Archive for August, 2021

• Morning News: August 5, 2021
  Eddy Elfenbein, August 5th, 2021 at 7:10 am

  Britain’s Central Bank Is Expected to Raise Inflation Forecasts as Analysts Look for a Stimulus Exit Plan

  How A Little-Known G7 Task Force Unwittingly Helps Governments Target Critics

  Biden Sets U.S. Goal for Clean Cars to Be Half of 2030 Sales

  Senators Go Beyond Biden Plan to End Private-Equity Tax Break

  Democrats See Chance to Reset Wall St. Oversight When Top Fed Official Steps Down

  New Candidate for Top Bank Regulator Sees Risks in Crypto and Fintechs

  Goldman Sachs Becomes S&P 500’s Biggest Bull

  The Mystery of the Missing Workers, Explained

  Robinhood Catches Its Own Meme Stock Spotlight With Wild 100% Surge

  Twitter Is Stuck With Itself, Too

  JAB’s Panera Bread to Join Coffee, Bagel Chains in New Unit

  Weber Prices Below Expectations as Grill Maker Downsizes Its IPO

  Casino Owner Vici Properties Buys MGM Growth Properties for $17.2 Billion

  Singapore Banks Increase Dividends on Profit Beat, Outlook

  Yes, You’re Paying About 15% More To Move This Year. Here’s Why

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• Earnings from Miller Industries and Ansys
  Eddy Elfenbein, August 4th, 2021 at 4:30 pm

  After the bell, Miller Industries (MLR) said it had net sales of $181.2 million for Q2. That’s up 40.9% last year’s Q2. Comparisons with last year aren’t terribly useful due to the unusual environment.

  For Q2, Miller’s net income rose to $6.5 million or 57 cents per share. That’s up from 51 cents for last year’s Q2. For the first half of the year, Miller has made 85 cents per share.

  Miller is now going for less than 11 times its 2019 earnings.

  Jeffrey I. Badgley, Co-Chief Executive Officer of the Company said, “We are encouraged by our strong performance in the second quarter as our operations continued to normalize towards pre-pandemic levels. For the second quarter, sales increased 40.9% to $181.2 million as demand trends continued to improve across all of our markets. In addition, our operations are beginning to see the benefits of our enterprise software upgrades completed in the first quarter and we do not anticipate any significant disruptions to our business operations as we work to implement further system improvements across our network. Despite favorable demand conditions and improving industry dynamics, our operations continue to be impacted by supply chain disruptions and limited availability of freight transportation across our network, as well as increased employee turnover and difficulties in hiring new workers. While we anticipate these headwinds to continue, we are leveraging all available resources to ensure we can meet customer demand.”

  Mr. Badgley continued, “With industry dynamics such as vehicle miles traveled continuing to improve, we are encouraged by the favorable demand backdrop as evidenced by our healthy order rates and strong backlog. Despite the challenges faced in our domestic export shipping operations, customer demand in our international business is strong. As we move into the second half of the year, the industry backdrop continues to improve and we are well positioned to capitalize on all growth opportunities. Lastly, our financial position and strong cash generation grant us the financial flexibility to drive the business forward and deliver for our customers.”

  This report is a big relief. I’ve been a believer in Miller even as the stock has gone down. The company is clearly profitable. I’m a little concerned about the 44% jump in cost of operations.

  Ansys (ANSS) said it had Q2 earnings of $1.85 per share. Expectations had been for $1.56 per share. Operating cash flows was $118.9 million.

  Nicole Anasenes, Ansys CFO, stated, “Our outstanding performance was highlighted by 25% ACV growth in the second quarter, driving our first half 2021 ACV growth to 16%. Given the strength and momentum in our core business year-to-date, coupled with our sales pipeline, I am confident in our ability to achieve our increased full-year 2021 guidance.”

  For Q3, Ansys sees earnings of $1.22 to $1.39 per share on revenue of $400 million to $425 million. For the whole year, Ansys now sees earnings ranging between $6.85 and $7.15 per share on revenue of $1.84 to $1.89 billion. That’s an increase from their previous forecast for earnings between $6.69 per share and $7.10 per share.

• Robinhood Soars and Is Halted
  Eddy Elfenbein, August 4th, 2021 at 12:35 pm

  Robinhood (HOOD) went public last Thursday. The shares were halted today after they rose 65%. The stock didn’t do so well on its first day of trading. It closed higher but not with the huge pop some were expecting. Until yesterday when HOOD then rose 24%, that is. The shares were halted today due to high volatility.

  

  This morning’s ADP jobs report showed a gain of 330,000. That was well below estimates of 653,000. The official government report is due out on Friday.

  We have two more earnings reports coming after today’s close. Ansys (ANSS) and Miller Industries (MLR) are due to report.

