Author Archive

  • CWS Market Review – January 27, 2012
    , January 27th, 2012 at 10:04 am

    Hold on, folks! We’re now at the crest of the fourth-quarter earnings season. For the overall market, the numbers are, to use a technical term, pretty blah. Earnings growth is tracking at a measly 4.4%. The silver lining is that if we exclude financials (and don’t I wish we could!), growth is tracking at 12.5%.

    Bloomberg reports that 172 companies in the S&P 500 have reported earnings so far. Of that, 104 have beaten expectations while 28 have missed and 20 were inline. That’s a “beat rate” of just over 60% which sounds better than it is. Wall Street likes to keep a firm hand on expectations so normally most companies exceed expectations. But a beat rate of 60% would actually be one of the worst earnings seasons in years. On top of that, we have to remember that a lot of analysts had lowered their estimates going into earnings season.

    Despite the mediocre results, the stock market continues to thrive. The S&P 500 got as high as 1,333.47 early in the day on Thursday which is a six-month high; plus it’s more than 24% above the intra-day low from October 4th. Believe it or not, the index isn’t far from making a post-crash high. But instead of calling this a rally, I think it’s more accurate to say that the stock market is taking back much of the ground it lost during the freak-out panic attack we saw over the summer. Yikes, that wasn’t fun. That’s when the debt ceiling debate and S&P downgrade gave the market a super-atomic wedgie. In just two weeks, the S&P 500 plunged more than 16%.

    Those were scary times, but those who stuck it out have seen big gains. In the CWS Market Review from six months ago, I wrote: “So is it time to sell? Absolutely not. In fact, this would be a terrible time to sell.” Since then the S&P 500 has gained nearly 10%.

    The reason the market was so panicked this summer was that investors thought that the debt crisis in Europe had the potential to bring down our economy. I thought that was outlandish, and only now are investors seeing that reality. Jamie Dimon, the CEO of JPMorgan Chase ($JPM), made news this week when he said something perfectly obvious: if Greece if defaults, big whoop—it will have almost no impact on U.S. banks. Don’t get me wrong. I feel bad for the Greeks, but we’re not seeing a repeat of 2008.

    Slowly and steadily, the denouement of the Greek drama is beginning to take shape. The good news is that the spillover effect to other countries appears to be far less severe that originally feared. While two-year notes in Greece now yield over 200% (yes, two effing hundred percent), yields in other trouble spots are coming down. The yield on the 10-year Italian bond just dropped below 6% for the first time in six weeks. In November, Italian bond yields were 575 basis points higher than German yields. Today that spread is down to 418 basis points. In Spain, the spread is down to 334 points. In other words, people are starting to chill out.

    The worst of the euro crisis is passing and its impact on our markets is rapidly dissipating. Last week I highlighted the fact that the correlation between the euro and the S&P 500 had dropped from 0.91 in November to 0.66 recently. This has led to far less volatility in our market plus higher stock prices despite the sluggish earnings reports. Last year the S&P 500 closed lower by 0.50% or more 72 times. It’s only happened once this year (-0.58% on Thursday).

    Now let’s get to the most over-rated news story this week which came from our dear, dear friends at the Federal Reserve. Bernanke & Co. said that they don’t anticipate raising interest rates until at least 2014. They’re making the Mayans sound optimistic! I know this news sounds dramatic but it’s not a commitment to do anything. The simple fact is that the Fed has a pretty dismal forecasting record. Plus, the Fed’s main goal should be establishing its credibility in the present. That’s what the bond market cares about. The Fed’s job isn’t about predicting what may or may not happen three years from now.

    The immediate impact of the Fed’s news was that the Treasuries in the middle part of the yield curve soared. On Thursday, the yield on the five-year Treasury dropped down to 0.77% which is an all-time low. The three-year yield is down to 0.31% which is just above the all-time low of 0.29% from September 19th. Think about that. You can stuff your money away until 2015 and make a grand total of less than 1%. Even though the Fed made a lot of headlines this week, investors ought to ignore this news. My take is that it’s rather silly to see news in what someone else thinks may happen three years from now.

