Author Archive
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The Hidden Bull Market for Consumer Discretionary Stocks
Eddy Elfenbein, May 3rd, 2012 at 8:51 amThe 500 stocks of the S&P 500 are subdivided into 10 sectors. Investment analysts like to track these sectors to see what’s driving the market. Most of the sectors are well-known like tech or finance. But today, I want to focus on one of the overlooked sectors which is Consumer Discretionary.
Consumer Discretionary companies make things that people buy even though they don’t need to buy them. For example, Carnival ($CCL), the cruise operator, is a Consumer Discretionary company.
The reason I highlight this sector is because the Consumer Discretionary Index has been doing very well. It’s almost like a hidden bull market. The index hit a new all-time high yesterday. Not only that, it also reached its highest relative strength mark in over 22 years (that’s as far back as my records go). This means that if you bought the entire sector at any point in the last 22 years and held on until today, you would have beaten the overall market.
Here’s a look at the ratio of the Consumer Discretionary index to the S&P 500:
Of the ten sectors, Consumer Discretionary has been the top-performer for the last three and six months. It’s also been the best performer since the bear market low in March 2009 and even since the bull market high in October 2007. It was the top performer yesterday as well. In terms of market value, Consumer Discretionary is now the fourth-largest sector and it’s close to overtaking Healthcare for third place.
The main Consumer Discretionary ETF that’s tied to the index is $XLY. The XLY doesn’t get nearly the attention of trader favorites like the Financials ($XLF) or Energy ($XLE). On your average day, the XLF will have more than 12 times the volume as the XLY.
So why has Consumer Discretionary outperformed everyone else? It’s hard to say, but my take is that’s it’s due to pent-up demand from the folks who have remained employed during the Great Recession. In 2008 and 2009, they held back on their big-ticket purchases and now they’re opening up their wallets.
One of our favorites, Bed, Bath & Beyond ($BBBY) is probably a good example of this. The stock was unquestionably hurt by the downturn, but it was never in danger of going out of business. Consumers still want their duvets — and now they’re getting them.
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Morning News: May 3, 2012
Eddy Elfenbein, May 3rd, 2012 at 5:28 amECB May Soften Stance as Draghi’s Recovery Falters
Spanish, French Debt Insurance Costs Rise Ahead of Auctions
King Says BOE Will Risk Unpopularity to Prevent Crises
China Opening To Reform Discussions
China Curbs on Currency Still an Issue
Socgen’s Booming Fixed Income Brightens First-Quarter Profit Hit
Progress is Seen in Advancing a Final Volcker Rule
Taking On the Little Guy, but Missing the Bigger Ones
UBS Earnings Sink, Following a Trend in Europe
Visa Profit Surges; Justice Probes Debit Strategy
Distilling Giant Diageo’s Third-Quarter Revenue Rises on Emerging Markets
Carlyle Weighs Lower IPO Price at Discount to Blackstone
BMW Remains Conservative as Profit Beats Estimates
Green Mountain Unable To Predict Keurig Sales; Shares Down More Than 40%
Jeff Miller: April Employment Report Preview
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Q1 Earnings Summary
Eddy Elfenbein, May 2nd, 2012 at 4:00 pmThe numbers are in from Bloomberg. Of the 500 companies in the S&P 500, 360 have reported earnings so far. Of that, 250 have beaten expectations, 74 have missed and 36 have matched. That’s a beat rate of 69.4%.
So far, earnings are up 6.1% from a year ago. Excluding financials, earnings are up 4.9%. What’s interesting is that Wall Street expects earnings growth to re-accelerate later this year. For Q2, earnings growth will bottom out at 1.0%. For Q3, it’s expected to jump to 6.3%, and for Q4, Wall Street sees growth of 17.4%.
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Wright Express Earns 91 Cents Per Share
Eddy Elfenbein, May 2nd, 2012 at 12:40 pmIn last week’s CWS Market Review, I said that Wright Express ($WXS) “is our best candidate for an earnings beat” this week. The company came through by earning 91 cents per share which was a penny better than Wall Street’s consensus. Wright had told us to expect earnings between 87 cents and 93 cents per share.
The stock is getting dinged today because Wright’s guidance for Q2 isn’t as much as Wall Street wanted. Wright sees Q2 earnings ranging between 92 cents and 98 cents per share while Wall Street had been expecting earnings of $1.08 per share.
“Our performance in the first quarter, where we achieved revenue growth of 17% and adjusted net income growth of 22%, reflected our continued execution against our three-pronged growth strategy,” commented Michael Dubyak, Chairman, President and Chief Executive Officer. “During the quarter we made greater progress in expanding our core fleet business, with new business wins driving organic growth. Furthermore, we saw strong performance from our corporate charge card product and took additional steps to capitalize on increasing international market acceptance to accelerate the growth of this successful product. Looking ahead, with positive momentum in the business we feel optimistic about the long-term direction of our business given the growth platforms we have established.”
First Quarter 2012 Performance Metrics
• Average number of vehicles serviced worldwide was approximately 6.7 million, an increase of 13% from the first quarter of 2011.
• Total fuel transactions processed increased 8% from the first quarter of 2011 to 79.3 million. Payment processing transactions increased 3% to 60.6 million; transaction processing transactions increased 31% to 18.7 million.
• Average expenditure per domestic payment processing transaction increased 13% from the first quarter of 2011 to $73.29.
• Domestic retail fuel price increased 10% to $3.72 per gallon from $3.38 per gallon in the first quarter of 2011.
• Total corporate card purchase volume grew 52% to $2.2 billion, from $1.4 billion for the first quarter of 2011.
