Archive for May, 2022

• Morning News: May 24, 2022
  Eddy Elfenbein, May 24th, 2022 at 7:08 am

  OECD Chief ‘Quietly Optimistic’ About EU Global Minimum Tax Deal Approval

  Lagarde Signals End to ECB’s Negative Interest Rates Experiment

  Von Der Leyen Denounces Russian Food ‘Blackmail’: Davos Update

  Venture Capital’s Billions Are Taking Over London Finance

  ‘The Last Generation’: The Disillusionment of Young Chinese

  Debate Over Tariffs Reveals Biden’s Difficulties on China Trade

  Biden Exploring Release of Diesel Fuel Reserves Amid High Prices

  How Janus Henderson Lost Two CEOs and Billions of Client Assets

  Snap Issues Profit Warning on Economic Conditions Including Inflation

  Covid-19 Vaccine and Drug Sales, Once Booming, Plateau

  Airbnb to Quit China Business as Harsh Lockdowns, Competition Weigh on Demand

  Starbucks to Exit From Russia

  Netflix Goes to ‘Tollywood’ and Beyond for Long-Sought India Growth

  In Major Video Game Company First, Activision Blizzard Employees Are Joining A Union

  Walmart Expands Its Drone-Delivery Service to Reach 4 Million Households

  Billionaire Must Stand Trial in Largest US Tax-Evasion Case

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• Heico Earns 62 Cents per Share
  Eddy Elfenbein, May 23rd, 2022 at 4:19 pm

  We had a Buy List earnings report today. After the bell, Heico (HEI) reported fiscal Q2 earnings of 62 cents per share. That’s up from 51 cents per share one year ago. It also topped Wall Street’s forecast by one penny per share.

  Heico said improvement in the commercial aerospace market has resulted in seven consecutive quarters of sequential growth in net sales and operating income at the Flight Support Group.

  This was a very good quarter for Heico. Quarterly sales rose 15% to $171.9 million. Operating income increased 27% to $122.8 million. That’s a company record. What I like is that Heico’s operating margin increased to 22.8%. That’s up from 20.7% one year ago.

  Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company’s second quarter results stating, “We are very pleased to report record quarterly consolidated operating income driven mainly by record quarterly operating income at the Flight Support Group. These results principally reflect 9% consolidated organic growth in our net sales principally arising from a continued rebound in demand for our commercial aerospace products and services.

  Heico didn’t offer any fiscal guidance, but they said they expect air travel to continue to improve. The stock was up a little over 1% in the after-hours market.

• Stocks Rebound After Last Week’s Chaos
  Eddy Elfenbein, May 23rd, 2022 at 10:06 am

  The stock market is having a nice rebound this morning. Unfortunately, this is typical behavior for rough markets. You’ll often see several false rallies before the real one arrives, and you won’t know the difference until after the fact.

  On Friday, the S&P 500 barely closed higher but that was after a big dip earlier in the day. The index reached its lowest intra-day level in over 14 months.

  So far, it looks like banks are leading the way. Several of the big banks are up 2% or 3% in today’s trading. Banks have shown some strength compared with the overall market over the past few days, but I’m not sure if it will turn into a big trend. Many banks badly lagged the market earlier this year. JPMorgan said it may soon reach its goal of 17% return on equity this year. Earlier the bank had said it wouldn’t reach that goal for a year or two.

  On our Buy List, Ross Stores (ROST) is having a modest rebound. Heico (HEI) is due to report earnings after today’s close. Wall Street expects fiscal Q2 earnings of 61 cents per share.

• Morning News: May 23, 2022
  Eddy Elfenbein, May 23rd, 2022 at 7:09 am

  This Year at Davos: A Referendum on Davos Itself

  China Lockdowns, War Risk Derailing Global Jobs Recovery, International Labour Organization Says

  The Era of Borderless Data Is Ending

  Limits on Borrowing Would Remain Suspended to Help E.U. Countries Respond to War

  The Refinery Standing Between Germany and an Oil Embargo

  China Demand Must Remain Weak or We’ll Have Big Trouble in The Oil Markets, IEA Chief Says

  China Spends Far More Than Others to Help Favored Industries, Report Finds

  Apple Looks to Boost Production Outside China

  Rising Risk of Recession Creates New Headache for Biden

  Higher Rates Raise Risk of Future Fed Losses

  Hedge Funder Invokes Specter of Madoff as New Bad Assets Explode

  Didi’s Disastrous Foray Onto Wall Street Is Nearly Over

  Broadcom in Talks to Acquire Cloud Company VMware

  How Jack Welch’s Reign at G.E. Gave Us Elon Musk’s Twitter Feed

  Average Age of U.S. Cars Hits Record High Due to Tight Supplies

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• Morning News: May 20, 2022
  Eddy Elfenbein, May 20th, 2022 at 7:02 am