    Now let’s jump to our Buy List because this has been a great week for us. Stryker ($SYK), for example, gapped up 4% on Wednesday thanks to a good earnings report. Also on Wednesday, Hudson City Bancorp ($HCBK) rallied to a six-month high. But our biggest winner was CA Technologies ($CA) which soared nearly 10% on the news that it’s raising its dividend fivefold. CA now yields twice as much as a 10-year T-bond. Take that, Benny!

    Through Thursday, our Buy List is up 7.25% for the year compared with 4.84% for the S&P 500. It’s still early and we know all too well how quickly the market’s mood can change, but I have to admit that I’m very pleased with how 2012 is going. Let’s not get cocky. Investors should focus on high-quality companies selling at good prices. As always, don’t chase stocks. Instead, let good stocks come to you.

    Now here’s a quick recap of our earnings news from this week:

    On Tuesday, Johnson & Johnson ($JNJ) reported Q4 earnings of $1.13 per share which was four cents better than estimates. The only sour note is that JNJ sees earnings for 2012 ranging between $5.05 and $5.15 per share. Wall Street had been expecting $5.21 per share. Johnson & Johnson is a good buy up to $70.

    Stryker ($SYK) reported Q4 earnings of $1.02 per share which matched forecasts. The company also reiterated its outlook for “double digit” earnings growth for this year. That means EPS of at least $4.09. Frankly, I think Stryker is low-balling which makes sense at the beginning of the year. I’m keeping my buy price at $55. Don’t chase this one.

    Hudson City Bancorp ($HCBK) reported a loss of 73 cents per share but that’s because the bank extinguished a massive amount of debt. Smart move. This gives a major boost to their balance sheet. Early on Wednesday, HCBK got as high as $7.46 although it gave much of it back later on. Still, this is a very good value. I rate Hudson City a solid buy up to $7.50.

    What else can I say about CA Technologies ($CA)? For a boring stock, this is certainly treating us very well. For Q4, the company earned 65 cents per share, 11 cents more than estimates. CA also raised its EPS range for fiscal 2012 from $2.13 – $2.18 to $2.21 – $2.25. And to top it all off, the company jacked up its annual dividend fivefold from 20 cents per share to $1 per share. This stock is up nearly 25% on the year for us. I’m raising my buy price from $24 to $27.

    As I said, we’re just at the crest of earnings season. We have many more reports to come. On Friday, Ford ($F) and Moog ($MOG-A) are due to report. I’m very excited for Ford this year. The company has done a brilliant job turning itself around. Last year was Ford’s third-straight annual profit.

    Once the final numbers are in, Ford probably will have made $20 billion in 2011 which would make it their best year since 1998. Wall Street currently expects Ford to earn $1.66 per share this year which means the auto company is going for just over eight times earnings. One fund manager said about Ford, “The stock is too cheap for a company that has done very right.” Well put. I think the stock has a reasonable shot of breaking $15 per share before the year is up (that’s another 17% from here).

    Next Tuesday, January 31st, we’ll have three reports; AFLAC ($AFL), CR Bard ($BCR) and Harris Corp ($HRS). On Thursday, Fiserv ($FISV) is due to report.

    I’m excited to see what AFLAC has to say. The stock came very close to hitting $50 this week which it hasn’t done since May. (Remember it was at $31 only four months ago.) Three months ago, AFLAC said it expects to earn $1.45 to $1.52 for the fourth quarter. My numbers say that’s too low. I’ll be interested to see if AFLAC revises its 2012 earnings growth forecast of 2% to 5%. I think they will at some point, but maybe not this early in the year.

