Archive for August, 2021

• Morning News: August 20, 2021
  Eddy Elfenbein, August 20th, 2021 at 7:01 am

  The World’s Biggest Crypto Exchange Still Lacks U.S. Footing

  The Methane Hunters Racing to Change the Course of Global Warming

  Norway’s $1.4 Trillion Wealth Fund Puts Oil Stocks on Notice

  Chip Crisis Threatens to Cut Auto Output by 7.1 Million Cars

  Volkswagen Cuts Output at Biggest Plant as Chip Shortage Bites

  The Electric Vehicle Boom is Pay-Dirt for Factory Machinery Makers

  Air Canada Sees Cargo Advantage in Toronto Hub As Shippers Avoid U.S. Crunch

  For Bank Regulators, Tech Giants Are Now Too Big to Fail

  U.S. Revives Facebook Suit, Adding Details to Back Claim of a Monopoly

  Facebook’s New Bet on Virtual Reality: Conference Rooms

  Amazon Plans to Open Large Retail Locations Akin to Department Stores

  Academy Of Country Music Awards Ditches Broadcast Networks, To Air Only On Amazon Prime

  Are You Ready for Sentient Disney Robots?

  ‘Paw Patrol’ Unleashed: Behind ViacomCBS’s Plan to Take on Disney

  Three Former Netflix Engineers Are Charged in $3 Million Insider-Trading Ring

  What It Means When Musk and Bezos Argue Over the Moon

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• Jobless Claims Fall to New Pandemic Low
  Eddy Elfenbein, August 19th, 2021 at 10:25 am

  The stock market had a terrible close yesterday. At 2 pm, the S&P 500 was at 4,449. Two hours later, at closing time, it was at 4,400. This morning, the index is on track for its third fall in a row.

  The good news is that the jobless claims report was pretty good. Claims fell to 348,000. That’s a new pandemic low and it’s down 29,000 from the week before. Wall Street was expecting 365,000.

  The earnings report from Ross Stores (ROST) is due out after the close. Wall Street expects earnings of 94 cents per share.

• Morning News: August 19, 2021
  Eddy Elfenbein, August 19th, 2021 at 7:03 am

  U.S. and I.M.F. Apply a Financial Squeeze on the Taliban

  Big Tech and the Taliban

  An $8.8 Billion IPO Wave Sweeps Across India as Startups Soar

  179 Reasons You Probably Don’t Need to Panic About Inflation

  Start-Up Boom in the Pandemic Is Growing Stronger

  Oil Buckles to Lowest Since May as Fed Signals Intent to Taper

  White-Collar Staff Calling Shots as Job Markets Recover

  Finance Firms Are Giving Coders More Flexibility Than Bankers

  China Dip Buyers Finally Reach ‘Breaking Point’ After 56% Loss

  Robinhood Tumbles 12% After Warning of Slowdown in Retail Trading

  Goldman Sachs Buys Dutch Money Manager in $1.9 Billion Deal

  Toyota Slashes September Output Amid Chip Crunch, COVID Resurgence

  Why Teslas Keep Striking Parked Firetrucks and Police Cars

  To Skip the Line at Disney, Get Ready to Pay a Genie

  U.S. States Rush to Meet Deadline to Join $26 Billion Opioid Settlement

  Richard Sackler Says Family and Purdue Bear No Responsibility for Opioid Crisis

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• Adjusting to the Tapering Has Already Started
  Eddy Elfenbein, August 18th, 2021 at 1:45 pm

  The stock market suffered its biggest loss yesterday in a month. That loss wasn’t much, but it says more about how calm things have been over the last month.

  Target (TGT) released a very good earnings report. The store earned $3.64 per share versus an estimate of $3.49 per share. Target beat on revenue as well. Target raised guidance and approved a $15 billion buyback.

  At CNBC, Jeff Cox notes that the stock market is already adjusting itself in preparation of the Federal Reserve tightening.

  For one, he noted that market-based inflation measures pulled back. He also noted the “sideways” movement in commodity prices and the flattening of the yield curve. Within stocks, small-cap, cyclical, international and emerging market equities all pulled back.

  Perhaps most importantly, money stock measures, which reacted sharply to when the Fed ramped up the bond buying program in March 2020 as the pandemic hit, have fallen quickly this year – from a 1.4% monthly gain in January to essentially flat in June, even as the Fed continued buying bonds.

