Archive for April, 2022

• Otis Raises Its Dividend by 20.8%
  Eddy Elfenbein, April 22nd, 2022 at 4:20 pm

  After the closing bell, Otis Worldwide (OTIS) raised its quarterly dividend from 24 cents to 29 cents per share.

  The Otis Worldwide Corporation (NYSE: OTIS) Board of Directors today declared a quarterly dividend of $0.29 per share of Otis’ common stock, which represents a 20.8% increase. The dividend will be payable on June 10, 2022, to shareholders of record at the close of business on May 20, 2022.

  “Today’s dividend increase demonstrates our commitment to disciplined capital management and our confidence in future cash flow growth,” said Judy Marks, Otis Chair, CEO and President. “We have now raised the dividend by 45% since becoming a public company and will continue to drive value creation for our customers, colleagues, and shareholders.”

• The S&P 500 Drops Below 4,400
  Eddy Elfenbein, April 22nd, 2022 at 11:07 am

  The S&P 500 has dipped below its low from the past month. We had a nice rally during the latter half of March, and now we seem to be giving it back.

  

  Not everyone is feeling the pain. Yesterday, the Consumer Staples ETF (XLP) made a new 52-week high.

  Yesterday, Jerome Powell basically sealed the deal on the Fed raising rates by 0.5% at its next meeting.

  From the WSJ:

  “It is appropriate in my view to be moving a little more quickly” than the Fed has in the recent past, Mr. Powell said Thursday. “I also think there’s something in the idea of front-end loading” those moves.

  The odds are now very likely that the Fed raises by 0.5% in two weeks, and then by 0.75% in mid-June.

• Morning News: April 22, 2022
  Eddy Elfenbein, April 22nd, 2022 at 7:02 am

  Plunge in China’s Markets Intensifies as Yuan Hits One-Year Low

  Expat Bankers Fleeing Hong Kong See No Easy Escape to Singapore

  Russian Oligarchs’ Billions Prove Hard for Investors to Shake Off

  Budweiser Brewer Pulls Out of Russia as Multinationals Weigh Options

  Ukraine Sounds Alarm on Chinese Drones, Opening Skies to U.S. Startups

  As Europe Approves New Tech Laws, the U.S. Falls Further Behind

  Dollar’s Rally May Be Nearing ‘Tipping Point’ As Fed Readies Big Hikes

  Fed’s Powell Seals Expectations of Half-Point Rate Rise in May

  Fewest Americans Collecting Jobless Aid Since 1970

  Disney to Lose Special Tax Status in Florida Amid ‘Don’t Say Gay’ Clash

  CNN+ Streaming Service Will Shut Down Weeks After Its Start

  Musk Tears Up Buyout Playbook With $46.5 Billion Twitter Financing

  Companies Try to Sell Videogaming as the Next Big Advertising Channel

  What You Don’t Know About Amazon

  Netflix, Facing Reality Check, Vows to Curb Its Profligate Ways

  France Issues International Arrest Warrant for Carlos Ghosn

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• Morning News: April 21, 2022
  Eddy Elfenbein, April 21st, 2022 at 7:07 am

  Russian Oil Flows, But Increasingly Under the Radar

  For Oil Refiners, Now Is the Summer of Distillate Content

  Hunger and Blackouts Are Just the Start of an Emerging Economy Crisis

  How Inflation Has Shrunk Your Dollar

  Fed’s Daly Calls for ‘Expeditious’ Rate Increases to End Year at Neutral Levels

  Zero to Neutral in 9 Months Marks a Defining Pivot for Fed, Powell

  Tech Wage Inflation Puts Pressure on Companies

  Tesla Posts Record $3.3 Billion Quarterly Profit

  Tesla’s Stock Stands Apart From the Growth Pack

  Why Volkswagen Wants to Be Relevant in America Again

  Lotus Adds an S.U.V., With Eyes on Mainstream Appeal

  Ackman Loses More Than $430 Million on 3-Month Netflix Bet

  Netflix’s Stumble Could Be a Warning Sign for Streaming Industry

  U.S. Home Prices Hit a Record of $375,300 in March

  TurboTax’s Fight Against Free Tax Filing

  Goldman Sachs to Scrap Free Car Rides for Bankers — A Day After Scrapping Free Lunch

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• Abbott Labs Earns $1.73 per Share
  Eddy Elfenbein, April 20th, 2022 at 7:53 am

  Abbott Labs (ABT) kicked off our earnings season this morning by reporting Q1 earnings of $1.73 per share. That beat Wall Street’s estimates of $1.46 per share. That’s an increase of 31% over last year.

