those margin requirements, he said.

  “Leverage in the crypto markets — particularly on the retail side — has been a big theme that accentuates the volatility,” Ryan added.

• Morning News: May 25, 2021
  Eddy Elfenbein, May 25th, 2021 at 7:00 am

  U.S., EU Vow to Pressure Belarus Over Diversion of Ryanair Jet

  Airlines Start Skirting Belarus After It Forced Down a Plane

  ‘Cascade of Calamities’ Plagues Tokyo’s Olympics Ambitions

  The Inflation Scare Is Over. The Fed One Is Just Getting Started.

  No Commodities ‘Super-Cycle’ But Copper Demand from Green Economy Bright

  After M&A Boom via Zoom, Dealmakers Hit the Road as COVID-19 Subsides

  Deutsche Bank’s Nightmare Decade Is Gone, But Not Yet Forgotten

  Florida, in a First, Will Fine Social Media Companies That Bar Candidates

  Apple’s Fortnite Trial Ends With Pointed Questions and a Toast to Popeyes

  Amazon Nears Deal to Buy Hollywood Studio MGM

  Scrounging for Hits, Hollywood Goes Back to the Video Game Well

  The Curious World of NFT Real Estate and Design

  Howard Lindzon: Momentum Monday – Down Goes Crypto…Up Goes The Gap?

  Cullen Roche: Three Things I Think I Think – Crypto, Crypto, Crypto

  Jeff Carter: Crypto Markets

  Ben Carlson: 4 Lessons From the Crypto Crash & Last Year vs. This Year in the Markets

  Be sure to follow me on Twitter.

• Morning News: May 24, 2021
  Eddy Elfenbein, May 24th, 2021 at 7:03 am

  The SPAC Party Gets Going in Europe, This Time With Better Terms

  Inside the Race to Avert Disaster at China’s Biggest ‘Bad Bank’

  China Targets ‘Speculators and Hoarders’ to Stop Commodity Boom

  China Crypto Mining Business Hit by Beijing Crackdown, Bitcoin Tumbles

  Mainstream Markets Shrug at Volatile $1 Trillion Crypto Rout

  Three Disasters Show Gaps in $1.7 Trillion Infrastructure Plan

  The Fed Thinks It Can Have It All: Strong Economy, Job Growth, Stable Inflation

  Big Banks Look for Post-Pandemic Rebound of Credit Card Revenue

  Daimler’s Truck Unit Maps Plans to Replace Diesel With Hydrogen

  Big Candy Is Angry

  How the Pandemic Has Changed Attitudes Toward Wealth

  Jeff Carter: Digital US Dollars & 10000=$15=$350000000

  Michael Batnick: Houses Have Gotten Bigger and Nicer

  Ben Carlson: Did HGTV Ruin the Housing Market For Millennials?

  Howard Lindzon: Tiny Bubbles…Seed Stage Edition and Sunday Reads

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• Morning News: May 21, 2021
  Eddy Elfenbein, May 21st, 2021 at 7:04 am

  U.S. Floats 15% Global Minimum Tax on Corporate Profits

  As Paycheck Protection Program Runs Dry, Desperation Grows

  Bitcoin Taxes and Biden

  Oil Drillers and Bitcoin Miners Bond Over Natural Gas

  Soaring Prices Herald Boom Time for Steel Makers

  How the Post-Pandemic Labor Crunch is Curbing U.S. Manufacturing

  U.S. Can Learn From Others on Managing Climate Finance Risks

  How Megafirms Are Eating the World

  Irish Hospitals Are Latest to Be Hit by Ransomware Attacks

  Cathie Wood Still A Big Buyer of Coinbase, Owns $1 Billion Worth of Shares

  The World Might Be Running Low on Americans

  Joshua Brown: Of Course They’re Going to Talk About Tapering

  Howard Lindzon: Recruiting Never Ends …mParticle Hires Chee Chew

  Ben Carlson: On the Benefits of Curiosity

  Michael Batnick: Animal Spirits: The Case for Investing in Farmland

  Be sure to follow me on Twitter.