  Europe’s Natural-Gas Buyers Defuse Standoff With Kremlin Over Ruble Payments

  Senior Executives Flee Russian Oil Giant Rosneft

  Canada to Ban 5G Equipment From China’s Huawei, ZTE

  China’s Central Bank Makes Unexpected Rate Cut as Growth Crumbles

  The Inflation Japan Wanted Is Finally Here, but Not for the Right Reasons

  Biden’s Curious Talking Point: Lower Deficits Offer Inflation Relief

  Cracks in US Economy Start to Show as Recession Warnings Mount

  Recession Trade Is On as Market Pain Spreads Beyond Tech

  Stocks Have Been Falling. I’m Still Buying Steadily.

  Global Bond Funds Post Biggest Weekly Outflow in Over Three Months

  Melvin Investors Irate Over Hedge Fund’s Shutdown

  Musk’s ESG Attack Spotlights $35 Trillion Industry Confusion

  Baby Formula Shortage Shows Risk of US Industry Concentration

  Kohl’s Sales Process Is A ‘Disaster’

  Mercedes Just Sold the World’s Most Expensive Car for $142 Million

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

  Age of Scarcity Begins With $1.6 Trillion Hit to World Economy

  From Kimchi to Diesel: Inflation Indicators From Around the World You Didn’t Know About

  By Dragon’s Rock, World’s Policymakers Plot How to Slay Stagflation

  UK Is About to Become Stagflation Nation

  In Russia, as Prices Soar, the Outlook for Its Economy Grows ‘Especially Gloomy’

  China in Talks With Russia to Buy Oil for Strategic Reserves

  U.S. Aims to Cripple Russian Oil Industry, Officials Say

  Amateur Investors Rode the Bull Up. Now the Bear Looms

  Investors Protest Executive Pay at JPMorgan, Intel and Coca-Cola

  SoftBank-Backed Fintech Giant Klarna Looks for New Funds at Lower Valuation

  Target, Walmart Earnings Selloff Puts Retailers’ Inflation Pains on Display

  Kohl’s Becomes Latest Retailer to Warn of Inflation Eating Into Profits

  Baby-Formula Shortage Hits Aid-Dependent Families, Prompting Revamps

  Cathie Wood Has a Simple Response to Tesla Getting Booted Out of an S&P 500 ESG Index: ‘Ridiculous’

  Grubhub Offered Free Lunches in New York City. That’s When the Chaos Began

  There’s a New Media Mogul Tearing Up Hollywood: ‘Zas Is Not Particularly Patient’

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• The Retail Implosion
  Eddy Elfenbein, May 18th, 2022 at 12:07 pm

  Yesterday it was Walmart’s turn. Today it’s Target. Shares of Target are down over 24% today. The company reported earnings of $2.19 per share which was well below estimates of $3.06 per share.

  Stocks like Costco and Amazon have been falling for several months but have been getting worse lately. Costco is off 11% today. Walmart is down again today. Most anything in retail is having a hard time, especially the stores that cater to lower-income shoppers.

  BJ’s Wholesale Club is down 16% today. Both Dollar Tree and Dollar General are down over 10% today. Best Buy, Kohl’s and Five Below are at 52-week lows.

  This is a mess and it’s due to inflation. When prices go up, that alters consumers’ behavior. They cut back in the higher-priced areas and put off purchases for another time.

  The Elon Musk-Twitter deal is in serious jeopardy. Musk appears to be balking at the deal. He’s also raised the issue of bot accounts but that doesn’t seem to be something that could have just occurred to Musk in the last few days. That’s a long-standing issue at Twitter.

  Twitter has said that it will hold Musk to his offer of $54.20 per share. The stock is now around $37 per share.

  Last week, Musk said that the deal is “temporarily on hold.” He said he wanted more info on Twitter’s claims that less than 5% of its accounts are fake. It looks like Musk is getting cold feet and he’s using the bot issue as his escape clause.