  Abbott had Q1 organic sales growth of 17.5%. Covid testing made up $3.3 billion in sales.

  “Our diversified business continues to perform well in a challenging environment,” said Robert B. Ford, chairman and chief executive officer, Abbott. “We’re particularly pleased with the strong performance we’re achieving in Medical Devices and Established Pharmaceuticals.”

  Abott reiterated its guidance for 2022 earnings of $4.70 per share. That assumes $4.5 billion on Covid testing sales.

• Morning News: April 20, 2022
  Eddy Elfenbein, April 20th, 2022 at 7:06 am

  For China investors, COVID Lockdowns Are the Clear and Present Danger

  Global Economic Forecasts Drop as Russia’s War in Ukraine Takes Toll

  Positive U.S. Real Yields Will Rip Up the Global Markets Playbook

  How America’s Farmers Got Cut Out of the Supply Chain

  This Is What Living With Long-Term High Inflation Feels Like

  U.S. Mortgage Interest Rates Reach A 12 Year High, Demand Falters

  U.S. Pension Giant to Vote to Replace Warren Buffett as Berkshire Chair

  With Inflation, Workers Are Facing Return-to-Office Sticker Shock

  Amazon vs. Walmart: How the Giants Look to Each Other to Best Each Other

  JPMorgan Loses Lead Role on China Deal After ‘Uninvestable’ Call

  Elon Musk Races to Secure Financing for Twitter Bid

  Elon Musk Drops Another Cryptic Hint About a Twitter Tender Offer

  Netflix Breaks Its Own Rules After Subscriber Losses Batter Shares

  Job Recruiting at College Campuses Roars Back to Life

  Biden Aims to Expand Access to Student-Loan Debt Forgiveness for Millions of People

  Lululemon Aims to Double Sales To $12.5 Billion By 2026, Eyeing Even Bigger Men’s Business

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• CWS Market Review – April 19, 2022
  Eddy Elfenbein, April 19th, 2022 at 7:42 pm

  (If you haven’t done so, please sign up for our premium newsletter. It’s $20 per month or $200 per year. A bunch of our Buy List stocks are about to report results and I don’t want to see anyone left behind.)

  Q1 Earnings Season Is Finally Here

  We’re now in the thick of earnings season. This time of year can be brutal for stocks that come up short. In fact, it can even be brutal for companies that beat expectations.

  Example: Netflix. After today’s close, Netflix said it earned $3.53 per share which easily beat Wall Street’s forecast of $2.91 per share. Still, traders were very displeased.

  The problem is that Netflix lost 200,000 subscribers during Q1. That’s the first time Netflix has lost subscribers in more than 10 years.

  The company estimates that they’ll lose another 2 million folks during Q2. The stock is down 25% in after-hours trading, and that’s on top of being down 40% YTD. We’re talking about a loss of something like $40 billion after beating expectations.

  Ouch!

  

  Of course, earnings season isn’t simply about how well you did. It’s also about your guidance for the coming quarter.

  As far as Q1 goes, so far, the earnings numbers are looking pretty good. The S&P 500 is tracking Q1 earnings for growth of 5.13%. That’s down from 5.41% one month ago, but it’s still not too bad. The big winner is the Energy sector which is hardly surprising. The Energy sector is showing Q1 earnings growth of more than 260%. Of course, that’s coming off very weak comparisons.

  So far, 77% of companies have topped their expectations. That’s above the historical average. (On Wall Street, you’re expected to beat expectations.) Another 77% of companies have beaten Wall Street’s revenues estimate. Nearly 63% of companies have beaten on both earnings and revenue.

  With earnings up and stock prices down this year, that means the market’s P/E Ratio is down for 2022. The S&P 500 is currently on pace to report Q1 earnings of $51.13 per share. That’s the index-adjusted figure. (Each point in the S&P 500 is about $8.5 billion.)