Today’s pullback is unfortunate, but the key for investors is that Wright has reiterated its full-year guidance of $4.10 to $4.30 per share. That is by far the most important news today. Wright also boosted its full-year revenue guidance to a range of $602 million to $617 million. The old range was $590 million and $610 million.
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Nicholas Financial Earns 50 Cents Per Share
Eddy Elfenbein, May 2nd, 2012 at 10:39 amGreat report for fiscal Q4. For the quarter, Nicholas Financial ($NICK) earned 50 cents per share and for the year, they earned $1.85 per share.
Nicholas Financial, Inc. announced that for the three months ended March 31, 2012, net earnings increased 27% to $6,045,000 as compared to $4,772,000 for the three months ended March 31, 2011. Per share diluted net earnings increased 25% to $0.50 as compared to $0.40 for the three months ended March 31, 2011. Revenue increased 7% to $17,182,000 for the three months ended March 31, 2012 as compared to $16,095,000 for the three months ended March 31, 2011.
For the year ended March 31, 2012, net earnings increased 32% to $22,230,000 as compared to $16,805,000 for the year ended March 31, 2011. Per share diluted net earnings increased 31% to $1.85 as compared to $1.41 for the year ended March 31, 2011. Revenue increased 9% to $68,167,000 for the year ended March 31, 2012 as compared to $62,774,000 for the year ended March 31, 2011.
“Our strong growth in earnings per share for the fourth quarter and year ended March 31, 2012 were largely impacted by a reduction in the provision for credit losses. Net charge offs during the current periods were less than the expected charge-offs previously contemplated in the allowance for loan losses. Accordingly, the amount of additional provision necessary to maintain an adequate allowance to absorb losses in the existing portfolio was less than the provision for prior periods,” stated Peter L. Vosotas, Chairman and CEO. Subject to market conditions, we plan on continuing our branch expansion and currently anticipate opening three additional locations during the first quarter of fiscal 2013.
As a result of our continued earnings growth and stable capital position, on May 2, 2012 the Board of Directors declared another quarterly dividend equal to $0.10 per common share, to be paid on June 6th to shareholders of record as of May 30th.
The provision for credit losses was actually negative, meaning it added $707,000 to pre-tax income. For the entire year, the provision for credit losses was $5,000 which is a nice improvement from the $4.6 million from last year.
Here are NICK’s stats which detail NICK’s operations over the past few years. The shares had been selling off going into earnings but have recovered somewhat today.
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Morning News: May 2, 2012
Eddy Elfenbein, May 2nd, 2012 at 6:35 amWealthy Americans Queue to Give Up Passports in Swiss Capital
Euro-Zone Data Point To Continued Contraction
European Unemployment Rate Rises to Highest in Almost 15 Years
Bolivia Following Argentine Takeover Deepens Regional Divide
China Money Rate Rises as Manufacturing Data Damps Stimulus Bets
Struggling Hedge Fund Under a Cloud
UBS Profit Falls 54% in First Quarter
Court Bans Microsoft Products from German Market
Pfizer Races to Reinvent Itself
P.F. Chang’s to be Bought by Centerbridge for $1 Billion
Toyota Back in the Game, Auto Sales Are the Best in 4 Years
Standard Chartered Operating Profit Up; To Raise Investment
Inside Chesapeake, CEO Ran $200 Million Hedge Fund
Wynn Macau Gets Land Grant for Casino on Cotai Strip
Credit Writedowns: Consensus Caught Out by ISM Manufacturing Upside Surprise
Roger Nusbaum: Freaking Out Because There’s Nothing to Freak Out About
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Fiserv Earns $1.20 Per Share
Eddy Elfenbein, May 1st, 2012 at 11:06 pmAfter the closing bell, Fiserv ($FISV) reported Q1 earnings of $1.20 per share. That was five cents better than Wall Street’s estimates.
I like this company a lot. They help financial companies with their back office IT operations. Fiserv earned $1.02 in the same quarter last year so that’s pretty good growth. Adjusted revenue rose 5% to $1.03 billion. I was pleased to see the company grow its operating margins by 40 basis points.
“We are off to a great start in 2012 with above plan performance for revenue and earnings per share in the quarter,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “There is continuing evidence that our broad range of technology solutions will support the needs of the evolving financial services market.”
The best news is that Fiserv reaffirmed its full-year guidance of $5.04 to $5.20 per share. That’s a nice increase from the $4.58 per share they made last year. Fiserv also said that it expects revenue to grow by 4% to 6% which is about what the Street was expecting. On the earnings call, the company said it expects free cash flow of $5.70 per share for 2012.
Fiserv’s stock has been on a tear lately. In October, it dipped below $50 and today it got as high as $71.74. Before today’s earnings report, I had some concerns that Fiserv’s stock may have gotten too pricey. Today’s evidence tells us that’s not the case. Using the low end of its range, the stock is going for 14 times earnings which is a good value.
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Dow Breaks 13,300
Eddy Elfenbein, May 1st, 2012 at 11:19 amThanks to the ISM report, the Dow has rallied above 13,300. If today’s market holds up, this will be the highest close since 2007.
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April ISM = 54.8
Eddy Elfenbein, May 1st, 2012 at 10:11 amThe economic recovery is officially 34 months old. It’s not strong but it may last a little while longer. Today’s ISM number came in at 54.8 while Wall Street was expecting 53.0.
Here’s some context: The ISM has fallen between 54.0 and 56.0 a total of 104 times. Just three have come during official recessions.
The strong ISM caused a quick rally on Wall Street and we’re back above 1,400.
Here’s a look at how often a recession has occurred by ISM range:
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His 