Author Archive

  • Johnson & Johnson Earns $1.13 Per Share
    , January 24th, 2012 at 8:50 am

    Johnson & Johnson ($JNJ) reported Q4 earnings of $1.13 per share which was four cents per share more than estimates. For the year, JNJ earned exactly $5 per share. The company said that for 2012 they see earnings of $5.05 to $5.15 per share which is below Wall Street’s estimate of $5.21 per share.

    Johnson & Johnson today announced sales of $16.3 billion for the fourth quarter of 2011, an increase of 3.9% as compared to the fourth quarter of 2010. Operational sales increased 4.0% and the negative impact of currency was 0.1%. Domestic sales declined 3.4%, while international sales increased 10.2%, reflecting an operational increase of 10.4% and a negative currency impact of 0.2%. Worldwide sales for the full-year 2011 were $65.0 billion, an increase of 5.6% versus 2010. Operational sales increased 2.8% and the positive impact of currency was 2.8%. Domestic sales declined 1.8%, while international sales increased 12.4%, reflecting operational growth of 7.0% and a positive currency impact of 5.4%.

    Net earnings and diluted earnings per share for the fourth quarter of 2011 were $0.2 billion and $0.08, respectively. Fourth-quarter 2011 net earnings reflect after-tax charges of $2.9 billion, which include product liability expenses, the net impact of litigation settlements, costs associated with the DePuy ASR™ Hip recall program, and an adjustment to the value of a currency option and costs related to the planned acquisition of Synthes, Inc. Fourth-quarter 2010 net earnings included after-tax charges of $922 million representing product liability expenses, the net impact of litigation settlements, and costs associated with the DePuy ASR™ Hip recall program. Excluding these special items for both periods, net earnings for the current quarter were $3.1 billion and diluted earnings per share were $1.13, representing increases of 9.3% and 9.7%, respectively, as compared to the same period in 2010.*

    Net earnings and diluted earnings per share for the full-year 2011 were $9.7 billion and $3.49, respectively. Full-year 2011 net earnings reflect after-tax charges of $4.2 billion, which include product liability expenses, the net impact of litigation settlements, a previously announced restructuring charge by Cordis Corporation, costs associated with the DePuy ASR™ Hip recall program, and an adjustment to the value of a currency option and costs related to the planned acquisition of Synthes, Inc. Full-year 2010 net earnings included a net after-tax gain of $55 million representing product liability expenses, the net impact of litigation settlements, and costs associated with the DePuy ASR™ Hip recall program. Excluding these special items in both periods, net earnings for the full-year 2011 were $13.9 billion and diluted earnings per share were $5.00, representing increases of 4.4% and 5.0%, respectively, as compared with the full year of 2010.*

    The Company announced earnings guidance for full-year 2012 of $5.05 to $5.15 per share, which excludes the impact of special items. This guidance reflects operational growth of approximately 3.5% to 5.5% partially offset by an estimated negative impact of currency of approximately 2.5%.

    “We delivered solid results for 2011, built on the strong growth of our recently launched pharmaceutical products, and continued the steady momentum of new product approvals across all our businesses,” said William C. Weldon, Chairman and Chief Executive Officer. “Our talented people are focused on bringing meaningful innovations to patients and customers to address significant unmet needs, positioning us well to deliver sustainable leadership and profitable growth in health care.”

  • Morning News: January 24, 2012
    , January 24th, 2012 at 5:34 am

    EU Seeks Bondholder Concessions on Greece

    Permanent Rescue Fund Seems Nearer in Europe

    In Europe, Arguing to Apply Some Stimulus Along With the Austerity

    Euro-Area Manufacturing Unexpectedly Expands

    Europe Weighs Tough Law on Online Privacy

    BOJ Sees Recovery Delayed as Europe Bites But Skips Easing

    A Loophole Poses Risks to Investors in Chinese Companies

    India Unexpectedly Cuts Reserve Ratio as BRIC Nations Act to Shield Growth

    Crude Oil Trades Near $100 on Concern Iran May Respond to European Embargo

    U.S. CO2 Emissions to Stay Below 2005 Levels as Coal Use Shrinks

    Meet the New Federal Reserve Members

    Political Push Moves a Deal on Mortgages Inches Closer

    Texas Instruments Beats Estimates in Sign Components Market Bottoming Out

    European Semiconductor Giant STMicroelectronics Predicts Sales Decline

    Chesapeake Stalls Slide in Gas Prices With Cutbacks in Drilling

    Global Macro Monitor: On the Collapse of the Shanghai Composite

    Phil Pearlman: It’s Not How Apple Reports Tonight, It’s Do You Have A Plan?