  For the year, the S&P 500 is tracking earnings of $225.17 per share. That means the index is going for just under 20 times this year’s earnings. Traditionally, the P/E Ratio goes down as long-term interest rates go up.

  The good earnings news isn’t helping the market. On Wednesday, the S&P 500 closed at its lowest level since March 16. Interestingly, that was the same day that the Federal Reserve raised interest rates for the first time in more than three years.

  After the Fed’s rate increase, the stock market started to rally. Now, however, the market has given back all those gains. Prior to Tuesday’s 1.6% rally, the S&P 500 had closed lower in seven of nine sessions.

  

  How low will the market go? Well, that’s a tough one to answer. Still, we have to be aware that the market is swimming against the tide. Not only is there rising inflation but interest rates are going up, the yield curve has flattened and there are growing fears of a recession—and, of course, we can’t forget a nasty war in Eastern Europe.

  On top of that, bond yields continue to rise. On Tuesday, the 10-year Treasury yield came close to breaking above 3%, a level it hasn’t seen since late 2018. As I noted before, those higher yields tend to weigh on earnings multiples for stocks.

  The example of 1994 is a good one. During that year, the Federal Reserve increased interest rates. As a result, the market’s P/E Ratio dropped. However, the earnings figure —the E— was climbing rapidly while stock prices —the P— didn’t do much at all.

  The Fed seems determined to raise interest rates all year. The central bank again meets in two weeks and futures traders think there’s a 91% chance the Fed will hike by 0.5%. But here’s what’s interesting. In the meeting after next, the one set for mid-June, futures traders think there’s a 36% chance that the Fed will hike by 0.75%. I doubt the Fed will go that far, but it’s not outlandish to think so.

  Just this week, James Bullard, the president of the St. Louis Fed, said that the Fed shouldn’t rule out a 0.75% increase. According to Bullard, rates should be around 3.5% by the end of this year. He’s the most hawkish voice on the Fed and I think the facts have borne him out.

  The Low Point in the Dow’s Decade Cycle

  This June 27 will be a noteworthy day for the stock market. This day is the traditional low point for the stock market’s decade cycle. I crunched all the data from the entire history of the Dow Jones Industrial Average going back to its founding in 1896.

  I found that the Dow historically reaches its low point on June 27 in the years ending with 2. Indeed, those years have marked some important bottoms for the Dow; 1932, 1942, 1982 and 2002 come to mind.

  The Dow’s traditional peak comes on September 13 in years ending with 9. That’s not a surprise given 1929, 1969, 1989 and 1999.

  Between those two days, September 13 of a year ending in 9 and June 27 of a year ending in 2, the Dow has lost an average of 19.3%. That covers 23% of the time. The rest of the time, the Dow has gained 185.9%.

  Here’s what the average decade looks like for the Dow. I used 100 as a base for January 1 of a year ending in zero.

  

  The x-axis shows the number of days into the average decade.

  There’s also a noticeable split between the first half of a decade and the second half. For the first five years, the Dow has averaged a gain of 11.6%. During the latter half, the Dow has averaged 106.2%.

  I find stats like this fascinating for a few reasons. One, I simply find markets intrinsically interesting and any behavior that stands out from over 125 years’ worth of data grabs my attention.

  But let me stress that I don’t think there’s any worthwhile trading strategy to be gained from this data. Quite the opposite. I think data like this shows the futility of basing a long-term investing strategy on trying to time the market.

  The data shows that as a general rule, the stock market is in rally mode about three-quarters of the time, and it’s in a bearish mood about one-quarter of the time. That certainly seems to pan out according to my experience. There are times when the market rallies despite terrible headlines. Conversely, there are times when the market can’t seem to catch a break. There’s no magic to it; it’s just the nature of financial markets.

  What Happened with Masimo

  Last year I told you about one of my favorite growth stocks, Masimo Corporation (MASI) of Irvine, CA.

  As much as I said I liked the story, I confessed that I wasn’t a fan of Masimo at $270 per share. However, I wrote, “if it gets back to $200 or so, then it could be a very compelling buy.”

  Where is Masimo today? Answer: $136 per share.

  

  Dear Lord, what happened? Let’s take a step back and look at this story.

