Archive for November, 2021

• Disney Earns 37 Cents per Share
  Eddy Elfenbein, November 10th, 2021 at 4:16 pm

  After the closing bell, Disney (DIS) reported fiscal Q4 earnings of 37 cents per share. That missed expectations of 44 cents per share. Quarterly revenues were $18.53 billion. That was also below expectations of $18.79 billion.

  One problem is parks, experiences and products. Revenue for that division came in at $640 million. While that’s double last year’s Q4, it’s still below expectations of $900 million.

  Disney+ is now up to 118.1 million subs. The Street was expecting 125.4 million. For the quarter, they added 2.1 million while Wall Street had been expecting an increase of 9 million.

  One bright spot is ESPN+. They added 17.1 million subs compared with expectations of 16.4 million. Revenues per user came in at $4.74 which also beat expectations by 10 cents.

  Disney is down about 4% after hours.

• Year-Over-Year Inflation Reaches 30-Year High
  Eddy Elfenbein, November 10th, 2021 at 3:04 pm

  Thanks to the rally in Trex (TREX), yesterday was one of our Buy List’s best days against the S&P 500 this year. Our Buy List gained 0.94% while the S&P 500 fell 0.35%. The latter snapped an eight-day win streak.

  This morning’s jobless claims report fell to 267,000. That’s another pandemic low. Economists had been expecting 275,000. Jobless claims are now within the ballpark of their range prior to Covid. For most of 2018 and 2019, jobless claims came in between 200,000 and 240,000. The peak was 6.1 million. The report usually comes out on Thursday but tomorrow is Veteran’s Day.

  Today’s inflation report showed that consumer prices rose by 0.94% last month. That’s the highest in 13 years and the 4th-highest in the last 39 years. Wall Street had been expecting an increase of 0.6%.

  Over the last year, consumer prices have increased by 6.2%. That’s the most in 30 years.

  

  Core inflation, which excludes food and energy, rose by 0.6%. Wall Street had been expecting an increase of 0.4%. The 12- month core rate is 4.58%.

  Fuel oil prices soared 12.3% for the month, part of a 59.1% increase over the past year. Energy prices overall rose 4.8% in October and are up 30% for the 12-month period.

  Used vehicle prices again were a big contributor, rising 2.5% on the month and 26.4% for the year. New vehicle prices were up 1.4% and 9.8%, respectively.

  Food prices also showed a sizeable bounce, up 0.9% and 5.3% respectively. Within the food category, meat, poultry, fish and eggs collectively rose 1.7% for the month and 11.9% year over year.

  The price increases meant that workers fell further behind.

• Morning News: November 10, 2021
  Eddy Elfenbein, November 10th, 2021 at 7:03 am

  U.S. Credit Card Use Returning to Pre-Pandemic Patterns, NY Fed Report Finds

  The Making of a Feel-Bad Boom

  China Begins Euro Bond Deal After Strong Dollar Debt Sale

  ‘China’s Economy is Hitting a Great Wall’: Parallels to the ’08 Housing Crash Could Unleash a Major Recession, Says University of Chicago Economist

  Evergrande Teeters on Edge of Default as $148 Million Payment Falls Due

  Li Ka-Shing Adds Hydrogen Bet to Bolster $31 Billion Fortune

  Rivian Set for Debut After Year’s Blockbuster $11.9 Billion IPO

  Lordstown’s Auto Industry Is Coming Back. The Jobs? Not So Much

  How Data Is Reshaping Real Estate

  How GE’s Larry Culp Split the Empire Jack Welch Built

  Judge Denies Apple’s Request to Delay App Store Changes

  Elon Musk Loses $50 Billion in Two Days in Record Wealth Plunge

  Meta Plans to Remove Thousands of Sensitive Ad-Targeting Categories

  Google Loses Appeal of $2.8 Billion Fine in E.U. Antitrust Case

  Scammer Who Cheated Buffett’s Berkshire Gets 30 Years for Ponzi Scheme

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• CWS Market Review – November 9, 2021
  Eddy Elfenbein, November 9th, 2021 at 7:05 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. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

  On Monday, the S&P 500 did something it hasn’t done in more than 50 years: the index closed higher for the 17th time in 19 trading sessions. That includes a seven-day winning streak followed closely by an eight-day winning streak, the latter of which was snapped today. Also today, the Nasdaq snapped an 11-day winning streak. The last time the S&P 500 went 17-for-19 was 1971.