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  • Goldman Says to Short the 10-year Treasury
    , January 23rd, 2012 at 12:16 pm

    At Business Insider, Joe Weisenthal points us toward this note from Goldman Sachs, which supports our thesis of higher long-term yields. Goldman is now urging clients to short the 10-year U.S. Treasury.

    Go Short 10-yr US Treasuries

    Since the end of last August, we have argued that 10-yr US Treasury yields would not be able to sustain levels much below 2% in this cycle. Yields have traded in a tight range around an average 2% since September, including so far into 2012. We are now of the view that a break to the upside, to 2.25-2.50%, is likely and recommend going tactically short. Using Mar-12 futures contracts, which closed on Friday at 130-08, we would aim for a target of 126-00 and stops on a close above 132-00. Our rationale is as follows.

    At this stage of the cycle, growth expectations are in the driver’s seat: The value of intermediate maturity government bonds can be related to expectations of future policy rates, activity growth and inflation, and a ‘risk factor’ highly correlated across the main countries. These simple relationships are captured by our Sudoku econometric framework for 10-yr maturity yields. In coming months, we expect effective overnight rates to remain close to zero in the main currency blocs (US, Japan, Euroland, and UK) and retail price inflation to hover around 1.5-2.0% – consistent with the forwards and central banks’ objectives. With policy rates and inflation ‘dormant’ at this stage of the business cycle, bond yields (and the 2-10-yr slope of the yield curve) will likely react mostly to shifts in growth expectations.

    Bond valuations are already stretched relative to consensus growth expectations: Around the turn of the year, the outlook on economic activity was buffeted by cross-currents reflecting the adverse credit conditions in the Euro area on the one hand, and the upward revisions to US GDP growth on the other. Our Sudoku model, which helps us trade-off these shifts, indicates that 10-yr government bond yields are currently trading too low (to the tune of 50-75bp) when mapped against prevailing macro expectations. Taking into account the cumulative impact of the Fed’s security purchases, the degree of mis-valuation of 10-yr bonds is roughly the same across the main regions.

    I think this is right. What I find unusual is that it hasn’t already happened especially considering the continued rise in cyclical stocks versus the broader market. The Morgan Stanley Cyclical Index ($CYC) got as high as 982 today which is a 33% run from October 3rd.

  • Stock Trading Is Lowest in U.S. Since 2008
    , January 23rd, 2012 at 10:03 am

    Bloomberg reports:

    Trading in U.S. stocks fell to the lowest level since at least 2008 amid mutual fund withdrawals and Wall Street job cuts.

    An average of 6.69 billion shares changed hands on U.S. exchanges in the 50 days ended Jan. 18, the fewest on record in Bloomberg data starting three years ago that excludes over-the- counter venues. On the New York Stock Exchange, volume has tumbled to the lowest level since 1999, the data show.

    The slowdown in trading shows that investors remain skittish after five years of withdrawals from mutual funds that buy U.S. equities and one of the most volatile years on record for the Standard & Poor’s 500 Index. While the benchmark index is having its best January rally since 1997, securities firms around the world cut more than 200,000 jobs last year.

    “Investor confidence is shaky at the very least,” Mark Turner, head of U.S. sales trading at Instinet Inc. in New York, said in a telephone interview on Jan. 20. His firm handles about 4 percent of the total daily U.S. equity volume. “We need to see the U.S. economy improve. We need to see some sort of a plan in place to deal with Europe’s debt crisis before the market gains some confidence. At that point, we’ll start to see an increase in volume.”

    Daily equity trading approached 12 billion shares in May 2009, near the start of a three-year bull market in which the S&P 500 has almost doubled. The total is based on the 50-day average volume on venues including those run by NYSE Euronext, Nasdaq OMX Group Inc., Bats Global Markets Inc. and Direct Edge Holdings LLC.

  • Greece to Be Saved…Again
    , January 23rd, 2012 at 9:45 am

    Today is the day that finance ministers in the euro zone are going to decide exactly what to do with Greece. If you’re keeping score, this is the second time they’re trying to settle this question once-and-for-all. The hard part is to get the people Greece owes to accept the idea that they’re not getting all of their money back. Rough, I know. The early indications are that the bondholders are going to get about one-third back. I’m actually surprised it’s that high.