    That’s all for now. Earnings will be the big story next week. Then on Friday, all eyes will be focused on the jobs report. My prediction: Whatever the jobs report says, Republicans and Democrats will argue over it. You heard it here first. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Q4 GDP = 2.8%
    , January 27th, 2012 at 10:01 am

    We had yet another uninspiring GDP report. The government said the economy grew by 2.8% in the last three months of the year. This was below economists’ expectations of 3% growth. Breaking out the decimals, GDP came very close to being rounded down to 2.7%.

    Taking a step back, the numbers are truly depressing. For all of 2011, the economy grew in real terms by just 1.7%. In four years, we’ve grown by a grand total of 0.8%.

    The U.S. economy grew less in real terms from 2000 through 2011 than it did from 1996 to 2000. Four years’ growth beat eleven years’.

    The economy grew less in the last 30 years than in the 23 years before that, and it grew by less in the last 38 years than in the 26 years before that.

  • Good Earnings from Moog, Not So Good from Ford
    , January 27th, 2012 at 8:53 am

    More earnings news for our Buy List. This morning, Moog ($MOG-A) reported earnings of 80 cents per share. That’s six cents more than estimates. Moog reiterated its full-year guidance of $3.31 per share. Note that Moog’s fiscal year ends in September.

    “We are off to a great start for fiscal 2012,” said John Scannell, CEO. “Our first quarter sales are up nicely and earnings per share were better than our forecast. Sales in four of our five segments were up in the quarter as were profits. It is a great foundation for a year in which we anticipate we will deliver record sales and a 12% increase in earnings per share over fiscal 2011.”

    Ford ($F) reported earnings of 20 cents per share which was five cents below estimates.

    Ford earned $13.6 billion in the fourth quarter, due to a decision to move deferred tax assets back onto its books. Without that change, the company’s pretax operating profit totaled $1.1 billion, or 20 cents per share, missing analysts’ forecasts of 25 cents.

    The company lost money in Europe and Asia in the fourth quarter. But its North American operating profit rose 33 percent to $889 million.
    “The quarter was really driven by North America,” Chief Financial Officer Lewis Booth said.

    Booth also said November flooding in Thailand, which affected its parts suppliers, had a greater impact than the company expected. Ford lost 34,000 units of production in Thailand and in South Africa, which relies on Thai-made parts. He said the company also saw higher costs for steel and other commodities. Ford spent $2.3 billion more on commodities in 2011 than the prior year, or $100 million more than it had forecast.

    Europe’s debt crisis weighed on car sales in that region.

    For the full year, the U.S.-based company made $20.2 billion, or $4.94 per share. Without the accounting gain, it earned $8.76 billion, or $1.51 per share, its highest operating profit since 1999. Full year revenue rose 13 percent to $136.3 billion.

    The shares look like they’re going to open about 5% lower this morning.

  • Morning News: January 27, 2012
    , January 27th, 2012 at 5:55 am

    Incredible Shrinking Bankers at Davos Humbler as Austerity Hits

    Greece Solution ‘Open’ as Debt Talks Resume

    Monti Takes on Italy Bureaucracy in Policy Push

    At Euro Talks, a Calm Arm-Twister From the U.S.

    Spain Unemployment Rate Hits 22%

    NYSE-Deutsche Boerse Would Pose ‘Serious’ Problems, EU Says

    Japan Prices Fall, Mild Deflation to Persist

    Oil Heads for First Weekly Gain in Three; Total Sees $100 Brent Support

    Waning Support for Wind and Solar

    Samsung’s Chips Gain, but Smartphones Feel Pressure

    UniCredit Investors Reap Top Return in Offer

    Amgen Agrees to Purchase Micromet for $1.16 Billion to Gain Leukemia Drug

    For $2 a Star, an Online Retailer Gets 5-Star Product Reviews

    In Punishing Year for Hedge Funds, Biggest One Thrived

    Jeff Carter: Where Are All The New Traders Going to Come From?

    Howard Lindzon: Google is Great….Apple is Magnificent…The ELEVEN Year Highs in The Nasdaq… and Momentum Monday!

    Be sure to follow me on Twitter.