• Morning News: August 4, 2021
  Eddy Elfenbein, August 4th, 2021 at 7:20 am

  Reality Bites: China’s Meddling Cools But Can’t Reverse Hot Commodity Prices

  Big Economic Challenges Await Biden and the Fed This Fall

  Markets Primed for Powell Second Term at Risk From Surprise Pick

  SEC’s Gensler Signals Pathway for a Bitcoin ETF With Tough Rules

  After Months of Avoiding the Vaccine Issue, Companies Begin to Mandate

  CDC Says Travelers Should Avoid Greece, Ireland Regardless of Vaccine Status

  Ex-Enron Trader Discovers Greed Is Good—for the Environment

  Facing Severe Droughts, Developers Seek to Reuse the Water They Have

  Amazon Faces Wider Fight Over Labor Practices

  Robinhood Surges More Than 24%, Blows Past $38 IPO Price

  Square’s $29 Billion Bet on Afterpay Heralds Future for ‘Buy Now, Pay Later’ Trend

  Apple, Affirm to Join on Buy Now, Pay Later for Canadian Purchases

  Toyota, Honda Beat Profit Estimates But Are Wary of Extended Chip Crunch

  CVC Buys 10% Stake in Spain’s La Liga for $3.2 Billion

  Tencent Boss Loses $14 Billion in Rout, More Than Jack Ma

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• CWS Market Review – August 3, 2021
  Eddy Elfenbein, August 3rd, 2021 at 6:49 pm

  This is the free version of CWS Market Review. If you have a chance, please sign up for our premium newsletter for $20 per month or $200 for the whole year.

  Best. Earnings. Season. Ever.

  We’re in the midst of second-quarter earnings season and so far, it’s looking quite good for U.S. corporations. That’s not what was expected only a few months ago. At the beginning of the year, Wall Street was expecting pretty weak earnings growth for Q2.

  How wrong they were.

  We now have more than half the earnings reports from the S&P 500 and profits are on track to grow 90% over last year’s Q2. Of course, last year’s Q2 was a terrible time for the economy, so that’s growth coming off a very low base. Throughout this entire year, expectations have been consistently ratcheted higher and we’re still beating those higher forecasts.

  A few weeks ago, Wall Street was expecting earnings growth of 65.4%. We’re beating that by about 25%. So far, 89% of reports have beaten Wall Street’s consensus. That’s the highest “beat rate” since they started tracking it more than 25 years ago.

  I should explain that most of the time, companies are expected to beat expectations. The normal beat rate is around 60% to 65%. I find it darkly funny how often a stock will drop sharply after merely meeting expectations. Q2 earnings are currently coming in 16.6% above expectations. For context, the long-term average is about 4%.

  Q2 will most probably mark the highpoint in earnings growth, but earnings are still expected to grow. For Q3, Wall Street currently expects earnings to grow by 29.6% over last year’s Q3. For Q4, the current estimate is for 21.2%. The broader trend is clear—slowly, things are getting back to normal, but we still have a long way to go.

  Policymakers in Washington are coming upon a major turning point for the economy. On one hand, things have markedly improved over the past year. Still, there are lots of folks who have been left behind. Now we have a growing threat from new strains of the virus. Fortunately, the mortality rate is far lower than what it had been.

  

  At the same time, the government is rolling back its massive aid to people who have been hurt during the pandemic. In March, President Biden signed a $1.9 trillion aid program. The White House has said that it doesn’t need more stimulus programs and that more lockdowns are off the table.

  The Federal Reserve is most likely discussing when they’re going to pull back on their economic support. The Fed is currently buying $120 billion worth of bonds each month. I suspect that they’re going to gradually taper that back. In fact, the tapering could start before the end of the year. The Fed has its big Jackson Hole conference in a few weeks. In past years, the central bank has used Jackson Hole to announce major policies.

  The key is jobs. By my rough estimate, I’d say that the economy is about seven to eight million jobs away from full employment. We’ll soon learn a lot more. This week is Jobs Week which means there are several key economic reports that lead up to Friday’s release of the official jobs report.

  On Monday, the ISM Manufacturing Index was down to 59.5 but that’s still pretty good. Tomorrow we’ll get the ADP private payrolls report. I’ll caution you that it’s not always a good barometer for the government jobs report. The consensus is for a gain of 653,000 private sector jobs.

  On Thursday, we’ll get another jobless-claims report. The data here tends to bounce around a lot. That’s why many economists follow the four-week average. Expectations are for 385,000. The pandemic low is 368,000.

  On Friday morning, the government will release the official numbers for the July jobs report. Wall Street economists are expecting a massive gain of 835,000 new jobs and for the unemployment rate to drop to 5.7%. That’s a bold forecast and it would be very good news if it were correct. If we see a strong jobs report, that would be very good for the market and it could signal that the Fed will start to taper its monthly bond buying.