    The market is basically unchanged so far this morning. I see that Ford ($F) seems to be extending its gains from last week. It’s good to see that investors are ready to dump all the profits they made recently. Tomorrow is going to be a very big earnings day for us.

    There’s also talk of when the Fed will embark on its third round of quantitative easing. Frankly, I’m a doubter. Not only is it politically unpopular, but also it may not be needed.

  • Morning News: January 23, 2012
    , January 23rd, 2012 at 5:26 am

    Euro Leaders Seek Crisis Fix as Greek Talks Drag On

    Europe Heads to Davos Surprising Doomsayers

    U.K. Dividends Increase to Record in 2011

    Europe Stocks Cheapest to U.S. Since 2004

    Saudi Market to Let Foreign Shares Dual-List

    EU Diplomats Agree on Iran Oil Embargo

    U.S. Gasoline Price Rises to $3.39 a Gallon, Lundberg Survey Shows

    Fed Inflation-Unemployment Mandate Shows Bernanke’s Model Better in Crisis

    Fed Begins an Effort to Remove All Doubt on What It’s Doing

    Apache Reaches Oil Deal on Home Turf

    U.S. Gas Glut Favors Would-Be Exporter

    Thyssen, Outokumpu Discuss Stainless Steel Tie-up

    More Lockouts as Companies Battle Unions

    Bowing to Critics and Market Forces, RIM’s Co-Chiefs Step Aside

    Epicurean Dealmaker: All Together Now

    Howard Lindzon: The ‘Swoosh’ of Nike – Marketing, Sales, Fashion, Technology, Data, and even Biotech!

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  • RIP: Etta James
    , January 20th, 2012 at 4:01 pm

    The weekend is here. Let the great Etta James show you how to do the Eagles right.

  • CWS Market Review – January 20, 2012
    , January 20th, 2012 at 5:37 am

    Huzzahs are in order! The S&P 500 just closed at its highest level in five months. We only need another 4% push to hit a new post-crash high. That’s the odd thing about investing: last year most everyone looked pretty clueless, but this year, suddenly everyone’s a genius. Funny how that happens.

    All joking aside, the numbers are pretty impressive. The stock market is off to its best start in 15 years. Consider that the S&P 500 closed higher on seven of the first eight trading days of this year. That’s only happened eight times since 1900. The Nasdaq 100 Index just hit a 10-year high. For the time being, the bulls are in charge and that’s a pleasant change from the tug-of-war market we saw last year.

    But what I find most interesting is that 2012 is almost a mirror image of 2011. By that I mean that some of the worst performers from last year are among the best performers this year, and some of last year’s stars are among the also-rans for this year. In more concrete terms, this means that sectors like industrials, homebuilders, materials and financials are finally doing well. On the other side, treasuries are off to their worst start in nine years. I believe this is the result of the market shaking off the worn-out thesis it desperately held on to for several months.

    Let me explain this in a little more detail. I’ve recently discussed how the American stock market has been in the process of disentangling itself from the mess in Europe. This is very important and every investor needs to understand what’s happening.

    Not very long ago, an investor didn’t even need to look at share prices to see what the U.S. market was doing on any given day. All he or she needed to do was look at the euro. I’m really not exaggerating. But this euro/stock battle isn’t the case anymore. Bloomberg notes that the 30-day correlation between the euro and the S&P 500 dropped from 0.91 in November to 0.66 today. In my opinion that’s still too high, but the message is clear: the old game no longer works.

    So what is working? I’m happy to report that our strategy of focusing on high-quality stocks is working very well. As well as the overall market has performed this year, our Buy List has done even better. In fact, we’ve increased our lead this past week.

    Through Thursday, the Crossing Wall Street Buy List is up 5.22% for 2012 which is 69 basis points more than the S&P 500. Four of our stocks are already double-digit winners. Ford Motor ($F) is our biggest winner for the year with a gain of 17.19%. I think it may break 20% very soon.

    In last week’s CWS Market Review, I focused on JPMorgan Chase’s ($JPM) earnings report. Even though the earnings matched expectations, it was a modestly disappointing report, and Jamie Dimon said as much. The stock took a hit for a few days but here’s the interesting part. Once the selling faded, JPM’s stock quickly regained what it lost and on Thursday it closed at a three-month high. This signals to me that investors are interested in holding on to high-quality stocks even though they’ve become more price-sensitive. Before, investors were primarily interested in holding safe assets and they were prepared to pay any price. I noticed the irony that investors were taking enormous gambles in order to avoid risk. All that jittery volatility is getting pushed out of the market. On Thursday, the Volatility Index ($VIX) closed below 20 for the first time in six months.