  Essentially, the lack of growth in the monetary base, or M2, is showing the diminishing impact of the Fed’s bond purchases, Paulsen said.

  He also noted that markets have digested the moves fairly well and might not even react once the official tapering starts happening.

  I think that could be right.

• Morning News: August 18, 2021
  Eddy Elfenbein, August 18th, 2021 at 7:07 am

  Americans Turn Against China Stocks as Crackdown Angst Deepens

  Smart Money Had the Jump on Another Mid-Month Plunge in S&P 500

  Jerome Powell Says It’s Unclear What Covid-19 Surge Means for Economy

  Junior Bankers Have Seized the Upper Hand on Wall Street, for Now

  Cathie Wood’s Strategy Draws More Skeptics as Returns Dwindle

  Kids Jump on the Retail Investing Bandwagon, $5 at a Time

  15% of Paycheck Protection Program Loans Could Be Fraudulent, Study Shows

  The Bad Economics of Fossil Fuel Defenders

  Roblox, Facebook See the ‘Metaverse’ as Key to the Internet’s Next Phase

  Lowe’s Forecasts Higher Sales As Big-Ticket Purchases Offset DIY Slowdown

  People Now Spend More at Amazon Than at Walmart

  T.J. Maxx Owner Beats Sales Estimates as Customers Return to Stores

  Target Sales Beat As Shoppers Go Back to Stores; Online Buying Slows

  Sacklers Threaten to Pull Out of Opioid Settlement Without Broad Legal Immunity

  Bill Ackman’s SPAC Gets Sued

  Be sure to follow me on Twitter.

• CWS Market Review – August 17, 2021
  Eddy Elfenbein, August 17th, 2021 at 8:38 pm

  (This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year.)

  Imagine there’s a stock that’s up more than 35-fold in the last 20 years and it’s not followed by a single Wall Street investment analyst.

  This investment has crushed just about every hedge fund out there, yet Wall Street is completely unaware of it.

  Worst of all, it’s stock in a company that’s known by many. In fact, it’s a favorite of people who work on Wall Street.

  The stock I’m talking about is Nathan’s Famous (NATH).

  That’s right, the hotdog stand. Nathan’s is not only a great New York institution, but it’s also been a big long-term winner for investors.

  

  Nathan’s is what we call an “Orphan Stock.” That means that it has zero or near-zero analyst coverage.

  I love Orphan Stocks. They’re a great place to find overlooked values. Some of the big-name stocks on Wall Street are followed by 20, 30, even 50 analysts. These stocks live in glass fishbowls, but that’s not the case with Nathan’s, which, despite its name, apparently isn’t nearly as famous as I thought.

  There are lots of great Orphan Stocks. Ever heard of Atrion (ATRI)? Don’t worry. You’re not alone.

  Atrion is a medical-products company based in Dallas. Even though it’s small ($1.2 billion market cap), Atrion is strong in some niche markets like soft-contact-lens disinfection cases. Do you wonder who makes valves for life vests? There’s a good chance it’s Atrion.

  Twenty-two years ago, you could have picked up one share of ATRI for $7. The stock closed Tuesday at $665 per share.

  Now I’m going to ask you a very easy question: Guess how many firms on Wall Street cover Atrion? I’ll give you a hint. It’s the same as Nathan’s.

  That’s right. Zero.

  The S&P 500’s had a good run over the years and it looks like a flat line in comparison to ATRI.

  

  How can a stock rise so much for so long and no one on Wall Street has ever thought to start covering it? Part of the reason is that they don’t bring Wall Street any investment banking business.

  That’s more of a plus than a minus. It suggests that the company hasn’t entered into any unwise mergers. Or taken on too much debt. Or been acquired at a poor price. Not needing a banker is hardly a bad thing.

  Let’s also remember how hard the financial crisis blew through Wall Street. The big houses simply don’t have the big research departments like they used to. The budgets have been cut back. As a result, there are lots of companies that get no analyst coverage.

  A few years ago, Jason Zweig highlighted the best-performing stock of the last 30 years. Far from being a well-known large-cap tech stock, the big winner was Balchem (BCPC) of Wawayanda, NY. The company makes “flavorings, fumigating gases and nutritional additives for animal feed.”

  Sexy!

  From 1985 to 2015, Balchem gained over 107,000%. Zweig noted that Balchem didn’t attract a single major institutional holder until 1999. That was after it returned an average of 21.3% for the previous decade. Even today, Balchem is followed by a grand total of three analysts. Compare that with Facebook, which is followed by over 50.