  

  Many of these recent up days have been pretty small. Twelve of the last 17 daily gains were less than 0.5%, but that’s typical for a rally. Many of the best times for stock investors are fairly dull markets. George Soros once said, “If investing is entertaining, if you’re having fun, you’re probably not making any money.” That’s probably true.

  A few years ago, I looked at 60 years of daily market data. I found that if you take all the days when the S&P 500 moved more than 1.14% in a day, up or down, then the combined return comes out to zero. They completely balance each other out. The market’s entire return, more than 55-fold over 60 years, comes on the low-volatility days (up or down less than 1.14%).

  The high-volatility days happen 16.5% of the time, or roughly one day in six (just capital gains and not dividends). Historically, it’s been to your advantage to stick with a boring, low-vol market. To be a successful investor, the real profits are made in small steps.

  Over time, the gains add up. In this latest 19-day run, the S&P 500 gained 8%. Going back to early March, the S&P 500 is up close to 25%. Bear in mind how many scary headlines there were.

  The Trade Desk Rallies 42% in Two Days

  Having said that, let’s look at some gigantic one-day returns. Six months ago, I highlighted The Trade Desk (TTD) for you after it had plunged 26% in one day. When good stocks get creamed, most people run away. For me, a rotten day gets my attention. At the time, I wrote: “Thanks to yesterday’s train wreck, this sounds like a good opportunity to take a closer look at this stock that’s still not very well-known.”

  The Trade Desk is up 88% since then. Thanks to a very good earnings report, the stock jumped almost 30% yesterday, and it added another 9% today. For Q3, The Trade Desk earned 18 cents per share. Wall Street had been expecting 15 cents. Quarterly revenue rose 39% to $301.1 million. Wall Street had been expecting $283.5 million.

  

  It’s an interesting company. Think Don Draper meets Jeff Bezos. The Trade Desk markets a software platform that’s used by digital ad buyers to build data-driven advertising campaigns. In other words, they help companies get the most bang for their buck on the web.

  The Trade Desk offers a real-time bidding technology platform that allows media buyers to target specific audiences with customized ads. Users can manage their digital ad campaigns in real time. They can even use third-party data to optimize their strategies. This saves a lot of time and money for companies’ media strategies.

  There’s been some misunderstanding about The Trade Desk’s business. That’s because some investors seem to think that it can easily be blown out by giants like Google or Facebook. That’s not true and this highlights the key difference that The Trade Desk offers. If a company wants to advertise with, say, Google, then they go to Google. If a company wants to advertise with Facebook, then they go to Facebook.

  But if a company wants to use The Trade Desk, then it can tell them that the best and most cost-effective place for them is The New York Times or The Wall Street Journal or Hulu or any number of places.

  The numbers for The Trade Desk are very impressive. The company’s gross margins typically run close to 80%. In other words, they can charge five times what it costs them.

  The company also provided optimistic guidance. For Q4, The Trade Desk sees revenues of at least $388 million and $175 million in adjusted EBITDA. Both numbers were above expectations. I expect to see more good news from The Trade Desk.

  Trex Soars 15% on Strong Earnings

  The Trade Desk isn’t on our Buy List but Trex (TREX) is and it had a very good day today. Shares of Trex gained 14.7% in today’s session to reach a new all-time high.

  Trex reported Q3 earnings of 64 cents per share. That was six cents higher than expectations and 73% higher than a year ago. Quarterly sales rose 45% to $336 million.

  If you’re not familiar with the company, Trex is a major maker of wood-alternative decking and railing. In my opinion, what they make looks a lot like wood, but it’s cheaper and involves a lot less maintenance.

  Trex is also better for the environment. Pressure-treated wood still dominates which means there’s plenty of room for Trex to grow. It’s also nice to know that with Trex, you don’t have to take another tree out of the Amazon rainforest to make your backyard deck.

  Check out their products at their homepage (www.trex.com), and you’ll see why Trex has become so popular.

  

  Trex is made from 95% recycled material. Every year, the company effectively takes 500 pounds of plastic out of landfills and uses it for alternative wood. It’s not just good for the planet, but it’s smart business. Trex takes all those used bags and bottles, then combines it with recycled sawdust from cabinet and furniture manufacturers, and that’s what Trex is made of. By the way, this also saves a lot of water.

