Archive for January, 2022

• Morning News: January 5, 2022
  Eddy Elfenbein, January 5th, 2022 at 7:08 am

  As Beijing Takes Control, Chinese Tech Companies Lose Jobs and Hope

  Kosovo Bans Cryptocurrency Mining to Save Electricity During Crisis

  Goldman Says Bitcoin $100,000 a Possibility by Taking on Gold

  Markets Jingle, but Not All the Way, to a Santa Rally

  Introducing The 2022 Dobermans Of The Dow

  One Reason for Rising Food Prices? Chinese Hoarding.

  Milk Companies Look West, Pressuring Northeast Dairy Farmers

  Supply Chain Woes Prompt a New Push to Revive U.S. Factories

  The Tech That Will Invade Our Lives in 2022

  Titans of Carmaking Are Plotting the Overthrow of Elon Musk

  AT&T Shed Media Assets in 2021. This Year It Wants to Add Investors

  China Mobile Makes Debut in Shanghai After $9 Billion Stock Sale

  Walmart Arm Did Not Deliberately Remove Xinjiang Goods, China Exec Tells Analysts

  Walmart Expands Its Direct-to-Fridge InHome Delivery Service to 30 Million Homes

  KFC to Launch Plant-Based Fried Chicken Made with Beyond Meat Nationwide

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• CWS Market Review – January 4, 2022
  Eddy Elfenbein, January 4th, 2022 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.”)

  I hope everyone had a festive holiday season. Now with the new year, here’s our 2022 Buy List.

  The Buy List got off to a rocky start yesterday. Some of the diagnostic stocks got pinged but the Buy List did much better today. I’m glad to see that some of our new stocks are doing well.

  The S&P 500 got to a new all-time intra-day high today. The index traded as high as 4,818.62, although it finished the day down slightly.

  

  The Dow was able to close at a record high. One other highlight to note: Yesterday, Apple (AAPL) became the first $3 trillion company. That’s 16.81 billion shares going for $182.

  On the economic front, this morning’s ISM Manufacturing Index showed a small slowdown last month. For December, the index dropped to 58.7. That’s still a decent number but it’s down from November’s reading of 61.1.

  The truly eye-catching news came from the Labor Department this morning. According to the government’s numbers, the Great Resignation continues. For the first time in a long time, workers have the upper hand.

  During November, 4.5 million Americans quit their jobs. That’s an all-time record, and it’s an 8.9% increase over the number for October. There are now 10.56 million job openings across the country. According to the last jobs report, there are 6.88 million Americans who are out of work and looking for a job. This is a truly fascinating crossroads for the economy. There simply aren’t enough workers to go around. The real supply-chain issue is apparently in the jobs market.

  

  We’ll learn a lot more about the state of the jobs market this week. Tomorrow, ADP will release its payroll report for December. While it’s an interesting report, it’s from the private sector and it doesn’t always align well with the official numbers from the government.

  Also tomorrow, we’ll get a look at the minutes from the Federal Reserve’s last meeting. If you recall, this was the meeting where the Fed decided to accelerate its tapering policies.

  On Thursday, we’ll get another jobless-claims report. We’re still very close to 52-year lows for jobless claims. Then on Friday, the jobs report for December is due out. In the last report, the unemployment rate was 4.2%. Wall Street is expecting that to tick down to 4.1%. If that were to happen, it would be lower than almost all the job reports from the 1970s, 80s and 90s. For nonfarm payrolls, Wall Street expects an increase of 422,000. I’ll also be curious what the wage numbers are. While wage growth has perked up, much of that increase is being eaten up by inflation.

  Why I Decided to Pass on AmerisourceBergen

  Today I wanted to discuss the company AmerisourceBergen (ABC). There’s a lot I like about ABC, and I strongly considered adding it to this year’s list, but I ultimately decided against it. I thought my decision would be a good lesson to share because so much of investing comes down to what you choose not to do.

  There’s a lot to like about AmerisourceBergen. If you’re not familiar with the company, ABC is a major drug wholesaler. The company was formed 20 years ago through the merger of Bergen Brunswig and AmeriSource. They also have units offering consulting services and veterinary supply.

  It’s a great business to be in. I especially like their smooth earnings line. This is an important characteristic in a successful company. Some businesses see their earnings bounce all around during a business cycle. Other stocks, by contrast, churn out steady increases. All things being equal, the market prefers the steady increases.

