Archive for November, 2022

• Bob Iger Returns to Disney
  Eddy Elfenbein, November 21st, 2022 at 11:39 am

  This is a fairly slow day on Wall Street and the start of a week that should also be pretty slow. The market is down a little bit; so far, not too much. For such a tepid day, there’s a big gap between high beta and low vol. In other words, the riskier stocks are down big today while many of the conservative stocks are holding up well. Our Buy List is also having a good day. Many of the big energy stocks are down by 3% or more.

  The big news is that Bob Iger is coming back to Disney to replace Bob Chapek. Disney has been run by Chapek since February 2020, and the stock has not done well. Over that time, the S&P 500 is up 28% and Disney is down 25%. Disney is up 9% today.

  

• Morning News: November 21, 2022
  Eddy Elfenbein, November 21st, 2022 at 7:04 am

  Younger Chinese Are Spurning Factory Jobs that Power the Economy

  U.S.-Europe Trade Booms as Old Allies Draw Closer

  Stressed-Out Americans Plan to Buy Fewer Christmas Gifts, Donate Less to Charity

  Goldman Sachs Strategists Say Bear Market Will Last in 2023

  Fund Managers Are Turning Ever More Pessimistic on the US Dollar

  Inside a Crypto Nemesis’ Campaign to Rein In the Industry

  The Federal Reserve Is Surely Not the Cause of Silicon Valley’s Swinging Ax

  Tech Layoffs Send H-1B Visa Holders Scrambling for New Jobs

  Can Big Tech Get Bigger? Microsoft Presses Governments to Say Yes

  Disney Shares Soar on Iger Return as CEO After Shock Ouster

  Merck to Buy Imago for $1.35 Billion to Gain Bone Marrow Drugs

  Elon Musk Is Running Twitter Like A Failing Newspaper Business

  How Colleges and Sports-Betting Companies ‘Caesarized’ Campus Life

  Carvana Faces Cash Crunch From High Debt, Rising Interest Rates

  Beyond Meat Is Struggling, and the Plant-Based Meat Industry Worries

  Shein’s Cotton Tied to Chinese Region Accused of Forced Labor

  Jewelry Counterfeits: The Age-Old Problem Just Keeps Growing

  Shaking Off the World’s Worries, Jewelry Focuses on Growth

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• Morning News: November 18, 2022
  Eddy Elfenbein, November 18th, 2022 at 7:03 am

  Will Taxing the Windfall Profits of Oil Giants Fix Countries’ Economies?

  A Nation in the Crosshairs of Climate Change Is Ready to Get Rich on Oil

  What Is ‘Friendshoring’?

  What If Deglobalization Is Good for Emerging Markets?

  ‘Do You Really Want to Rebuild at 80?’ Rethinking Where to Retire.

  Qatar Bans Alcohol Sales at World Cup Stadiums in Abrupt U-Turn

  ECB May Have to Restrict Growth to Control Inflation, Lagarde Says

  Inflation and Unemployment Both Make You Miserable, but Maybe Not Equally

  BofA Sees Bear Rally Fizzling Out Even as Equity Inflows Surge

  Musk’s ‘Hardcore’ Ultimatum Sparks Exodus, Leaving Twitter at Risk

  Tech Companies Were Thriving, Now They’re Laying Off Thousands. Here’s Why.

  New Chief Calls FTX’s Corporate Control a ‘Complete Failure’

  Is This the End Game for Crypto?

  An iPhone Factory Needs Workers. The Chinese Government Wants to Help.

  GM Has a New Business: Fixing Tesla EVs

  Masayoshi Son Now Owes SoftBank $4.7 Billion on Side Deals

  Elizabeth Holmes’s Fraud Sentence Will Send a Message One Way or Another

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• Morning News: November 17, 2022
  Eddy Elfenbein, November 17th, 2022 at 7:04 am

  EU Wrestles with Payment for Order Flow Share Trading Rules

  Egypt Dims the Lights in Cairo to Free Up More Gas for Europe

  Hunt Outlines £55 Billion Squeeze on UK as Recession Starts

  A New Source of Economic Anxiety in Britain: Soaring Mortgage Rates

  France Urges U.S. to Change ‘Made in America’ Electric Car Policy

  U.S. Banks to Pounce on Fintech Deals as Valuations Plunge

  Fed Official Warns Against Prematurely Concluding Inflation Has Peaked

  A Recession Could Hit White-Collar Workers the Hardest. Here’s Why

  2022 Midterm Results Disappointed GOP — But Were Good for Stocks

  Fading Supply-Chain Problems Signal Season of Plenty for Holiday Shoppers

  U.S. Shoppers Are Still Spending, as Long as Retailers Give Them a Reasons To

  Here’s Why Home Depot and Lowe’s Are Booming In a Housing Market Bust

  Why Office Buildings Are Still in Trouble

  Bankman-Fried Tells His Side of the Story of FTX Collapse in Tweets

  Binance CEO Changpeng Zhao A ‘Walking Time Bomb’ After FTX Collapse, ‘Dr. Doom’ Warns

