Author Archive

  • A Look at the Long View
    , January 3rd, 2012 at 11:01 am

    Since the start of the century (and millennium), the stock market has been a disaster. Taking a step back to look at the numbers, it’s truly remarkable.

    From the end of 1999 to the end of 2011, the S&P 500 dropped 13.58%. Dividends added 23.59%. But over those 12 years inflation was 34.69%. That adds up to a real total return of -20.70%.

    You would often hear money managers say that the real long-term return of the stock market was 8%, and that’s what it was from 1925 to 1999. But the last 12 years have been so bad that it’s taken that 8% number down to 6.58%.

    This means that historically, the stock market more than doubles your money in real terms every 12 years, but over the last 12 years, it’s down 20%.

  • And…We’re Off!
    , January 3rd, 2012 at 10:28 am

    The 2012 trading year is underway and it looks to be a very good day. The S&P 500 has been as high as 1,284.41 today. We’re very close to our highest close since August 1st which was 1,285.09 from October 28th.

    The ISM Index report for December came out today at 53.9. It was 52.7 in November. This was the 29th-straight month that the ISM was over 50. Wall Street was expecting 53.2.

    Our Buy List is rocking it so far. AFLAC ($AFL) is above $45. JPMorgan Chase ($JPM) is up close to 5%. The whole list is up about 2% so far.

  • Morning News: January 3, 2012
    , January 3rd, 2012 at 5:42 am

    World’s Biggest Economies Face $7.6 Trillion Debt

    In Euro Zone’s Crisis, Technocrat in Paris Works Behind the Scenes

    German Jobless Rate Sees Surprise Fall

    Nigeria Braces for Gas-Price Protests

    President Hu: West Is Using Cultural Means to Divide China

    Crude Advances in New York Amid Manufacturing Expansion, Tension Over Iran

    Same-store Sales Seen Up 4.3 Percent in December

    For 2012, Signs Point to Tepid Consumer Spending

    On Wall Street, a Renewed Optimism for Deals

    Total Buys $2.32 Billion Shale Stake, Helping Chesapeake Pare Its Debt

    Exxon’s Pursuit of Venezuelan Cash ’Not Over Yet’ After Ruling

    Macau Gambling Revenue Rose 42% in 2011

    VW’s Bentley 2011 Sales Jump 37% on China

    NYTimes Dealbook: Raising a Glass to 2011

    Jeff Carter: Stimulus and Debt are Manna From Heaven

    James Altucher: My Last Death Threat in 2011

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  • Morning News: January 2, 2012
    , January 2nd, 2012 at 6:30 am

    Euro Leaders Aim to Buy Time to Save Currency

    Austerity Reigns Over Euro Zone as Crisis Deepens

    China Export Orders Show Threat From Europe

    India PMI Expands at Fastest Pace in 6 Months

    South Korea Manufacturing Falls

    Venezuela Is Ordered to Pay $900 Million to Exxon Mobil

    Nigeria to End Gasoline Subsidy Accounting for 25% of Government Spending

    India to Allow Individual Foreign Investors to Buy Local Shares Directly

    U.S. Consumer in the Slow Lane

    Samsung, Hyundai Workers Brace for Uncertainty

    In Flop of H.P. TouchPad, an Object Lesson for the Tech Sector

    The Danger of an Attack on Piracy Online

    Epicurean Dealmaker: Turn the Page

    Howard Lindzon: Starting 2012 – My Gameplan.

    Stone Street: 2012 “Predictions” from Stone Street Advisors Team & Friends

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  • The 2012 Buy List
    , December 31st, 2011 at 3:29 pm

    Here’s my 2012 Buy List. For tracking purposes, I assume it’s a $1,000,000 portfolio and that each position is worth $50,000. When I discuss how well the Buy List is doing, I’m referring to this list. Here’s each stock, ticker, starting price, number of shares and starting balance:

    Company Ticker Price Shares Balance
    AFLAC AFL $43.26 1,155.8021 $50,000
    Bed Bath & Beyond BBBY $57.97 862.5151 $50,000
    CA Technologies CA $20.22 2,472.7992 $50,000
    CR Bard BCR $85.50 584.7953 $50,000
    DirecTV DTV $42.76 1,169.3171 $50,000
    Fiserv FISV $58.74 851.2087 $50,000
    Ford Motor Company F $10.76 4,646.8401 $50,000
    Harris Corporation HRS $36.04 1,387.3474 $50,000
    Hudson City Bancorp HCBK $6.25 8,000.0000 $50,000
    Johnson & Johnson JNJ $65.58 762.4276 $50,000
    Jos. A. Bank Clothiers JOSB $48.76 1,025.4307 $50,000
    JPMorgan Chase JPM $33.25 1,503.7594 $50,000
    Medtronic MDT $38.25 1,307.1895 $50,000
    Moog MOG-A $43.93 1,138.1744 $50,000
    Nicholas Financial NICK $12.82 3,900.1560 $50,000
    Oracle ORCL $25.65 1,949.3177 $50,000
    Reynolds American RAI $41.42 1,207.1463 $50,000
    Stryker SYK $49.71 1,005.8338 $50,000
    Sysco SYY $29.33 1,704.7392 $50,000
    Wright Express WXS $54.28 921.1496 $50,000

    The five new stocks are CA Technologies ($CA), Hudson City Bancorp ($HCBK), CR Bard ($BCR), Harris ($HRS) and DirecTV ($DTV). The deletions are Abbott Labs ($ABT), Becton, Dickinson ($BDX), Deluxe ($DLX), Gilead Sciences ($GILD) and Leucadia National ($LUK).

    The average market value is $34 billion. The largest is Johnson & Johnson ($JNJ) at $179 billion. The smallest, by far, is Nicholas Financial ($NICK) which is about one-tenth the size of the second-smallest.

    Thirteen of the Buy List stocks pay dividends. The average yield of the dividend payers is 2.85%. The yield for the entire Buy List is 1.85%.

    Only five stocks have remained on the Buy List for all six years: AFLAC ($AFL), Bed Bath & Beyond ($BBBY), Fiserv ($FISV), Medtronic ($MDT) and Sysco ($SYY).

  • The 2011 Buy List
    , December 31st, 2011 at 12:05 pm

    The 2011 trading year has come to a close. I’m happy to report that our Buy List had another market-beating year although this one was close. The 20 stocks on the Crossing Wall Street Buy List gained 0.89%. In contrast, the S&P 500 was unchanged at 0.00%. (Splitting out the decimals, the S&P 500 lost 0.00318%, but I round off at two decimal places.) This is the fifth year in a row that we have beaten the market.

    Including dividends, our Buy List gained 2.75% compared with 2.11% for the S&P 500. The dividend yield for the Buy List worked out to 1.84% while it was 2.11% for the S&P 500. For the year, our beta was 1.0340.

    Over the six-year history of the Buy List, we’ve gained 37.72% to the S&P 500’s 14.34%. Our annual turnover has been just 25% which means we’ve only changed five stocks per year. The six-year beta is 0.9420.

    I’ll restate the rules of the Buy List. I choose a portfolio of 20 stocks at the beginning of the year. After that, the Buy List is locked for the year and I can’t make any changes until the following year. For tracking purposes, I assume that the Buy List is a $1 million portfolio equally divided among the 20 stocks. You can check the performance of the Buy List anytime at our Buy List page.

    My goal is to show investors that by choosing stocks wisely and by sticking with high-quality stocks, they can beat the market—and that’s exactly what we’ve done. I try to beat the market by a few percentage points and to do it with less risk.

    Our top-performing stock in 2011 was also our highest yielder. Reynolds American ($RAI) stock gained 26.98% in 2011, and with dividends it was up 34.44%. Other big winners were Abbott Labs ($ABT), Jos. A. Bank Clothiers ($JOSB) and Nicholas Financial ($NICK).

    Here’s how each stock performed:

    Stock Number of Shares 12/31/10 Beginning 12/30/11 Ending Profit/Loss
    ABT 1,043.6235 $47.91 $50,000.00 $56.23 $58,682.95 17.37%
    AFL 886.0535 $56.43 $50,000.00 $43.26 $38,330.67 -23.34%
    BDX 591.5760 $84.52 $50,000.00 $74.72 $44,202.56 -11.59%
    BBBY 1,017.2940 $49.15 $50,000.00 $57.97 $58,972.53 17.95%
    DLX 2,172.0243 $23.02 $50,000.00 $22.76 $49,435.27 -1.13%
    FISV 853.8251 $58.56 $50,000.00 $58.74 $50,153.69 0.31%
    F 2,977.9631 $16.79 $50,000.00 $10.76 $32,042.88 -35.91%
    GILD 1,379.6909 $36.24 $50,000.00 $40.93 $56,470.75 12.94%
    JNJ 808.4074 $61.85 $50,000.00 $65.58 $53,015.36 6.03%
    JOSB 1,240.0794 $40.32 $50,000.00 $48.76 $60,466.27 20.93%
    JPM 1,178.6893 $42.42 $50,000.00 $33.25 $39,191.42 -21.62%
    LUK 1,713.5024 $29.18 $50,000.00 $22.74 $38,965.04 -22.07%
    MDT 1,348.0723 $37.09 $50,000.00 $38.25 $51,563.77 3.13%
    MOG-A 1,256.2814 $39.80 $50,000.00 $43.93 $55,188.44 10.38%
    NICK 4,882.8125 $10.24 $50,000.00 $12.82 $62,597.66 25.20%
    ORCL 1,597.4441 $31.30 $50,000.00 $25.65 $40,974.44 -18.05%
    RAI 1,532.8020 $32.62 $50,000.00 $41.42 $63,488.66 26.98%
    SYK 931.0987 $53.70 $50,000.00 $49.71 $46,284.92 -7.43%
    SYY 1,700.6803 $29.40 $50,000.00 $29.33 $49,880.95 -0.24%
    WXS 1,086.9565 $46.00 $50,000.00 $54.28 $59,000.00 18.00%
    Total $1,000,000.00 $1,008,908.23 0.89%

    Here’s how the Buy List performed throughout the year:

  • Overlooked Chart of the Year
    , December 30th, 2011 at 1:19 pm

    Here’s my entry for Overlooked Chart of the Year. It shows how the S&P 500 (in blue) and the market’s inflation expectations (the 10-year TIPs spread in red) have been waltzing partners for the last four years.

  • Favorite Moments of 2011
    , December 30th, 2011 at 10:20 am

    Seeing this last February was one of my favorite moments in 2011. At the time, Netflix ($NFLX) was at $247. Today it’s at $69.

  • Ford’s Sales Reach Four-Year High
    , December 30th, 2011 at 10:01 am

    From the AP:

    Ford Motor Co. said Friday that its U.S. sales this year have passed the two million mark. It’s the first time that’s happened since 2007.

    Sales through November were up 18 percent from the first 11 months of 2010. Ford said sales of small cars this year are on pace to rise more than 20 percent, while utility vehicles are tracking up more than 30 percent.

    On Dec. 1 the company said it had sold nearly 1.94 million vehicles in 2011. In December of last year, it sold 190,976 vehicles. Sales totaled 166,865 vehicles in November.

    Ford sales have been improving this year as people replace the cars and trucks they held onto during the economic slump. In November buyers were lured by deals, improving confidence in the economy and the need to trade in older cars. An early blitz of holiday advertising also helped convince some people that it was a good time to buy.

    Ford ($F) had a rough 2011 but the stock closed yesterday at $10.68 which is 6.7 times the earnings estimate for 2012.

  • CWS Market Review – December 30, 2011
    , December 30th, 2011 at 7:39 am

    There’s just one trading day left in 2011. I, for one, am happy to see this market year end. There’s been way too much Sturm und Drang, not to mention Bernanke und Trichet, for my taste. The next time I read about “European spreads,” I really hope it’s about Nutella.

    There has been, of course, one bright spot to this year and that’s been our Buy List. Through Thursday, our Buy List holds a small lead over the S&P 500. For the year, our Buy List is up 1.32% (3.18% including dividends) while the S&P 500 is up 0.43% (2.55% including dividends).

    True, that’s hardly a big lead, but remember that the large majority of money managers don’t get this far. Unless disaster strikes on Friday, this will be our fifth year in a row of beating the overall market. In this issue of CWS Market Review, I want to talk about the market’s current mood and explain why our Buy List has stayed so close to the S&P 500.

    But first, I want to remind you that on Tuesday, January 3rd, the new Buy List takes the field. The stock exchange will be closed on Monday for New Year’s Day so Tuesday will be the first trading day of the new year. Five new faces will be joining us: CA Technologies ($CA), Hudson City Bancorp ($HCBK), CR Bard ($BCR), Harris ($HRS) and DirecTV ($DTV). Let’s hope 2012 will be our sixth market-beating year in a row! (And let’s hope for a much bigger lead at the end as well.)