  Here’s a brief thought exercise. Imagine two stocks that are similar in every way. Both are expected to earn $1 per share next year. Stock A is expected to earn $1 per share, plus or minus two cents while Stock B is expected to earn $1 per share, plus or minus 20 cents.

  Which stock will have a higher share price? Nearly every time Stock A will command a higher share price. Why is this? It’s because the market values reliability, even if the expected cash flows are the same. The premium which Stock A will command will fluctuate depending on the market’s mood and its appetite for risk.

  In the eyes of the market, earnings misses are not symmetrical. A negative surprise weighs more heavily than the pleasantness of a positive surprise. The market loves certainty and it doesn’t mind paying a little extra for that.

  Now let’s get back to AmerisourceBergen. Here’s a chart from Fast Graphs.

  

  The black line is ABC’s share price. The orangish line is its earnings-per-share. The white line is the dividends. The EPS line is scaled to follow a P/E Ratio of 15. Just by looking at the chart, you can see that ABC far from excessively priced. The stock has often traded above a P/E of 15.

  ABC’s fiscal year ends in September. The company reported Q4 earnings in early November. For the quarter, ABC earned $2.39 per share which was three cents better than estimates. The company also sweetened its dividend by 4.5%. For the year, ABC made $9.26 per share. That was a nice increase over the $7.90 per share they made in the year before that.

  This is what we like to see, nice and steady EPS increases:

  2017: $5.62
  2018: $5.88
  2019: $6.49
  2020: $7.09
  2021: $7.90
  2021: $9.26
  2022: $10.68 (est.)
  2023: $11.45 (est.)
  2024: $12.25 (est.)

  Of course, the estimates are merely guesses but they’re pretty consistent with the larger earnings trend. Predicting the future earnings for ABC isn’t a terribly hard job. Just add 10% or so to the previous year and you’re likely to be in the ballpark. Investors love the consistency.

  Yesterday, shares of ABC closed at $132.62. That means ABC is going for less than 11 times 2024’s estimate. In other words, ABC is a profitable stock going for a reasonable valuation. But here’s where blindly following the numbers can lead you astray.

  The reason is that AmerisourceBergen faces significant legal risks for its role in the opioid epidemic. Over a 20-year period, nearly half a million Americans died from opioid addiction. For purposes of today’s discussion, I’m not going to address ABC’s role or culpability in the opioid crisis. I merely want to address that these issues can impact a stock’s valuation. All we need to know is that a lot of people inside the government hold AmerisourceBergen partly responsible for the crisis.

  In July, AmerisourceBergen and two other drug companies, Cardinal Health and McKesson, reached a major settlement with several state governments. The deal calls for the drug companies to pay $21 billion over the next 18 years. ABC’s portion comes to $6.4 billion.

  The deal is intended to address, in one big action, more than 3,000 lawsuits. I don’t know if this will be the end of the matter for ABC. Just this week, a jury found that Teva Pharmaceuticals, an opioid manufacturer and distributor, contributed to the opioid crisis.

  The lesson here is that simply appearing to be a value stock doesn’t mean a stock is a good value. As investors, we have to dig deeper than what the numbers say.

  Ultimately, I decided to let ABC go. It’s a profitable company but there are too many unknowns. The simple truth is that most good investing is boring. It’s not worth it to gamble on what lawsuits may come next. With investing, we want to remove as much of the guesswork as possible.

  Now let’s look at some of the mysteries of the Dow’s calendar cycle.

  The Dow’s Calendar Cycle

  At the end of each year, I update dozens of data files I keep on the market. I have one file that contains the entire history of the Dow Jones Industrial Average, going back to its founding in 1896.

  I’ve spliced the data a number of different ways to see how the Dow has performed under different cycles. For example, here’s a remarkable stat: If you had invested in the Dow only on Thursdays, since September 1987, you would have a combined loss of 7%.

  That’s more than 1,740 trading days which is nearly the equivalent of seven years, and a Thursdays-only strategy would have yielded you nothing. Over that time, the Dow gained more than 1,300%. Of course, investing on a single day each week is wholly impractical, but it shines a light on the sometimes bizarre and often surprising behavior of financial markets.

  If we play with the numbers a little more, we see that investing in the Dow on only Thursdays and Fridays over the last 34 years has generated a gain of just 3.3%. Meanwhile, the gain for Mondays, Tuesdays and Wednesdays comes to nearly 1,250%.