• Morning News: May 20, 2021
  Eddy Elfenbein, May 20th, 2021 at 7:08 am

  Once Tech’s Favorite Economist, Now a Thorn in Its Side

  China’s Blockchain Stocks Are Avoiding Worst of Bitcoin Carnage

  Amid Elon Musk’s Dogecoin Endorsement, SEC Warns On Investing In Anything On The Word Of ‘Someone Famous’

  $ASS Coin Billionaire: Tales From the Fringe of the Crypto Craze

  Colonial Pipeline CEO Tells Why He Paid Hackers a $4.4 Million Ransom

  Microsoft and Apple Wage War on Gadget Right-to-Repair Laws

  ByteDance Founder to Step Down as CEO, Hand Over to College Roommate

  Brothers Ride the Oat Milk Boom to $448 Million Fortune

  Ford’s Electric F-150 Pickup Aims to Be the Model T of E.V.s

  How Ford Burned $12 Billion in Brazil

  ‘It’s Magic What We Do.’ Movie Theaters Get Starry-Eyed Once More.

  Dutch Court Orders Carlos Ghosn to Return $6.1 Million to Nissan

  Joshua Brown: On the Bright Side

  Howard Lindzon: The Draw Of The 200 Day Moving Average

  Michael Batnick: My Journey With Bitcoin

  Ben Carlson: Crash Rules Everything Around Me

  Be sure to follow me on Twitter.

• Morning News: May 19, 2021
  Eddy Elfenbein, May 19th, 2021 at 7:05 am

  Crypto Tumble Wipes $600 Billion Off Digital Tokens in a Week

  What Beijing’s New Crackdown Means for Crypto in China

  U.S., Canada, Mexico Hold ‘Robust’ Trade Deal Talks, Downplay Differences

  Specter of 1960s Inflation Take-Off Haunts U.S. Economy Today

  No Pain, No Gain for Big Funds Hunting the Next Tesla

  Banks Always Backed Fossil Fuel Over Green Projects—Until This Year

  The Big Money Is Going Vegan

  After Media Detour, AT&T Confronts Old Problems

  Target Sales Jump 23% As Exclusive Brands, Curbside Pickup Draw In Shoppers

  Ex-TikTok CEO Seen as Contender for Discovery-WarnerMedia Streaming

  Burger King to Enter Chicken Sandwich Wars with the Ch’King

  Nick Maggiulli: Should You Ever Invest in a Leveraged Index Fund?

  Howard Lindzon: Social Leverage Companies In The News Growing and Raising Capital

  Joshua Brown: Will Inflation Crash the Stock Market? & Post Traumatic Shopping

  Michael Batnick: Inflation Doesn’t Have to Crash the Stock Market & A Shortage of Everything

  Ben Carlson: What Advice Would You Offer Newly Minted Dogecoin Millionaires?

  Be sure to follow me on Twitter.

• CWS Market Review – May 18, 2021
  Eddy Elfenbein, May 18th, 2021 at 3:49 pm

  “I have no idea how this works.” – Dave Portnoy

  (This is the free version of CWS Market Review. Don’t forget to sign up for the premium newsletter for $20 per month or $200 for the whole year. Thank you for your support.)

  You’re not alone, Dave. I recently said that I’ve been waiting 15 years for Nike (NKE) to pull back. Alas, it’s never hit the bargain bin. The sneaker company only seems to climb higher.

  

  See that flat blue line? That’s actually a 1,075% gain for the S&P 500. It just looks flat in comparison to 26,000% for Nike.

  For the overly literal who missed my point, I meant to say that sometimes it’s worth paying a premium for a company. Especially if it’s a premium company. There’s little point in trying to save 15% on the buy while missing the next 1,500% move. Pennywise and billions foolish.

  This is a key point in stock analysis. Nike is a wonderful company and by most conventional metrics, it’s over-priced. It’s almost always overpriced. Even now it’s going for 43 times this year’s earnings. Yet it’s still done so well.

  What are we missing? When you’re overly focused on a stock’s value you may overlook its most important asset, that being its ability to grow. All investing is at some level growth investing. A good investment may double its P/E Ratio. It’s rare but it happens. But a company often can grow the E in the P/E Ratio (the earnings) by many, many fold.

  Here’s a thought exercise. Imagine if you know beforehand that a stock will grow its earnings by tenfold in, say, ten years. Are you going to haggle much over 10 cents on the buy price? I wouldn’t.

  Warren Buffett often cites Ben Graham as his mentor. Buffett worked for Graham, and his eldest son is named Howard Graham Buffett. But there’s another inspiration to Buffett’s thinking and that’s Philip Fisher (the father of Ken Fisher). Fisher as much as anyone can be called the father of growth investing. His best-known book is Common Stocks and Uncommon Profits. Fisher stressed the importance of a long-term perspective and buying for growth.

  John Train said that Warren Buffett is 85% influenced by Benjamin Graham and 15% by Philip Fisher. That sounds about right. Of course, too much of a focus on growth investing can be a pitfall as well. It can lead you to vastly overpay for a stock. With investing, there’s a magic formula outside of discipline and patience.