  Some other key advantages are that Trex weighs less than wood and that it’s also more resistant to mold and insects. You don’t need expensive staining or sanding, and repairs are much less frequent. You’ll often hear people say that Trex looks fake. I think that used to be true, but it’s much less the case today.

  Commercial railing is another big business for Trex. Their railings are especially common at stadiums and arenas across North America. Trex is sold in 40 different countries and over 6,700 retailers.

  It’s a very efficient business. Trex doesn’t carry a dime in long-term debt and its operating margin runs about 25%. We first added Trex to our Buy List at the beginning of last year. Since then, the stock has surged 195% for us. That means it’s nearly a three-bagger in just two years! Trex now sees Q4 revenue of $295 million to $305 million. The midpoint is up 31% from last year’s Q4.

  That reminds me – if you want to get all of our investing insights, don’t forget to sign up for our premium newsletter. It’s $200 for the entire year, or $20 per month if you want to see what it’s like.

  

  Will Inflation Really Be Transitory?

  Tomorrow morning, the government will report on consumer inflation for October. This will be a key report to watch because inflation has heated up this year. Earlier this year, we had the highest core inflation report in 40 years.

  The Federal Reserve has said that the recent run of inflation will be “transitory.” That’s become the central bank’s latest favorite word.

  I don’t know if the Fed is right about that, but I tend to be an empiricist on these issues. The latest figures show that some of the recent inflation has cooled off, but it’s too early to declare victory.

  Inflation is very damaging to capital markets. Once it gets embedded in consumer expectations, it’s hard to shake loose. It’s basically a tax on capital and it punishes savings.

  

  Inflation also has an unusual impact on earnings. First, you have to understand that not all earnings are the same. Inflation exacts a heavy toll on asset-heavy businesses. As a result, companies with high assets relative to their profits tend to report ersatz earnings.

  Inflation has an impact similar to putting a magnet near a compass. Investors who remember the 1970s certainly remember how unpleasant persistent inflation can be. During the entire decade of the 1970s, the Dow gained a grand total of 38 points.

  While inflation has been bad for stocks, equities have a higher threshold than many people realize. I found that inflation doesn’t put the squeeze on stocks until it gets over 5%. Inflation over 5% tends to wreak havoc on the stock and bond markets. You’ll see consumers change their behavior. For example, Walmart (WMT) did very well during the 1960s and 1970s as it became known for its low prices. I suspect that inflation will gradually subside but I won’t be convinced until the data confirms it.

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

  – Eddy

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• Middleby Earns $1.92 per Share
  Eddy Elfenbein, November 9th, 2021 at 9:50 am

  This morning, Middleby (MIDD) reported Q3 earnings of $1.92 per share. That was a nine-cent miss. Adjusted sales rose by 22.4%. Total backlog is now $1.2 billion. That’s more than doubled since the start of the year.

  “We continue to build upon the positive momentum across our business segments — investing in technology innovations to address the dynamic market trends, furthering our strategic sales initiatives, and expanding our brand portfolio with the recent acquisitions of Novy and Imperial Range,” said Tim FitzGerald CEO of the Middleby Corporation. “The demand for our solutions remains strong with record incoming orders and backlog. We are proactively managing through the current impact of supply chain disruptions and significant inflationary pressures, while we make progress toward our long-term profitability goals.”

  The shares are up about 2% this morning.

• Morning News: November 9, 2021
  Eddy Elfenbein, November 9th, 2021 at 7:09 am

  How to Think About the Covid Recession

  Pandemic Blows Up Old Business Habits, Opening Path to a Boom

  Retailers Lose Love for Asia: Snarled Supply Chains Force Manufacturing Exodus to Balkans, LatAm

  The Biggest Kink in America’s Supply Chain: Not Enough Truckers

  The Fed Warns that China’s Property Market Stress Poses a Risk to the U.S.

  The Fed Warns of Social Media ‘Echo Chambers’ That Pump Up Meme Stocks

  Brainard Interviewed by Biden for Fed Chair as Search Heats Up

  Reddit’s Latest Money-Making Obsession Is an Obscure Fed Facility

  GE Will Split Into Three Units, Ending Conglomerate for Good

  Why 310 of Robinhood’s 7 Million Cyber-Attack Victims Should Be Really Quite Worried

  Tougher Crypto Tax Rules Are Coming. What to Know.