  Moody’s Blowout Earnings Report

  We’ve had some very strong earnings results from our Buy List stocks. For non-subscribers, I wanted to share one stock with you in particular. Moody’s (MCO), the credit-ratings people, knocked it out of the park for Q2. As I like to say, the only thing better than owning an outright monopoly is owning a pseudo monopoly, and that’s what Moody’s is.

  For Q2, Moody’s earned $3.22 per share. That crushed Wall Street’s estimate of $2.74 per share. That’s a huge earnings beat. When any earnings report comes out, one stat I like to follow is a company’s operating profit margin, especially compared with its competitors. That’s usually a good sign of a healthy company. For Q2, Moody’s operating margin was over 55%. That’s quite good.

  

  For the quarter, total revenue rose 8% to $1.6 billion. Moody’s business is divided into two units. There’s Moody’s Investors Service (MIS) and Moody’s Analytics (MA). For Q2, revenue at Moody’s Investors Service was up 4% to $980 million while Moody’s Analytics saw revenue jump 15% to $573 million. I’m particularly a fan of MIS. The operating margin in that division was over 64% last quarter. I also like the recurring revenue at MA. That’s now running at 93% of the division’s total revenue.

  I also like that Moody’s is actually reducing its share count. Lots of companies buy back shares, then turn around and give shares to executives for their bonuses. That keeps the share count the same. Not so for Moody’s. During Q2, Moody’s bought back 1.1 million shares for a total cost of $371 million. The average price was $329.44 per share. At the same time, Moody’s issued 200,000 new shares.

  The best news is that Moody’s first half was so strong that the company raised its full-year guidance. The company now sees full-year earnings between $11.55 and $11.85 per share. The old range was $11.00 to $11.30 per share. This is MCO’s second increase in guidance this year. The original range was $10.30 to $10.70 per share.

  We now have a 30.6% gain this year in Moody’s. We first added Moody’s to our Buy List in 2017. Since then, the stock is up 302% for us, not including dividends.

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  Good News! Clorox Plunged 9.5%

  One of the best ways to invest in stocks prudently is to follow good companies and wait until they drop. Sometimes the drop is warranted, but many times it’s not. Even if the lower share price is deserved, well-run companies move to fix whatever the problem is.

  That’s why I was pleased to see shares of Clorox (CLX) get clobbered today. Shares of the bleach stock fell more than $19 to close at $164 per share. That’s a loss of more than 9%. At one point, it was down more than 12% on the day. This was Clorox’s worst day in 20 years. Actually, shares of Clorox have been weak for several months. Clorox hit its all-time peak a year ago this Thursday when CLX traded at $239.87.

  Since then, it’s lost more than 30%. That gets my attention. First, let’s take a step back and look at how strong this stock has been over the long run. Since its low in October 1990, shares of CLX are up more than 4,500%, and that includes the stock’s recent downturn.

  Last year, Clorox made $7.36 per share. That’s nearly double what it made in 2009. Clorox is an excellent example of a consumer staple stock. For investors, that means that its earnings tend to grow steadily higher each year. Contrast that with a cyclical like a homebuilder or an energy stock where its yearly profits can swing wildly depending on broad economic factors. But Clorox consistently churns out the earnings.

  It’s not that defensive stocks are in any way better than cyclicals. It’s really a matter of understanding what you own and realizing where we are in the cycle. Lately, defensive stocks have been on the out and cyclicals stocks are in.

  When investors get scared, they rush to defensive stocks like Clorox. When the pandemic broke last year, during a particularly scary stretch in February and March, shares of Clorox gained more than 20% while the S&P 500 lost 25%. During the pandemic, hand sanitizer was in heavy demand. Today, retailers can’t give it away.

  

  In today’s earnings report, Clorox said it made 95 cents per share for its fiscal Q4. That was well below consensus of $1.36 per share. It gets worse. Clorox also said it expects to make between $5.40 and $5.70 per share for the current fiscal year (ending in June). Wall Street had been expecting $7.67 per share.

  So what went wrong? Clorox blames higher costs. Hmmm.

  I’m not about to jump on Clorox just yet, but it’s on my radar. If the price stays low and the company is able to overcome its cost problems, then Clorox could be a very attractive stock.

  Let me also stress that I never try to buy at the bottom. Stocks can always go lower than you think. I’m find with not joining in until the first 10% or 20% move has passed. I’d rather be confident that the business has improved.

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

  – Eddy

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• Morning News: August 3, 2021
  Eddy Elfenbein, August 3rd, 2021 at 7:05 am

  New Zealand to Further Limit Mortgages Amid Relentless Housing Boom

  Britain Rethinks Letting China Enter Its Nuclear Power Industry

  What if Highways Were Electric? Germany Is Testing the Idea.

  When the Chips Are Down: Global Shortage to Keep Crimping Carmakers

  Big Economic Challenges Await Biden and the Fed This Fall

  A Hawkish Bullard Sees More Volatile Economic “Regime” Emerging in U.S.
  