    Nearly the exact same story as JPMorgan played itself out at Bed Bath & Beyond ($BBBY). Last month, the share price got nicked after the company reporting earnings. What’s frustrating is that I thought it was a decent report. Traders, however, disagreed. Still, once the dust settled some rationality returned to the market and the stock made up lost ground. On Thursday, Bed Bath & Beyond closed at $63.19 which is just 25 cents from an all-time high close.

    I had previously told investors not to chase BBBY and instead to wait for a pullback below $60. I think the changing market environment will be good for this stock so I’m raising my buy-below price to $66 per share. (Please note that the buy prices I give are not price targets. They’re merely good entry points. I consider all of the stocks on the Buy List to be good buys.)

    The most important story on Wall Street right now is earnings season. The early indications are that it’s not going terribly well. The S&P 500 has topped expectations for the last 11 quarters in a row. I’m not sure we’re going to see #12. In fact, I think it’s very possible that earnings for Q4 will come in below the earnings for Q3.

    We’re heading into the peak of earnings season next week and the following week. Not all of our Buy List stocks have said when they’ll report earnings but I do know that next week will be a busy earnings week for us. On Tuesday, three Buy List stocks will report earnings; CA Technologies ($CA), Johnson & Johnson ($JNJ) and Stryker ($SYK). All three are excellent stocks and Stryker already told us to expect good news in this report.

    Last October, CA Technologies told us to expect earnings-per-share to range between $2.13 and $2.18 for its 2012 fiscal year (ending in March). On Tuesday’s earnings report, I think there’s a good chance the company will raise the lower bound of that range. The stock is a very good buy up to $24 per share.

    On Wednesday, Hudson City Bancorp ($HCBK) is set to report its Q4 earnings. This is a stock you should pay close attention to, but you want to ignore next week’s earnings report because it won’t be pretty. The good news will come in future quarters. Hudson City currently yields 4.69%.

    Before I go, I want to highlight a few other stocks. I was pleased to see AFLAC ($AFL) burst through $47 per share on Thursday. It’s about time! The duck stock will report earnings on January 31st. Look for another solid report.

    Oracle ($ORCL) is another stock that’s quietly recovering from an earnings disappointment. Smart investors know to never count this company out. Oracle is a good buy up to $30 per share.

    I usually don’t pay too much attention to the weekly jobless claims reports but the trend continues to be very positive. Thursday’s report showed the fewest claims in nearly four years. This should bode well for the next employment report in early February.

    That’s all for now. Earnings will dominate the headlines next week. We’ll also have a Fed meeting (snore! don’t expect much), and on Friday we’ll get our first look at the Q4 GDP report. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: January 20, 2012
    , January 20th, 2012 at 5:37 am

    EU Toughens Fiscal Pact Bowing to ECB Objection, Draft Shows

    ‘Substantial’ Greek Debt Talks Continue for Third Day

    New Normal on Wall Street: Smaller and Restrained

    U.S. Jobless Claims Fall Sharply

    Dodd Calls for Hollywood and Silicon Valley to Meet

    Microsoft Leads ‘Old Dogs’ in Topping Estimates; Google Dips

    Google Ad-Price Drop Leads to Page’s First Earnings Disappointment as CEO

    Intel Forecasts Revenue That May Exceed Analysts’ Estimates

    BofA Swings to Black for 2011

    GM is Again the World’s Largest Automaker

    Southwest Posts Strong Profit Despite Rising Fuel Expenses

    Sears Rises on Report CIT Approving Orders as Early as Today

    Vodafone Wins India Tax Case

    Can Bankruptcy Filing Save Kodak?

    Roger Nusbaum: Market Favoring Risk Assets Right Now

    Paul Kedrosky: Benford’s Law, and Worldwide Illicit Financial Flows

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  • Correlation of IQ and Stock Ownership
    , January 20th, 2012 at 2:23 am

    From Bloomberg:

    The smarter you are, the more stock you probably own, according to researchers who say they found a direct link between IQ and equity market participation.

    Intelligence, as measured by tests given to 158,044 Finnish soldiers over 19 years, outweighed income in determining whether someone owns shares and how many companies he invests in. Among draftees scoring highest on the exams, the rate of ownership later in life was 21 percentage points above those who tested lowest, researchers found. The study, published in last month’s Journal of Finance, ignored bonds and other investments.