  Masimo is a medical-technology company based in Irvine, CA. This is a fascinating company that’s not well-known but it’s a cool story, and the company has a definite competitive advantage.

  Masimo was founded by Joe Kiani, an Iranian immigrant. Kiani came to the U.S. when he was only nine years old and he knew three words of English. Still, he graduated from high school at 15 and by 22 he had a bachelor’s and master’s degree in electrical engineering. Kiani founded Masimo in 1989 when he was 25 years old.

  Today, Masimo is a $7 billion enterprise. It employs 2,200 people and last year it had sales of $1.2 billion. Masimo is perhaps best known for its pulse oximetry. This is a noninvasive method for monitoring a person’s oxygen saturation. This is a great product with enormous potential.

  Masimo has developed a SafetyNet device which is a disposable smart wristband with a pulse oximeter that’s taped around your finger. It monitors your vitals like your pulse and oxygen levels. If there’s a problem, an update is sent to your smart phone, and it alerts your doctor. It can also be connected to a central monitor like a hospital.

  Each year, over 200 million patients are monitored with Masimo’s technology. Nine of the top ten hospitals rated by U.S. News primarily use their technology.

  Did you know that unpredictable reactions to opioids kill more people than car crashes? It’s impossible to know who’s at risk. But with continuous monitoring, we can spot adverse reactions quickly.

  Interestingly, the device was meant to be used for opioid addicts, but plans changed once Covid-17 hit. Now it’s being used on coronavirus patients. Since the technology is wireless, it’s also safer for healthcare workers.

  Interesting side note: Masimo has been in a big legal fight with Apple. Masimo claims that Apple poached their trade secrets for their Apple Watch. I should add that Kiani is no stranger to these kinds of legal battles, and he’s already won a few cases with big settlements. The odd thing with this one is Apple’s complete intransigence.

  Kiani said that Apple has also picked off some of Masimo’s top talent. I guess rules are a little different when you have a market cap of $2.5 trillion. Still, my money’s on Kiani in any courtroom.

  Tying back to my earlier point, Masimo had been a great growth stock. Consider these numbers. Masimo’s earnings-per-share rose from $2.13 in 2016 to $2.45 in 2017 to $3.03 in 2018 and to $3.22 in 2019. Earnings then rose to $3.60 per share in 2020 and to $3.99 per share last year.

  What about for this year? Well, that may be a big problem. The next earnings report is due out on May 3. The company recently said that sales for Q1 will be lower than expectations. Kiani, said, “In prior quarters, we were able to weather the storm of COVID-related supply chain issues. However, these issues impacted us in the first quarter.” The good news is that Masimo reiterated its full-year revenue guidance of $1.35 billion.

  Previously, MASI said it expected full-year earnings of $4.34 per share for 2022. They haven’t lowered that yet, but downward guidance is widely expected. The consensus on Wall Street is for $4.03 per share, and some analysts are pegging earnings at less than $3 per share. I’m afraid those lower projections are the more accurate ones.

  In all of this, Masimo’s stock has been badly damaged. In November, MASI was over $300 per share. Earlier this week, it got to a new 52-week low of $129.68 per share. It’s one thing to pay a big premium for the company that’s growing at a blistering rate, but it’s quite another when earnings may shrink this year.

  That’s the problem when growth stocks no longer grow. The stock is doubly punished with lower earnings and a lower multiple. The other problem for Masimo is that it recently shelled out a little over $1 billion to buy Sound United, “a consumer technology company that owns a portfolio of premium brands, including Bowers & Wilkins, Denon, Polk Audio and Marantz.” Wall Street doesn’t like this deal at all. The stock dropped 37% on the news.

  In this case, we were wise to pass on Masimo. Now we know that the lower price is still no bargain. Sometimes the best investing moves you make are when you decide to do nothing.

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

  – Eddy

  P.S. If you haven’t had a chance, you can subscribe to our premium newsletter. It’s only $20 a month or $200 a year. Please join us!