  U.S. Company Profits Even Bigger than Wall Street’s Lofty Targets

  New SEC Boss Wants More Crypto Oversight

  Apple Topples Saudi Aramco To Be The Most Profitable Fortune Global 500 Company In 2020

  Tencent Weighs Kids Games Ban After ‘Spiritual Opium’ Rebuke

  PepsiCo to Sell Tropicana, Other Juice Brands for $3.3 Billion

  Sanofi Offers to Buy U.S. Biotech, mRNA Partner Translate Bio

  Oil Giant BP Ups Dividend and Confirms Share Buybacks As It Posts Better-Than-Expected Quarterly Profit

  Alibaba to Face Investors as Beijing’s Business Crackdown Grows

  The App With the Unprintable Name That Wants to Give Power to Creators

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• Trex Earned 53 Cents per Share
  Eddy Elfenbein, August 2nd, 2021 at 4:26 pm

  After the closing bell, Trex (TREX) reported fiscal Q2 earnings of 53 cents per share. That’s up 29% from last year and it matched Wall Street’s consensus.

  Net sales rose 41% to $312 million. Trex had been expecting sales of $295 million to $305 million.

  EBITDA rose 36% to $92 million. Trex’s Residential sales increased by 43% to $299 million. This includes a price increase that took effect on January 1.

  “Our strong second quarter revenue growth was driven by sustained broad-based demand across all Trex Residential product lines and market share gains from wood. The completion of our $200 million capacity expansion program in May enabled Trex Residential to convert significant customer demand into an impressive 43% increase in sales. Additionally, we are pleased with the success of our tiered product strategy, which supports consumer decision-making by providing a range of product aesthetics, features and price points that have broad appeal and distinct competitive advantages over wood. With the largest part of our capacity expansion behind us, we will now pivot to cost reduction projects and continuous improvement opportunities. These efforts will be focused on automation, modernization, energy efficiency and raw material processing.

  “As expected, higher raw material costs and logistic expenses pressured second quarter gross margin. Together with the start-up expenses related to our capacity expansion program, these additional costs reduced gross margin by approximately 400 basis points compared to second quarter 2020. This negative impact was partially offset by robust sales growth in the Residential segment, which resulted in EBITDA growth of 36%. The previously announced price increase that was effective August 1, along with the continued benefits of greater-than-projected productivity experienced in our new Virginia facility, will serve to manage a portion of the inflationary pressures that we have experienced in the first half of this year,” said Bryan Fairbanks, President and CEO.

  For Q3, Trex expects sales to range between $320 million and $330 million. The midpoint is 40% growth over last year. Wall Street had been expecting $323.31 million.

• The Stock Market Starts August on a Good Note
  Eddy Elfenbein, August 2nd, 2021 at 10:46 am

  It’s the first trading day of the month and that means the ISM Manufacturing report comes out. I like this report because it comes out quickly. Compare that with the GDP reports that come out weeks after the quarter ends.

  The ISM report for July fell to 59.5. That’s down 1.1 from June. Any reading above 50 means the factory sector is expanding.

  The stock market is up nicely so far this morning, but that comes after declines in three of the last four days. The S&P 500 was briefly above 4,420 this morning.

  The S&P 500 gained 2.27% in July. With dividends, it was up 2.38%. For the year, it’s up 17.02% and with dividends, it’s up 17.99%.

  We have one earnings report today. Trex (TREX) will report after the close today. The estimate is for 53 cents per share.

• Morning News: August 2, 2021
  Eddy Elfenbein, August 2nd, 2021 at 7:12 am

  Chinese Stocks Jump as Beijing Signals More Economic Support

  Xi Jinping’s Capitalist Smackdown Sparks a $1 Trillion Reckoning

  Volatility Warnings Signal Virus May Bring Another Rough August

  World’s Biggest Pension Fund Cuts U.S. Bond Weighting by Record

  Home Prices Are Soaring. Is That the Fed’s Problem?

  Can the Mad Rush to Deliver Your Groceries in 10 Minutes Be Profitable?

  Payments App Square to Acquire Australian Company Afterpay

  HSBC Doubles Profit, Hints At Share Buybacks As Bad Loan Fears Ease

  Pfizer and Moderna Raise Prices for COVID-19 Vaccines in EU

  Smart Buildings: Cohesion CEO on the Office of the Future

  Half Full or Half Empty? Heineken Doubles Profit, Warns on Costs

  Zoom Agrees to Settle Lawsuit Over ‘Zoombombing’

  Sunken ‘Jungle Cruise’ Sales Reflect Hollywood’s Delta Variant Troubles

  40% of Americans Fear Retirement More Than Death — Here’s Why

  Priceless? Even Olympic Medals Can Be Had for the Right Price

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