  Musk’s Tesla Stock Sale Poll Raises Taxing Questions

  Nvidia Wants to Fill the Virtual and Physical Worlds with AI Avatars

  Netflix to Roll Out TikTok-Like Short Clip Feature Aimed at Kids

  Powell’s Books Survived Amazon. Can It Reinvent Itself After the Pandemic?

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• Trex Earns 64 Cents per Share
  Eddy Elfenbein, November 8th, 2021 at 4:10 pm

  After the closing bell, Trex (TREX) reported Q3 earnings of 64 cents per share. That was six cents higher than expectations and 73% higher than a year ago. Quarterly sales rose 45% to $336 million.

  “The strength of the outdoor living repair and remodel sector and continued broad-based demand for Trex-branded decking and railing products, together with our expanded manufacturing capacity, drove impressive revenue growth of 45% in the third quarter. The accelerated pace of market share conversion from wood to composites continues, and our ability to capture a large portion of this expanded addressable market reflects the strength of our brand and the range of our product portfolio, 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.

  “Strong sales growth coupled with disciplined SG&A spending resulted in significant operating leverage in the third quarter. This was noteworthy given that Trex, like many other manufacturers, continued to experience inflationary pressures on raw materials, labor and other costs. We expect recent price increases to mitigate those impacts beginning in the fourth quarter.

  “Trex continues to prioritize cost reduction projects and continuous improvement opportunities, primarily related to automation, modernization, energy efficiency and raw material processing, while remaining focused on innovation and new product development”, said Bryan Fairbanks, President and CEO.

  Trex now sees Q4 revenue of $295 million to $305 million. The midpoint is up 31% from last year’s Q4. The stock is up about 3% in after-hours trading.

• Zoetis CEO on CNBC
  Eddy Elfenbein, November 8th, 2021 at 3:06 pm

  Zoetis is up 50% over the last eight months. Here’s the CEO discussing the recent quarterly results.

• Elon Polls Twitter
  Eddy Elfenbein, November 8th, 2021 at 1:37 pm

  The S&P 500 was up again today. The index has had a nearly unstoppable run over the past three weeks. As I write this, the S&P 500 is about flat for the day.

  Randal Quarles, one of the Fed governors, said he’s going to resign at the end of this year. That will give President Biden an opportunity to shape the makeup of the Fed. It’s not unusual for Fed governors to resign after a few years. It’s not like a Supreme Court nomination that could last several decades.

  There are no important economic reports today, but the CPI report is due out on Wednesday. Trex is due to report earnings after the close.

  Tesla was down over 7% today after Elon Musk polled Twitter asking if he should sell 10% of his holdings. The crowd voted that he should. The stock has rallied off its low.

  Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.

  Do you support this?

  — Elon Musk (@elonmusk) November 6, 2021

• Morning News: November 8, 2021
  Eddy Elfenbein, November 8th, 2021 at 7:07 am

  One of the World’s Poorest Countries Found a Better Way to Do Stimulus

  Xi’s Expanding Power Is a Growing Risk for China’s Economy

  China’s Coal Imports in October Nearly Doubled from A Year Ago

  Crypto World Hits $3 Trillion Market Cap

  Pfizer’s Covid Pill Is Shaking Up the Asia Recovery Trade

  Flatlining Participation, Rising Wages Leave Fed Employment Puzzle Unresolved

  Americans Are Flush With Cash and Jobs. They Also Think the Economy Is Awful.

  Winter Heating Bills Loom as the Next Inflation Threat

  Behind Elon Musk’s Twitter Poll Is a Tax Bill Coming Due

  Paytm, a Payments Company, is Aiming to Raise $2.5 Billion Amid India’s Stock Boom.

  Blizzard-hit SoftBank Launches Buyback After $10 Billion Vision Fund Loss

  Cadillac Thins Out U.S. Dealers to Get Fit for the Tesla Challenge

  Disney Offers Streaming Service Discount for a Month to Boost Subscribers

  You Don’t Hate Jeff Bezos And Elon Musk, Rather You Hate Big Government

  The Chairman Who Went to War With His Family to Get the Company Back

  Critics Bash Stringer for Not Divesting from Ben & Jerry’s Over Israel Boycott

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