  I was recently looking at the stock of Celanese (CE). This is one of those big companies that doesn’t get much attention in the trading universe. The company has a market cap of $20 billion and about 8,000 employees. Still, you rarely hear it mentioned in investing circles.

  What do they do? Celanese is the world’s leading producer of acetic acid. Sexy, I know. Still, the stock has outperformed Netflix over the past one, two and three years. Who would have guessed that?

  

  The truth is, there are lots of companies like Celanese but too many investors shy away from investing in all but a few well-known stocks. There are thousands of stocks out there and they’re not all overpriced.

  A good clue that a company has a strong market position is what I call the nice, smooth earnings line. This is when companies consistently increase their earnings-per-share.

  Here’s an example. This is the earnings-per-share history of AmerisourceBergen (ABC).

  2005: $0.83
  2006: $1.08
  2007: $1.31
  2008: $1.46
  2009: $1.69
  2010: $2.17
  2011: $2.54
  2012: $2.76
  2013: $3.14
  2014: $3.97
  2015: $4.96
  2016: $5.62
  2017: $5.88
  2018: $6.49
  2019: $7.09
  2020: $7.90
  2021: $8.53 (est)
  2022: $9.10 (est)
  2023: $9.93 (est)

  Notice how it’s a nice, steady climb.

  My Watch List

  I’m often asked how I go about finding the stocks for my Buy List. What I do is track a Watch List of about 100 stocks. These are stocks that I generally define as good stocks. They usually have thriving businesses and consistent operating histories.

  I think of the stocks on the Watch List as the minor leagues and the Buy List is like getting called up to the majors. I’m constantly adding and deleting names to the Watch List. I’m not terribly disciplined, and the list often grows larger than 120 stocks. That’s too many. I’ve recently pared the list back to 100 stocks.

  Here’s a sample of 20 stocks that are currently on my Watch List.

  

  You can see the entire list by joining our premium service.

  Stock Focus: Tyler Technologies

  I’ll highlight one of the Watch List stocks above. Tyler Technologies (TYL) of Plano, Texas is the largest U.S. software company that’s solely focused on the public sector. That’s a nice market to focus on since the government has deep pockets and it never goes bankrupt.

  Tyler’s software comes in handy for a local government trying to manage its mission. This includes dozens of different applications. Local governments have to do a lot from managing payroll and accounting to billing and HR management. Tyler helps smooth the process. More importantly, it controls costs.

  Tyler divides its software business into six categories: appraisal and tax software and services, integrated software for courts and justice agencies, enterprise financial software systems, planning/regulatory/maintenance software, public safety software, records/document management software solutions and transportation software solutions for schools.

  

  Tyler has implemented 21,000 installations in more than 10,000 local government agencies. Tyler doesn’t just work in the U.S. The company has aided governments in Canada, Australia and many other countries.

  Consider some numbers. The software market for state and local governments is currently at $15 billion per year. In the U.S., the government exists at several levels which means there are thousands of government agencies at the state and local level, plus school districts. Moreover, many of the current systems used by governments are outdated and in desperate need of an upgrade. You’d be shocked to learn how many government offices still use filing cabinets.

  It looks like this year Tyler will pass the $1.3 billion revenue mark, plus reach 5,600 employees.

  Last year, Tyler’s subscription revenue grew 12.6%. Free cash flow was up over 50%. Approximately 30% to 50% percent of Tyler’s new software clients choose their software-as-a-service (SaaS) model, as new business continues to gradually transition toward subscriptions.

  Tyler is very popular with its client base. The company maintains a 98% retention rate. That’s very good when two-thirds of your revenue is recurring subscriptions. The company has a solid balance sheet. Since 2002, Tyler has bought back nearly 28 million shares.

  Tyler has impressive plans for growth. The problem with local governments is that they often operate on several disparate systems. In simple terms, they don’t talk to each other. They have no incentive to. Tyler wants to bring them all together. That way, the government can be more efficient and more responsive to their constituents.

  Here’s Tyler’s remarkable growth in EPS. Another nice, smooth line:

  2012: $1.00
  2013: $1.51
  2014: $2.09
  2015: $2.54
  2016: $3.49
  2017: $3.92
  2018: $4.80
  2019: $5.30
  2020: $5.52
  2021: $6.15 est
  2021: $7.09 est

  Like Nike, I’ve been waiting for Tyler to get clobbered, and we recently got our chance. The stock had an earnings miss for Q4. The shares also got dinged after Tyler went to the bond market to fund some recent acquisitions.