    One of the frustrating aspects of this market is that stocks have been unusually highly correlated with each other this year. This is a crucial point and every investor needs to understand what’s been happening. Let me explain it in a user-friendly way: Typically most stocks move up and down together but there’s often a minority that swims against the stream. Money managers love to key in on these “dispersion” stocks because they want to show their clients that they can stand apart from the crowd, preferably in a good way. When everybody else is zigging, the big money is going to find the guys who can zag.

    The problem is that when there’s too much correlation going on, as there is now, the non-correlated area gets far too much attention. As Yogi Berra once said of a popular restaurant, “No one goes there anymore. It’s too crowded.” In more concrete terms, this helps explain why we‘re seeing such absurd valuations for stocks like Amazon.com ($AMZN) or Starbucks ($SBUX). They’re two of the few zaggers in town, so everybody has latched on.

    Earlier this year, shares of Netflix ($NFLX) got a super-atomic wedgie after the company tried to…well, I’m not exactly sure. But it was pretty dumb whatever it was. Anyway, the stock got destroyed. Here’s the key part I want you to understand: The attention is going to the crash but the real story is why anyone was paying $300 for this stock in the first place (that’s 77 times trailing earnings).

    That’s nuts especially when you compare it with many stodgy blue chips. For too long, Netflix was one of the few stocks that was “working.” Meanwhile, if the S&P 500 was up, say, 1% on a given day, you could be pretty sure that GE ($GE) or Walmart ($WMT) or Microsoft ($MSFT) was doing pretty much the same thing. That’s frustrating—and frustrated investors are bad investors.

    Why has correlation been so high this year? It all comes down to what’s euphemistically called “headline risk,” which is better known as Europe’s unholy mess. As the problems in Europe have grown, the market has increasingly treated our market less as a market of individual equities and more as one giant mass that has a cash flow in U.S. dollars. In this case, the importance of U.S. dollars is that they’re not euros.

    What happened is that the dollar trade became highly correlated with every other asset (often negatively), and within assets, stocks have become highly correlated with each other. Ideally, stocks should trade on, oh you know, things like earnings and dividends. Instead, they’re trading on what Angela Merkel may or may not do at the next five summits which will decide on how to lay out an agenda for the next 73 summits. Sorry, but that ain’t much fun. Of course, if you’re an investor in European bonds, then you probably have all the dispersion you can handle.

    Since I build the Buy List for long-term performance, I don’t give a whit about being correlated or not. If you’re focused on the long-term, that’s something that comes and goes. In 2011, it’s been here in a big way and it explains why our Buy List is sticking so closely to the S&P 500. It’s just something that you have to deal with. This, too, shall pass.

    While high correlation makes stock-picking harder, it also means we should focus on fundamentals all the more, since high correlation is a fleeting thing. The Chicago Board Options Exchange actually has an index that tracks implied correlation. Fortunately, in recent weeks, this index has slowly started to fall, but make no mistake, correlation is still very high.

    I suspect that in 2012, we’re going to see more “dispersion trades” fall apart and many won’t be pretty. In fact, that may be happening right now with gold. It recently made a six-month low and I won’t be surprised to see a few hedge funds go under because they were heavily invested in gold and silver futures. The gold sell-off may also signal that the Fed’s “extended period” policy for low interest rates may not be so extended. But it’s just too early to say.

    Another emerging “dispersion” story could be in healthcare. In this case, it’s slowly getting stronger. On Thursday, Medtronic ($MDT) closed at its highest level in nearly six months. If you recall, the company had a solid earnings report a few weeks ago and it reiterated its full-year forecast. On Tuesday, Johnson & Johnson closed above $66 for the first time since July. And even though Abbott Labs ($ABT) is set to depart our Buy List, it hit a fresh 52-week high on Thursday.

    Frankly, not much has been going on this week on Wall Street. Trading volume is very low. On the economic front, the consumer confidence report was very good and the pending home sales figure was particularly strong.

    The slow news will end soon as we have fourth-quarter earnings season on the horizon. Our first Buy List stock to report will be JPMorgan Chase ($JPM) on January 13th. I’m particularly looking forward to a strong earnings report from Ford ($F). Plus, the company will soon pay out its first dividend to shareholders in five years.

    That’s all for now. Over the weekend, I’ll post the final numbers for this year’s Buy List. 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