  How to Prepare for Life After Twitter

  Elon Musk Tells a Court He Had Little Say in His Giant Tesla Pay

  Qatar’s World Cup Is a $300 Billion Splurge to Rebrand Its Global Reputation

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• Barron’s on Zoetis
  Eddy Elfenbein, November 16th, 2022 at 3:35 pm

  Barron’s mentions some healthcare stocks including Zoetis.

  They include the animal-health firm Zoetis (ZTS), down 40% this year, which trades at a 45% discount to its mean target price of $212.80. Zoetis ZTS –1.27% shares climbed sharply throughout the pandemic, jumping more than 80% between the end of 2019 and the end of 2021. This year, the stock has given away a good chunk of those gains.

  In a note out early in November, William Blair analyst Brandon Vazquez wrote that the company sees a strong demand for pets, despite the broader economic environment.

  “Despite noise in the quarter, management was clear that there has not been a slowdown in companion animal demand, and it expects this segment can remain resilient even in difficult macroeconomic conditions,” Vazquez wrote.

• Retail Sales and Industrial Production
  Eddy Elfenbein, November 16th, 2022 at 2:23 pm

  We had two economic reports this morning. The first said that retail sales increased by 1.3% in October. Maybe folks are getting an early start on their Christmas shopping. Over the last year, retail sales are up 8.3%. Excluding gasoline, retail sales increased by 1.0%.

  There are weak spots out there. Target just bombed its earnings report. The stock is getting punished today.

  The other report said that industrial production fell by 0.1% last month. Economists had been expecting an increase of 0.2%. The figure for September was also revised lower. Industrial production is just barely above its pre-Covid level.

• Morning News: November 16, 2022
  Eddy Elfenbein, November 16th, 2022 at 7:03 am

  Dalio Warns of Consequences of ‘More Intense’ China-US Friction

  Engineers From Taiwan Bolstered China’s Chip Industry. Now They’re Leaving.

  Why Berkshire Hathaway’s Latest Big Bet Is on a Taiwanese Chip Maker

  Apple Prepares to Get Made-in-US Chips in Pivot From Asia

  A Parade of Tankers Has Eased Europe’s Energy Crisis

  Inflation in Britain Reaches 11.1 Percent, Led by Energy Costs

  ECB’s Visco Says Case Growing for Less Aggressive Rate Hikes

  Investors Warn of More Pain Ahead as Valuations Slide: NEF Wrap

  Lowering Inflation Without a Recession Might Not Be Feasible, Fed Official Says

  Fed’s Michael Barr Says Crypto Turmoil Highlights Potential Risks to Financial System

  FTX Came Dangerously Close to Upending Futures Markets

  FTX’s In-House Performance Coach Is Just as Surprised as You Are

  Facebook Parent Meta Sees Executive Exodus in India

  Target Earnings, Sales Sapped as Consumers Pull Back

  Lowe’s Reports Revenue Increase, Beating Wall Street’s Expectations

  Disney Sets Higher Price for Magic Kingdom in First for Company

  Estée Lauder Agrees to Buy Tom Ford Brand in $2.8 Billion Deal

  Tesla Projections Take Center Stage on Day Two of Elon Musk Compensation Trial

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• CWS Market Review – November 15, 2022
  Eddy Elfenbein, November 15th, 2022 at 6:33 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.”)

  The S&P 500 Breaks 4,000

  The stock market continues its latest rally. Last Thursday, the S&P 500 had a better day than every single day from 1941 to 2001 except for one which was a dead cat bounce after the crash in 1987.

  The buying continued today and the S&P 500 broke above 4,000 for the first time in two months. The index is now above its 50-day moving average (the blue line) and it’s getting close to its 200-DMA (green line). This is a good omen for the market. The S&P 500 hasn’t closed above its 200-day moving average since April.

  

  This has been quite a good run. If we measure from the intra-day low from October 13 to Tuesday’s intra-day high, then the S&P 500 has gained more than 15%. Not bad for a little over one month’s work.

  As always, let me caution you against getting overly optimistic. The market gods can be cruel and capricious. The last several bear-market rallies have all fizzled, but there is a case that this one may be different.