• Morning News: May 18, 2022
  Eddy Elfenbein, May 18th, 2022 at 7:00 am

  ECB Tells Banks to Buckle Up as Ukraine War Hits Economy

  UK Inflation at a 40-Year High Engulfs Johnson and BOE in Crisis

  Japan’s Economy Shrank 1 Percent as Consumers Fled Covid

  Poor Countries Face a Mounting Catastrophe Fueled by Inflation and Debt

  Omens of Decline for Russia’s Once World-Leading Energy Industry

  How Russian Businesses Are Skirting Sanctions

  Yellen’s Grand Global Corporate Tax Plan Risks Flop in Congress

  IRS, Reversing Course, Tees Up Potential Tax Fight With Multinational Companies

  Powell Says Fed Has Resolve to Bring U.S. Inflation Down

  How a Trash-Talking Crypto Bro Caused a $40 Billion Crash

  As Musk Tweets, Advisers Plug Away to Keep Twitter Deal on Track

  Used Cars Become an Expensive Problem for Online Dealers Like Carvana

  JPMorgan Shareholders Reject Special $52.6 Million Payout to Jamie Dimon

  Cerebral Board Members Agree to Replace CEO Amid Federal Probe Into Prescription Practices

  The Long, Slow Death of Lehman Brothers Is Almost Complete

  Allianz Fund Managers’ Paydays Could Be Followed by Prison

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• CWS Market Review – May 17, 2022
  Eddy Elfenbein, May 17th, 2022 at 7:29 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.”)

  Inflation Punishes Walmart

  This week is when many retailers report their earnings. Retail companies often prefer a fiscal year that ends at the end of January. That way, the all-important holiday shopping season (November, December and January) is contained in just one quarter. That leads many retailers to have a Q1 that ends at the end of April which means we get their latest earnings reports about now.

  As far as retailers go, they don’t get much bigger than Walmart (WMT). Walmart is so big that its earnings report is probably closer to the government’s report on consumer spending. To be honest, it’s probably a better gauge of how many middle-class and lower-middle-class folks are doing.

  This morning, Walmart reported earnings of $1.30 per share. That badly missed Wall Street’s forecast of $1.48 per share. That’s an unusually large miss. It seems that inflation is having an impact on shopping habits.

  Walmart actually topped Wall Street’s revenue forecast. For February, March and April, Walmart registered sales of $141.57 billion compared with estimates of $138.94 billion. E-commerce sales rose by just 1%. To give you an example of Walmart’s size, the company averages sales of $20,000 every second of every hour of every day.

  Walmart is apparently having a shortage of store managers even though the position can pay more than $200,000 per year.

  One bright spot is that Walmart raised its full-year sales forecast by a tad. Before, Walmart had been expecting an increase of 3% in constant currency. They bumped that up to 4%.

  Walmart also said it expects earnings-per-share to fall by 1%. That’s down from the earlier projection of an increase in the mid-single digits.

  Some people think that consumers are benefiting from Walmart’s higher sales and lower earnings, but that’s not what’s happening. Instead, Walmart’s shoppers are shifting to lower-margin options which is due to the resurgent inflation. For example, Walmart’s top category is groceries and that tends to be low margin compared with areas like apparel or electronics.

  

  According to the Bureau of Labor Statistics, food costs are up 9.4% in the last 12 months. What’s happening is that shoppers are forgoing goods like electronics, so low-margin groceries make a larger impact on Walmart’s bottom line.

  Walmart has over 5,000 stores and retail is a business that’s all about cost control. Walmart’s gross margins in the U.S. fell by 38 basis points, and operating expenses rose by 45 basis points.

  Interestingly, Walmart became a national company during the inflation years of the 1960s and 70s. Sam Walton made the store synonymous with low prices. Walmart wiped out Main Street in many small southern towns, but it was dedicated to giving shoppers low prices.

  Walmart’s CEO said that in the last quarter, the average ticket for customers increased by 3%, but they’re buying fewer items. Last year, the stimulus checks helped out, but that obviously wasn’t a factor this year.

  Traders showed little mercy as shares of WMT got pounded in today’s trading. At one point, shares of Walmart were down close to 12%. Since Walmart is a member of the Dow, today’s trading also led the Dow to badly lag the S&P 500.

  For its part, this morning, the government released its retail sales report for April and it showed a decent increase of 0.9%.

  TJX (TJX) will report tomorrow before the opening bell. Wall Street expects 60 cents per share. I suspect there are a lot of folks expecting the worst because the stock has not been doing well. TJX is down over 25% this year and the shares just hit another 52-week low today. The shares are lower now than where they were before Covid.

  The company was hit hard during the pandemic. Only recently has TJX started paying its dividend again and the last earnings report was not a good one. For its fiscal Q4, TJX made 78 cents per share which was 13 cents below estimates. Tomorrow’s report will tell us if TJX has regained its footing.

  On Thursday, Ross Stores (ROST), one of our Buy List stocks, is due to report. Ross is often lumped together with TJX, but I think it’s the superior investment.

  Ross handily beat its Q4 guidance although the retailer tends to be very conservative with its forecast. Ross has ambitious plans for the future. The CEO said that the company plans to grow the number of its Dress for Less stores to 2,900. That’s up from the previous forecast of 2,400. For dd’s DISCOUNTS, Ross now aims for 700 stores versus the earlier projection of 600 stores.