  What possible explanation could there be? Beats me. Perhaps if you slice and dice numbers long enough, you’re bound to see something unusual. Maybe we’re truly being fooled by nothing more than randomness.

  To me, the most interesting calendar effect is the monthly cycle. Nearly all of the markets’ gains have come during the first six days of the month. Here’s what the historical average month looks like:

  

  After the sixth calendar day of the month, the Dow has basically been flat. Bear in mind that this is the average of 125 years’ worth of data.

  I don’t advocate any trading strategy based on this. I merely find it interesting. As Isaac Newton once said, “I can calculate the motion of heavenly bodies, but not the madness of people.”

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

  – Eddy

• Morning News: January 4, 2022
  Eddy Elfenbein, January 4th, 2022 at 7:19 am

  London’s Fintech Boom Opens the Door for Dirty Money

  China’s Anti-Graft Crackdown Has Ensnared Over 20 Finance Officials So Far

  JPMorgan Strategists Say Global Stock Market Party Far From Over

  Democrats Blast Corporate Profits as Inflation Surges

  Customer Service at the IRS Is So Bad, Even Tax Pros Are Fed Up

  What Investors Learned From the Elizabeth Holmes Trial: ‘Zero’

  COVID-19 Loss of $44 Billion Is 3rd Largest Catastrophe Cost to Insurers

  AT&T and Verizon Agree to New Delay of 5G Rollout

  Your BlackBerry Dies Today: End of an Era for Iconic Handset

  Apple’s $3 Trillion Valuation Should Unnerve Investors

  Toyota Poised to Dethrone GM in 2021 as U.S. Sales Leader

  Ford Doubles Lightning Production as Electric Truck Battle With GM Heats Up

  Covid Brings America’s Beer-vs.-Liquor Rivalry to a Head

  Office Attire That Makes a Statement: ‘OK, Let’s Hug’

  10 Predictions for 2022

  These Were the Worst Predictions About 2021

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• First Trading Day of the Year
  Eddy Elfenbein, January 3rd, 2022 at 12:01 pm

  It’s the first trading day of 2022. Historically, this has been a good time for the stock market. Today is a good example of a contra-trend day. That’s a fancy term for “all the stuff that’s been lagging is leading, and all the stuff that’s been leading is now lagging.”

  As I write this, the S&P 500 High Beta is up 1.21% while the S&P 500 Low Vol is down 1.59%. That’s a wide spread for one day. To give you an example of the high betas, Tesla has been up as much as 11% today. Elon Musk’s net wealth increased by around $20 billion this morning (although he’s been dumping shares recently so I don’t know the exact amount).

  While last week was very slow for economic news, this week will have a lot more. Of course, the big jobs report is due out this Friday. On Wednesday, the ADP report is due out as are the minutes from the Fed’s last meeting. Also, the ISM Manufacturing Index is scheduled to come out tomorrow.

  One report this morning came from the Census Bureau. Construction spending rose by 0.4% in November. In the last year, construction spending increased by 9.3%.

• Morning News: January 3, 2022
  Eddy Elfenbein, January 3rd, 2022 at 7:11 am

  Singapore’s 2021 GDP Grows at Fastest Pace in Over a Decade

  Sprightly European Stocks Greet New Year By Hitting Record High

  Europe Plans to Say Nuclear Power and Natural Gas Are Green Investments

  Trump-Appointed Chairman’s Resignation Hands Control of FDIC to Democrats

  Here’s (Almost) Everything Wall Street Expects in 2022

  Goldman Sachs Follows Wall Street Rivals in Asking Staff to Work From Home

  Why Does Goldman Sachs Fund An Economics Department?

  A Former Facebook Executive Pushes to Open Social Media’s ‘Black Boxes’

  Verizon and AT&T Decline Regulators’ Request to Delay New 5G Services

  Tesla Reports 87% Increase in 2021 Deliveries

  Hyundai, Kia Expect Auto Sales Jump in 2022 Amid Chip Shortage

  LG Energy Solution Opens Books for South Korea’s Largest IPO at Up to $10.8 Billion

  China Evergrande Shares Halted, Set to Release ‘Inside Information’

  Lab-Grown Shrimp’s Price Tag Shows Long Way Ahead to Mass Market

  WW Failed to Cash In On the Diet Craze in 2021

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