  

  A few weeks ago, Tyler reported Q1 earnings of $1.43 per share which beat the street by 11 cents per share. That was up 14% over last year’s Q1. Not good enough. In March, Tyler was as high as $480 per share. Lately, it’s around $400.

  This year’s estimate for $6.15 per share is ambitious but very doable. Best of all, the American Rescue Plan Act has $350 billion earmarked for state and local governments.

  This is a strong growth company with a solid moat. I’d like to see TYL come down a lot more. Still, the ghost of Nike shares lost haunts me.

  That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

  – Eddy

  P.S. Don’t forget to sign up for our premium newsletter.

• My Watch List
  Eddy Elfenbein, May 18th, 2021 at 3:30 pm

  Here’s my latest Watch List. This is my unofficial list of high-quality stocks I like to follow. If a stock is on this list, then there’s a very good chance that it’s in the upper 5% of well-run companies on Wall Street. This is the elite.

  I’m often asked how I go about selecting the stocks for my Buy List. It’s actually very simple. I have this Watch List of stocks and if one of them falls down to a very attractive price, then it becomes a contender for the new Buy List. I like to think of the Watch List as the minor leagues for the Buy List. Strong prospects earn their way up the ladder.

  The Watch List is very informal. Unlike the Buy List, I’m constantly adding and deleting names. In fact, I have a bad habit of letting the Watch List grow too large. I often find myself adding three names for every one I delete. Ideally, I like to keep the Watch List below 100 names.

  AbbVie (ABBV)
  AmerisourceBergen (ABC)
  Adobe (ADBE)
  Automatic Data Processing (ADP)
  AMETEK (AME)
  American Tower (AMT)
  Anthem (ANTM)
  Amphenol (APH)
  Atrion (ATRI)
  AutoZone (AZO)
  Boeing (BA)
  Balchem (BCPC)
  Brown-Forman (BF-B)
  Biogen Inc. (BIIB)
  Booking Holdings (BKNG)
  Celanese (CE)
  Colgate-Palmolive (CL)
  Clorox (CLX)
  The Cooper Companies, Inc. (COO)
  Costco Wholesale Corporation (COST)
  Copart, Inc. (CPRT)
  salesforce.com, inc. (CRM)
  Cintas Corporation (CTAS)
  CVS Health Corporation (CVS)
  Ecolab Inc. (ECL)
  The Estée Lauder Companies Inc. (EL)
  Edwards Lifesciences Corporation (EW)
  Expeditors International of Washington, Inc. (EXPD)
  Exponent, Inc. (EXPO)
  Fastenal Company (FAST)
  F5 Networks, Inc. (FFIV)
  Fair Isaac Corporation (FICO)
  General Dynamics Corporation (GD)
  General Mills, Inc. (GIS)
  Gentex Corporation (GNTX)
  Alphabet Inc. (GOOG)
  Global Payments Inc. (GPN)
  Hingham Institution for Savings (HIFS)
  Huntington Ingalls Industries, Inc. (HII)
  Henry Schein, Inc. (HSIC)
  IDEXX Laboratories, Inc. (IDXX)
  IDEX Corporation (IEX)
  International Flavors & Fragrances Inc. (IFF)
  Intuit Inc. (INTU)
  Intuitive Surgical, Inc. (ISRG)
  Gartner, Inc. (IT)
  J.B. Hunt Transport Services, Inc. (JBHT)
  J & J Snack Foods Corp. (JJSF)
  Jack Henry & Associates, Inc. (JKHY)
  Johnson & Johnson (JNJ)
  Kellogg Company (K)
  Kimberly-Clark Corporation (KMB)
  Lockheed Martin Corporation (LMT)
  Mastercard Incorporated (MA)
  Masimo Corporation (MASI)
  Medtronic plc (MDT)
  McCormick & Company, Incorporated (MKC)
  Mesa Laboratories, Inc. (MLAB)
  3M Company (MMM)
  Altria Group, Inc. (MO)
  Microsoft Corporation (MSFT)
  Mettler-Toledo International Inc. (MTD)
  Neogen Corporation (NEOG)
  NIKE, Inc. (NKE)
  Northrop Grumman Corporation (NOC)
  ServiceNow, Inc. (NOW)
  Novo Nordisk A/S (NVO)
  Old Dominion Freight Line, Inc. (ODFL)
  Oracle Corporation (ORCL)
  O’Reilly Automotive, Inc. (ORLY)
  Paycom Software, Inc. (PAYC)
  Paychex, Inc. (PAYX)
  Prosperity Bancshares, Inc. (PB)
  PayPal Holdings, Inc. (PYPL)
  ResMed Inc. (RMD)
  Rollins, Inc. (ROL)
  Roper Technologies, Inc. (ROP)
  Raytheon Technologies Corporation (RTX)
  Starbucks Corporation (SBUX)
  SEI Investments Company (SEIC)
  Simulations Plus, Inc. (SLP)
  S&P Global Inc. (SPGI)
  Constellation Brands, Inc. (STZ)
  TransDigm Group Incorporated (TDG)
  The TJX Companies, Inc. (TJX)
  Tractor Supply Company (TSCO)
  The Toro Company (TTC)
  The Trade Desk, Inc. (TTD)
  Texas Roadhouse, Inc. (TXRH)
  Tyler Technologies, Inc. (TYL)
  Universal Health Services, Inc. (UHS)
  UnitedHealth Group Incorporated (UNH)
  United States Lime & Minerals, Inc. (USLM)
  Visa Inc. (V)
  Veeva Systems Inc. (VEEV)
  Verisk Analytics, Inc. (VRSK)
  VeriSign, Inc. (VRSN)
  Waters Corporation (WAT)
  WD-40 Company (WDFC)
  Winmark Corporation (WINA)
  Waste Management, Inc. (WM)
  Watsco, Inc.(WSO)
  Wolverine World Wide, Inc. (WWW)
  Zimmer Biomet Holdings, Inc. (ZBH)