  For Thursday, Ross sees Q1 earnings of 93 to 99 cents per share. That’s almost certainly too low. Wall Street isn’t buying that range either. The current consensus on Wall Street is for earnings of $1 per share. I think it will be even higher. It’s tough to stick by a stock that has done so poorly, but I have a lot of faith in ROST’s team. This is a good long-term stock.

  Not all retailers are suffering. Today Home Depot (HD) said it beat expectations and the company raised its full-year guidance. For the quarter, HD made $4.09 per share. That was 41 cents more than expectations. Revenues came in at $38.91 billion. Wall Street had been expecting $36.72 billion. Here’s a revealing fact: Home Depot customers spent 11.4% more for each transaction but the number of transactions fell by 8.2%. That’s the impact of inflation.

  Before, Home Depot said it was expecting slightly positive sales growth for this year and low single-digits earnings growth. Now they’re expecting sales growth of 3% and earnings growth in the mid-single digits.

  It seems that high prices aren’t scaring off shoppers in all categories, and the home improvement sector is a vital one. Lowe’s (LOW) reports tomorrow.

  The Battle for Spirit Airlines

  I love a good bidding war. Sometimes I think modern Wall Street is too serene for its own good. It looks like we’re having some real drama in the battle to buy Spirit Airlines.

  On Monday, JetBlue (JBLU) announced it’s going for a hostile takeover of Spirit Airlines (SAVE). Earlier, JetBlue had offered $33 per share for Spirit but Spirit’s board shot it down. Instead, Spirit is going with the offer made by Frontier Airlines (ULCC) which is in stock and cash.

  This is where it gets interesting. JetBlue’s hostile offer is for $30 per share but they said the old $33 offer is still valid if JetBlue is willing to negotiate. In plain English, JetBlue is going over the heads of the board and making their case directly to the shareholders. That’s a bold move, but they have a point.

  On Friday, shares of Spirit closed at $16.98. I’ll note without comment that Spirit’s ticker symbol is SAVE.

  Under Frontier’s deal, Spirit shareholders will get 1.9126 shares of Frontier plus $2.13 in cash for each Spirit share they own.

  Since Frontier made its offer, its stock has been going down. The lower share price has meant a lower merger price for Spirit. JetBlue knows that and is banking that the shareholders will nix the deal. Spirit shareholders are scheduled to vote on the deal on June 10.

  At Frontier’s current share price, that works out to about $20 per share for Spirit. In other words, JetBlue is offering a hefty premium.

  JetBlue’s offer is further complicated because the government regulators may not like it. Also, the flight attendants’ union just gave its approval to Frontier’s deal.

  A little over a year ago, Frontier came back to the public market. The budget carrier sold 30 million shares at $19 a piece. It’s half that today.

  

  From my view, I can’t help wondering why JetBlue is so anxious for this deal. When you’re too eager for a deal, it’s as if you’re admitting you don’t have much of a future. None of these companies is very profitable. JetBlue hasn’t had a positive quarter since 2019. In the end, I think Frontier will prevail but I don’t think any of the shareholders will prosper.

  Airlines are a notoriously difficult industry for investing. It’s the only industry that was hurt by regulation and deregulation. There seem to be endless price wars that no one can win. At one point after 9/11, I recall that the entire combined history of civil aviation was a net profit loser. Even Warren Buffett took a bath with his USAir investment. Buffett later said that if a stockbroker had been at Kitty Hawk, he would have shot the plane down.

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

  – Eddy

• Morning News: May 17, 2022
  Eddy Elfenbein, May 17th, 2022 at 7:06 am

  World’s Top Enabler of Financial Secrecy Is the United States

  U.S. Treasury’s Yellen and Trade Czar Tai at Odds Over China Tariffs

  Economists Expect U.S. Retail Sales Grew in April

  Cash Hoarding Rises to Highest Level in Two Decades

  What Higher Interest Rates Could Mean for Jobs

  Biden, Bezos and Inflation

  Tech’s High-Flying Startup Scene Gets a Crushing Reality Check

  Elon Musk Says Twitter Must Prove Bot Claims for $44 Billion Deal to Proceed

  Why Twitter has Ignored Elon Musk’s ‘Trolling’

  FDA Eases Baby-Formula Import Rules to Boost Supplies

  Nestle Airlifts Baby Formula to US From Europe to Ease Shortage

  In a Hot Job Market, Companies Hand Out Big Awards to Retain Key Executives

  Walmart Cuts Full-Year Profit Forecast as Fuel, Labor Costs Spike

  Home Depot Raises Full-Year Outlook After Earnings Beat, Record First-quarter Sales

  Disney Vows to Show Very Few Commercials on Ad-Supported Disney+

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