• Morning News: April 19, 2022
  Eddy Elfenbein, April 19th, 2022 at 7:01 am

  These Are the 23 Measures China Just Unveiled to Save the Economy

  Putin Calls Time on Foreign Listings in Fresh Blow to Tycoons

  Russia’s Link of the Ruble to Gold Is a Practical Admission of What Money Is

  Working From Home, Japan’s Corporate Warriors Rethink Their Priorities

  King of the ‘Lunatics’ Becomes Bitcoin’s Most-Watched Whale

  Calling Time On QE, Central Banks Prep for Synchronized Asset Cull

  Janet Yellen Faces Challenge to Keep Pressure on Russia, While Addressing Global Consequences

  Hot Economy, Rising Inflation: The Fed Has Never Successfully Fixed a Problem Like This

  Cut Your Retirement Spending Now, Says Creator of the 4% Rule

  Treasury Yield Touches 2.91%, A Level Not Seen Since Late 2018

  U.S. Stocks See Biggest Outflows of the Year

  And Now, a Word From Your Streaming Sponsor …

  Twitter’s Board Put Up a Defense Mechanism Against Elon Musk. Here’s What He Could Do Next

  Apollo Global Considers Participating in a Bid for Twitter

  IBM CEO Says AI’s Transformation of Business Will Take Another Decade

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• Twitter Adopts a Poison Pill
  Eddy Elfenbein, April 18th, 2022 at 10:30 am

  The stock market is about flat this morning. One interesting note is that the yield on the 10-year Treasury got as high as 2.87%. That’s the highest yield in more than three years. Bank of America (BAC) reported earnings of 80 cents per share. That was six cents more than estimates.

  The latest move in the Elon vs. Twitter game is that Twitter has adopted a “poison pill” defense. That means that Twitter can flood the market with more shares to fight off a hostile takeover. If anyone owns more than 15% of Twitter’s stocks, then shareholders can buy more stock at a discount. It’s possible to fight off a poison pill, but it’s hard. The board voted unanimously for the poison pill.

  Musk later tweeted “love me tender” implying he may make a tend off for Twitter’s shares. Interesting move, but if he does that, then he’ll have to release details on how he would finance the deal.

  Jack Dorsey said that Twitter’s board is the “dysfunction of the company.” That’s an odd thing to say about a board in which you’re a member, but he has a point. The board owns almost zero shares of Twitter.

  The question is how much value would be added if Twitter was more open regarding free speech. I don’t think it would be that much. There’s no getting around the fact that Twitter simply isn’t that profitable.

  By the way, the poison pill has an exercise price of $210. That means you can put up $210 and get twice that in shares. Yes, that’s $420.

  Also this morning, we learned that homebuilder confidence fell for the fourth month in a row.

  Builder confidence in the market for new single-family homes fell 2 points to 77 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 is considered positive sentiment, but the reading marks the fourth straight month of declines for the index, which stood at 83 in April 2021.

  Of the index’s three components, current sales conditions fell 2 points to 85. Buyer traffic dropped 6 points to 60, and sales expectations in the next six months increased 3 points to 73 following a 10-point drop in March.

• Morning News: April 18, 2022
  Eddy Elfenbein, April 18th, 2022 at 7:08 am

  Ukraine War Deepens Debt Woes Across Developing World

  U.S. Banks’ Commodity Trading Exposures Rise on Russia Conflict

  BOJ’s Kuroda Steps Up Warning on ‘Very Rapid’ Yen Moves

  China’s Economy Grew 4.8% in First Quarter, Beating Expectations

  China’s Economic Trends Hint at Cost of Zero Covid Strategy

  Beijing Crackdown Derails Alibaba’s Bid for Amazon-Size Profit

  Gold Rises to Five-Week High With Growing Risks Boosting Havens

  The Next Hurdle in Europe’s Energy Transition: Being More Enticing Than NFTs

  Utilities Want to Convert Coal Plants to Nuclear; Skeptics Abound

  Rivian’s New Factory, Constrained by Chips, Is Off to Slow Start

  Jim Farley Tries to Reinvent Ford and Catch Up to Elon Musk and Tesla

  Monetarism Imagines a World That Doesn’t Exist…And That Never Has

  Small Businesses Object to Clawback of Covid-19 Aid

  The Sky-High Pandemic Housing Market Finds Gravity Does Exist

  Homeowner Groups Seek to Stop Investors from Buying Houses to Rent

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