  For one, the market started to move on signs that inflation could be falling. Then last week, we finally got concrete evidence that inflation, if not exactly falling, was tamer than expected. So much of Wall Street is a game of expectations.

  On Tuesday, we learned that the wholesale inflation report was also lower than expected. The wholesale inflation report is particularly important because inflation often tends to appear at the wholesale before it trickles down to the consumer level.

  For October, wholesale inflation was 0.2%. That was half of what was expected. A big reason for that decline was that the prices for services fell by 0.1%. That was the first decline for services in two years. Over the last year, wholesale inflation is running at 8.0%. Yes, that’s still high but it is a lot better than the 8.4% for the 12 months ending in September.

  The rate of consumer inflation peaked at 9.1% in June, and it’s slowly declined — or decelerated — over the last four months. For the 12 months ending in October, consumer inflation was 7.7%.

  

  We had more positive economic news on Tuesday when the Empire State Manufacturing Survey came in at 4.5%. The estimate was for a drop of 6%. We’ll learn even more tomorrow when we get the latest reports on retail sales and industrial production.

  Walmart Beats and Raises Guidance

  Speaking of retail sales, on Tuesday we got Walmart’s (WMT) earnings report which is the unofficial report on Americans’ consumer spending. In some ways, it might be an even better gauge than what the government provides. Walmart generates an average of more than $1 million in sales every minute.

  For the quarter that ended on October 31, Walmart said its sales rose by 9% to $152.81 billion. E-commerce sales rose by 16%. Walmart’s earnings came in at $1.50 per share. That beat expectations by 18 cents per share.

  Same-store sales excluding fuel were up 8.2%. The CFO said the holidays are “off to a pretty solid start.” Importantly, the store has been able to improve its inventory glut which has plagued so many businesses.

  If you recall, Walmart lowered its outlook over the summer. The problem then was that folks were cutting back on discretionary items because they had loaded up on those things during Covid.

  Walmart raised its earnings outlook. To be precise, it said the expected decrease will be less than expected. Thanks to inflation, the low-cost retailer gained market share. On Tuesday, Walmart also announced a $20 billion share buyback. The stock jumped 7% on Tuesday. Walmart isn’t alone. Home Depot (HD) also posted better-than-expected earnings.

  This week, Goldman Sachs said it expects a significant decline in inflation next year. The investment house cited improved supply chains, lower wage growth and a weaker market for housing. Goldman expects core PCE to fall to 2.9% by the end of next year.

  If Goldman is right, this will have a big impact on the Federal Reserve. The new slogan at the Fed may be “50-50-Pause.”

  By that, I mean there’s a good chance that the central bank will raise rates by 50 basis points (or 0.5%) at its December meeting, followed by another 0.5% hike at its February meeting. After that, the Fed may take a pause for a few months. In fact, it could pause for several months. If that’s true, it means we’re not far from the end of this rate-hiking cycle. It’s those higher rate hikes that have weighed on the stock market all year.

  This week, Fed Vice Chair Lael Brainard said that the Fed could slow the pace of its rate hikes. While that’s not really a radical idea, it’s interesting to hear it come from a Fed official, and from none less than the vice chair. Brainard said, “I think it will probably be appropriate soon to move to a slower pace of rate increases.”

  Not only is the Fed raising rates, but it’s also been paring back on its gigantic bond holdings. So far, the Fed’s balance sheet has contracted by $235 billion. It’s now down to a mere $8.73 trillion.

  Stock Focus: Rollins

  Here’s a chart of the S&P 500 Value Index (blue) against the S&P 500 Growth Index (black) over the past year. Notice how much better value has done. This tells us how strongly those higher rates impact riskier areas of the market. It’s interesting that the stock market often moves before the event. The Growth/Value cycle changed last year but we didn’t get our first interest rate hike until March.

  

  By the way, we’ve been having a good run with the stocks we’ve focused on in recent issues. In August, I told you about Polaris (PII) and the stock later jumped on a very good earnings report. Also, Ansys (ANSS) and McGrath RentCorp (MGRC) both rallied on good numbers.

  The latest is Celanese (CE) which I featured for you two weeks ago. The company actually missed its earnings estimate. For Q3, Celanese made $3.94 per share. To be fair, Wall Street wasn’t expecting much this time. The company said it expected earnings at the low end of its range of $4.00 to $4.50 per share.

  We also got the news that Warren Buffett added another 550,000 shares to his stake of Celanese. Last Thursday, the shares vaulted more than 13% and it added another 6% on Friday.