  Every earnings season, investors gather to see what companies have beaten expectations and what companies have fallen short. But for Nathan’s and other Orphan Stocks, there’s no “Street consensus” because no one follows them. For an investor, that’s another bonus. You don’t have to worry about the quarterly earnings game.

  Consider an Orphan stock like Chase Corporation (CCF), which is a specialty-chemical company based in Westwood, MA. Chase is one of those Warren Buffett-style stocks. The only difference is that you have to move the decimal point over a few notches. Chase is a quiet firm that consistently generates strong cash flow. It’s a well-run cyclical, with gross margins typically around 35%.

  Over the last 20 years, Chase has gained over 2,700%. That’s enough to beat Microsoft (the blue line). Again, no one follows it.

  

  These aren’t microcaps, either.

  How about the wonderfully named U.S. Lime & Minerals (USLM)? Since 2003, it’s returned more than 40-fold (dividends included). Zero analysts cover it. In 1990, Century Bancorp (CNBKA) hit a low of $1 per share. Today, it’s at $114 per share, and it’s paid dividends all along the way. Number of analysts? Zero.

  Another benefit of investing in Orphan Stocks it that with fewer eyes watching a stock, there may be a better chance of finding a mispriced stock. I wouldn’t say the market is efficient, but the inefficiencies have a better chance of showing up where others aren’t looking for them.

  Also, these businesses tend to be fairly easy to understand. Orphans often don’t have arcane off-balance-sheet items or operating divisions around the world. A hobbyist-investor can invest an afternoon and read through a company’s SEC filings and be well-informed on the business.

  If you have more questions, you can do something few investors think of: call the company and ask to speak to someone. Better-run companies are happy to speak with their investors. After all, the shareholders are the owners.

  You’ll often hear that the type of value investing that Warren Buffett and Charlie Munger made their fortunes on is no longer possible in the world of mass data and Bloomberg terminals. That may be right in terms of amassing a multi-billion fortune, but there are plenty of companies operating well below Wall Street’s radar.

  Here are two more:

  The Hingham Institution for Savings (HIFS) dates back to 1834. In 1990, the stock was going for just over $1 per share, adjusted for splits. Today it’s at $299. Hingham has consistently increased its dividend over the last 25 years. I love how this company treats it shareholders. Last year, Hingham paid out a special dividend of $1.17 per share on top of its regular dividend.

  In the chart below, Hingham is the black line. The blue line is Berkshire Hathaway.

  

  I first told you about the Texas Pacific Land Trust (TPL) in April. The company has a colorful history. It was born over 130 years ago when the Texas and Pacific Railway went bust. The aim of the T&P was to build a southern transcontinental train route. Despite the name, the T&P never made it to California.

  The railway was left with a ton of land and a ton of debt. The trust was formed with 3.5 million acres of land that the railway owned. People who held the railway’s worthless bonds got shares of the new land trust. Some oil came along, the trust made money and everyone was happy. Eventually, the shares started trading on the NYSE in 1927.

  In 1995, you could have picked up a share for $3.50. Recently, TPL’s been trading at $1,425.

  Even though TPL has an amazing track record and a market cap of $11 billion, I don’t want you to think that it’s completely ignored by Wall Street. Not at all!

  Two analysts cover it.

  We currently have one Orphan Stock on our Buy List which is Miller Industries (MLR). I have high hopes for Miller, and the company recently had a good earnings report.

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

  – Eddy

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• Wall Street Drops on Poor Retail Sales
  Eddy Elfenbein, August 17th, 2021 at 11:59 am

  While the world has been captivated by the awful scenes coming out of Afghanistan, the financial markets continue to roll on. The S&P 500 is down today after a surprisingly poor retail sales report.

  Wall Street had been expecting a decline of 0.3%. Instead, it was a decline of 1.1%. It appears that the Delta variant is having an impact on consumer behavior.

  Though July saw a month-over-month decline, the $617.7 billion in sales still represented a 15.8% acceleration from the same time a year ago.

  Most of the monthly decline came from motor vehicles and parts dealers, which fell 3.9%. The auto sector has been a major contributor to the inflation surge in 2021, with used car prices jumping higher amid swelling demand.

  Clothing stores saw a 2.6% decline, and sporting goods, musical instrument and book stores fell 1.9%. Online sales also posted a 3.1% drop.