  • TJX Companies
    , January 26th, 2012 at 11:48 am

    TJX ($TJX) is trading at a new all-time high this morning. Check out the stock’s long-term track record. Even before looking at dividends, that stock has averaged more than 20% per year for 20 years.

    The stock soared nearly tenfold in the mid-1990s. Since then, the growth rate has moderated but the stock has averaged 12% to 15% per year. That’s a remarkable track record.

  • Morning News: January 26, 2012
    , January 26th, 2012 at 9:28 am

    Banks Hoarding ECB Cash May Double Company Defaults

    Italy Sells Maximum Target Amount at Bond Sale

    Greek Debt Talks to Resume as Policy Makers Squabble

    Bernanke Moves Fed On With 2% Inflation Goal

    New Housing Task Force Will Zero In on Wall St.

    Foreclosure-Related Properties Decline to 20% of Home Purchases in U.S.

    Higher Oil Prices Boost Conoco’s Profit by 66%

    Hyundai’s Net Profit Rises 38%

    Netflix Returns To Growth Even As Earnings Fall

    Logitech Shares and Profit Plunge

    Nintendo Sees First Annual Loss, Cuts 3DS Forecast

    As I.P.O. Looms, Facebook Halts Clearing of Trades

    Container Lines Steam Slower to Restore Profit

    Airline ‘Teaser Fares’ Vanish as U.S. Rule Spurs Tax Disclosures

    Joshua Brown: Whither the Wirehouse?

    Jeff Miller: The Fed Role in the Economy: Now Bigger. Now Better?

    Be sure to follow me on Twitter.

  • Today By the Numbers
    , January 25th, 2012 at 5:51 pm

    Here’s a breakdown of how the Buy List did today:

    Symbol Company Today YTD
    AFL AFLAC 0.18% 13.64%
    BBBY Bed Bath & Beyond 0.13% 8.56%
    CA CA Technologies 9.68% 23.79%
    BCR C.R. Bard 1.81% 9.37%
    DTV DIRECTV 1.53% 3.93%
    FISV Fiserv 0.76% 7.93%
    F Ford Motor 0.86% 20.17%
    HRS Harris Corporation 0.75% 7.77%
    HCBK Hudson City Bancorp 1.97% 15.84%
    JNJ Johnson & Johnson 0.32% -0.56%
    JOSB Jos. A. Bank Clothiers 1.66% 0.66%
    JPM JP Morgan Chase -0.16% 13.08%
    MDT Medtronic 1.60% 4.47%
    MOG-A Moog -0.14% -0.39%
    NICK Nicholas Financial -0.54% 0.08%
    ORCL Oracle 0.00% 11.15%
    RAI Reynolds American 1.51% -2.66%
    SYK Stryker 4.00% 10.76%
    SYY Sysco 0.46% 3.75%
    WXS Wright Express 0.36% 3.68%
    Complete Buy List 1.36% 7.75%

  • Good Day for Us!
    , January 25th, 2012 at 2:16 pm

    The S&P 500 just broke 1,322 which is another six-month high.

    Thanks to big moves from Stryker ($SYK) and Hudson City ($HCBK), this is a huge day for our Buy List. Of course, the best gain of all comes from CA Technologies ($CA) which has been up as much as 14.76% today. Hudson City got as high as $7.46 and Stryker got up to $55.17.

    As of 2 pm, the S&P 500 is up 0.51% and our Buy List is up 1.21%.

    For the year, we’re up 7.59% while the S&P 500 is up 5.00%.

  • The Five-Year Treasury Is Back Below 0.8%
    , January 25th, 2012 at 1:05 pm

    Thanks to today’s news from the Fed, the yield on the 5-year Treasury is back near an all-time low.

  • Fed Votes 9-1 to Keep Rates the Same
    , January 25th, 2012 at 12:29 pm

    The Fed expects rates to stay low until at least late-2014. Here’s today’s Fed statement:

    Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee’s dual mandate.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

    The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.