• Morning News: May 18, 2021
  Eddy Elfenbein, May 18th, 2021 at 5:27 am

  China’s Biggest ‘Bad Bank’ Tests Beijing’s Resolve on Financial Reform

  Japan’s Yo-Yoing Economy Shrinks as Virus Spreads and Vaccinations Lag

  Inflation Fears Abound as Gas and Lumber Shortages Bite. Should the Fed Worry?

  Rural Areas Are Looking for Workers. They Need Broadband to Get Them.

  America’s Restaurant Apocalypse Has Been Greatly Exaggerated

  Burry of ‘Big Short’ Fame Places Big Bet Against Musk, Tesla

  Censorship, Surveillance and Profits: A Hard Bargain for Apple in China

  Apple Faces Continued iPad Pro Delays Due to Next-Gen Displays

  AT&T Set to End Media Voyage with $43 Billion Discovery Deal

  An Old-School Media Titan Pushes Aside an Upstart

  Amazon’s MGM Deal Would Add to Frenzy for Streaming Assets

  Amazon Hoping To Invoke the Power of Positive Affirmations To Reduce Workplace Injuries

  Howard Lindzon: Momentum Monday – Bitcoin Goes Down?

  Joshua Brown: Stimulating the Housing Market Is Psychotic

  Michael Batnick: “I’ll buy on the next pullback”

  Ben Carlson: The Pros & Cons of Liquidating Your Portfolio To Buy a House With Cash

  Be sure to follow me on Twitter.

• Homebuilders Are Concerned About Inflation
  Eddy Elfenbein, May 17th, 2021 at 1:15 pm

  It’s a fairly quiet day of trading on Wall Street. This morning’s report from homebuilders shows that confidence is still high, but there are concerns about inflation.

  Builder sentiment in the single-family housing market was unchanged at 83 in May, according to the NAHB/Wells Fargo Housing Market Index. Anything above 50 is considered positive sentiment.

  The index had plummeted to 37 last May, as the pandemic lockdown hit and the housing market shut down. It then rebounded dramatically in June and July, as consumers rushed out to buy suburban homes, seeking more space for working and schooling from home.

  Builders now say they continue to see a steady stream of buyers, due in large part to the extreme shortage of existing homes for sale. Continued low mortgage rates are helping some with affordability, but with prices rising fast, purchasing power is weakening.

  The overall market is down today with tech down the most. Energy is up the most and some defensive sectors like Staples and Healthcare are just barely positive.

  I posted this on Twitter so I’ll report it here. Here’s a list of stocks you may not have known are publicly traded:

  Churchill Downs (CHDN)
  MSG Sports (Knicks and Rangers) (MSGS)
  WD-40 (WDFC)
  Jack in the Box (JACK)
  Nathan’s Famous (NATH)
  Tootsie Roll (TR)
  Utz Brands (UTZ)
  Boston Beer (Sam Adams) (SAM)
  Value Line (VALU)
  Mace Security (MACE)
  Crazy Woman Creek Bancorp (CRZY)