  With energy prices continuing to rise, gasoline sales increased 2.4%, and the return of businesses to bars and restaurants pushed food and beverage sales up 1.7%. Eating and drinking establishments saw a 38.4% increase in sales from a year ago.

  The retail sales report is important because it tells us how shoppers are behaving. Consumer spending makes up about 70% of the economy.

  We’ll learn more about consumer behavior on Thursday when Ross Stores (ROST) releases its earnings. Their last earnings report beat expectations by 52%. Wall Street expects earnings of 94 cents per share.

• Morning News: August 17, 2021
  Eddy Elfenbein, August 17th, 2021 at 7:02 am

  Days May Be Numbered for the World’s Oldest Bank

  Janet Yellen Gets a Chance to Shape the Fed, This Time From Outside

  China Steps Up Tech Scrutiny with Rules Over Unfair Competition, Critical Data

  Why Cathie Wood Took Her ARKK ETF’s China Stock Exposure to Zero

  Soros Joined by D1, Soroban in Timely Exit of Chinese Stakes

  World’s Biggest Miner BHP Quits Oil, Piles Into Potash

  My Puzzling Entry in the Crypto World

  The Senate’s Infrastructure Cryptocurrency Fight was Just the Beginning

  Hachette to Buy Workman for $240 Million as Publishing Continues Consolidation

  Walmart Tops Estimates, Lifts Outlook as Pandemic Demand Endures

  Home Depot’s U.S. Sales Slow as DIY Consumer Demand Wanes

  Hotels Try Out Fees for Using the Pool and Checking In Early

  Warren Buffett’s Berkshire Hathaway Cuts Stakes in 3 Drugmakers and GM, Adds to Kroger

  Ben & Jerry’s Moves to Thwart Knock-Offs of Its Ice Cream in West Bank

  Billionaire N.Y. ‘Bottom Feeder’ Buys Malls as Others Run Away

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• Another New High Today
  Eddy Elfenbein, August 16th, 2021 at 6:16 pm

  Despite the distressing news today, the stock market rallied to close higher after a sluggish morning. The S&P 500 finished the day at 4,479.71. That’s another new all-time high.

  On our Buy List, we had new 52-week highs from AFLAC (AFL), Broadridge Financial Solutions (BR), Danaher (DHR), FactSet (FDS), Sherwin-Williams (SHW) and Thermo Fisher Scientific (TMO). Plus Hershey (HSY) came very close.

• The NYT Profiles a Short-Seller
  Eddy Elfenbein, August 16th, 2021 at 1:37 pm

  The New York Times has an interesting profile of Nate Anderson and his firm Hindenburg Research.

  Anderson is a short-seller which is a difficult game. He tries to identify shaky or even fraudulent companies and to profit off betting against their share price.

  Last month, federal authorities charged the founder of the electric vehicle manufacturer Nikola, which had gone public in the summer of 2020, with defrauding investors. They were led there partly by the work of a little-known Wall Streeter named Nathan Anderson.

  A stock researcher and investor, Mr. Anderson and his upstart firm, Hindenburg Research, are having a moment. In early August, the Securities and Exchange Commission subpoenaed the sports betting firm DraftKings after Hindenburg said in a June report that it had potentially enabled black-market betting. And shares of Lordstown Motors have fallen nearly 70 percent since Hindenburg said in March that the electric truck maker was hyping commercial interest for its vehicle. Federal authorities are investigating Lordstown’s claims.

  Mr. Anderson’s five-person firm, which takes its name from the German airship that blew up in 1937, is a newbie in the world of finance. Founded in 2017, Hindenburg specializes in publishing detailed reports about publicly traded companies, poking holes in their stories and alerting investors to potential malfeasance. The boom in special purpose acquisition companies has provided Hindenburg with fertile ground.

  It’s not an act of public service. Hindenburg, which has the backing of several investors, also makes financial bets that the stocks of the companies Mr. Anderson is targeting will fall after the firm issues its research. When the stocks do fall, Hindenburg makes its money in what is called a “short” trade.

  “He’s become a real giant killer,” said Frank Partnoy, a former derivatives trader who is now a professor of securities law at the University of California, Berkeley, School of Law. He “seems fearless, even when going after some of the biggest corporate targets.”

  I’m impressed by short-sellers but I know it’s not for me. The hard part is the waiting game. Even if you’re right, it can take a long time for markets to catch up to reality.