  This week, I want to revisit Rollins (ROL) which is another stock I wrote about. I featured Rollins in February when the stock was at $31.03 per share. It’s gained 33.6% since then. For comparison, the S&P 500 is down about 12% over that time.

  Rollins is in the pest control biz. It’s amazing how few people know about this stock. Rollins is the parent of Orkin. Years ago, Rollins was a diversified company with lots of holdings. They eventually spun off their oil and gas units into another company. What was left was the pest control business which is a very nice business to own.

  Since 2000, shares of Rollins are up more than 6,000%. As it turns out, killing bugs is very profitable. Rollins is able to maintain gross margins in excess of 50%.

  

  I realize that it sounds icky, and it is, but that doesn’t mean it’s a bad investment. Quite the opposite. In his book One Up on Wall Street, Peter Lynch wrote, “Better than boring alone is a stock that’s boring and disgusting at the same time. Something that makes people shrug, retch, or turn away in disgust is ideal.”

  Rollins now has 2.8 million customers at 800 locations around the world. During Covid, Rollins cut its dividend by 33% which snapped an 18-year run of consecutive dividend hikes. No worries. Last month, Rollins hiked its dividend by 30%. Over the last 30 years, Rollins has split its stock 3-for-2 eight times. That’s equivalent to one split of 25.6-to-1.

  With all this success, you’d think there would be a platoon of Wall Street number crunchers following Rollins. Guess again. ROL is followed by six analysts.

  Last month, Rollins reported very good numbers for its Q3. Organic revenue rose 8.6% and earnings increased to 22 cents per share from 19 cents for last year’s Q3. That was a penny more than consensus. I also like that the company has a solid balance sheet. The CEO said, “We continued to see favorable demand for our services with double-digit growth across all major service lines.”

  The shares jumped 10% after the earnings report and continued to rally. In three days, ROL gained 16.5%. All thanks to killing bugs.

  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: November 15, 2022
  Eddy Elfenbein, November 15th, 2022 at 7:05 am

  Japan’s Economy Shrinks Unexpectedly, Hit by a Weak Yen and Rising Inflation

  China’s Economy Takes a Deeper Hit as Retail Sales Turn Negative

  Xi’s Crackdowns Drive Chinese Billionaires to Booming Singapore

  Biden-Xi Summit Sets Warmer Tone for Complex US-China Dialogue

  Europe’s Banks Face ‘Direct Hit’ to Profits from House Price Slide

  Russian Oil Exports Hold Up Despite Impending EU Ban

  As Europe Quits Russian Gas, Half of France’s Nuclear Plants Are Off-Line

  Auto Makers Shift to Lower-Cost Batteries for Electric Vehicles

  Sam Bankman-Fried Posts Weird Cryptic Tweets After Wealth Wipeout

  FTX Says Number of Creditors in Bankruptcy Could Top 1 Million

  FTX Crash Is Eerily Similar to the Bernie Madoff Scandal, Ex-Regulator Sheila Bair Says

  TikTok Builds Itself Into an Ads Juggernaut

  Meta, Lyft, Salesforce and Other Tech Firms Dump Office Space as They Downsize

  U.S. Retailer Home Depot Leaves Outlook Unchanged as Housing Market Slows

  Walmart Lifts Annual Forecast, Announces $20 Billion Share Buyback

  Walmart to Pay $3.1 Billion to Settle Opioid Lawsuits

  Google Pays Nearly $392 Million to Settle Sweeping Location-Tracking Case

  U.S. Fines Airlines More Than $7 Million for Not Providing Refunds

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• The S&P 500 Gets to 3,999
  Eddy Elfenbein, November 14th, 2022 at 1:27 pm

  After a dramatic week last week, the stock market is quiet today. The S&P 500 has been as high as 3,999.31. The bears had just enough strength to push the index away from breaking 4,000.

  On our Buy List, shares of AFLAC (AFL) got to a new 52-week high today. The duck stock recently raised its dividend for the 40th year in a row.

  Federal Reserve Vice Chair Lael Brainard gave a speech today and she said soon it may be appropriate to slow down the pace of rate increases. That’s not really any sort of radical take on the market, but it’s still interesting to hear it coming from the Fed. In fact, from the vice-chair.

  “We have raised rates very rapidly … and we’ve been reducing the balance sheet, and you can see that in financial conditions, you can see that in inflation expectations, which are quite well-anchored,” she said.

  Along with the rate hikes, the Fed has been reducing the bond holdings on its balance sheet at a maximum pace of $95 billion a month. Since that process, nicknamed “quantitative tightening,” began in June, the Fed’s balance sheet has contracted by more than $235 billion but remains at $8.73 trillion.