Author Archive

  • Morning News: October 25, 2011
    , October 25th, 2011 at 6:29 am

    Spain Slipping on Deficit Increases Chances of Contagion

    EU Signals Fund Leverage Needs More Talks

    Trichet Urges Euro Finance Ministry

    Vatican Calls for Oversight of the World’s Finances

    Oil Rises to 12-Week High as Demand Signals Spur Bull Market

    In Cautious Times, Banks Flooded With Cash

    BP’s Profit More Than Doubles

    Deutsche Bank Beats Estimates on Consumer Banking

    UBS Reports 39% Drop in Quarterly Profit After Trading Loss

    Netflix’s Quarterly Loss of Subscribers Worse Than Forecast; Shares Plunge

    Texas Instruments Profit Falls as Demand Slumps

    Car Carriers Profit on Record Demand

    Cigna Agrees to Buy Healthspring to Expand Medicare Business

    The Divergent Fortunes of Saab and Volvo

    Joshua Brown: Jeff Benjamin on the Absolute Return Scam

    Paul Kedrosky: Today in Not Being Bullish Enough

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  • S&P 500 = 1,253
    , October 24th, 2011 at 3:11 pm

    This is turning into a very good day for the market. The S&P 500 has been as high as 1,256.55 which is another post-August 3rd high. The index’s 200-DMA is well within sight.

    The cyclicals are leading today’s rally. I think the good news from Caterpillar ($CAT) helped the entire sector. The Morgan Stanley Cyclical Index ($CYC) is up more than 2.8% bringing it back over 900. The Consumer Index ($CMR), by contrast, is barely positive.

    Smaller stocks tend to be more weighted with cyclicals and we’re seeing the small-stock indexes doing much better than their larger-cap cousins today. The Russell 2000 ($RUT) is up more than 3.28% while the Russell 1000 ($RUI) is up just 1.61%.

    Our Buy List is now in positive territory for the year. Bed Bath & Beyond ($BBBY) hit another 52-week high. Deluxe ($DLX) and Wright Express ($WXS) have also been very strong. The only weak spots are Abbott Labs ($ABT) whose position is probably due its strength from last week, and Reynolds American ($RAI) which is losing ground after competitors delivered some disappointing earnings reports.

    Notice how strong small-caps have been (the black line is the Russell 2000) compared with the large-caps (Russell 1000 in gold) since the middle of the day on Thursday:

  • Best Months for the Dow of the Last 50 Years
    , October 24th, 2011 at 10:06 am

    We still have a week to go in October but this is shaping up to be the best month for the Dow in ten years, and one of the best in the last 50 years:

    Jan-76 14.41%
    Jan-75 14.19%
    Jan-87 13.82%
    Aug-82 11.47%
    Oct-82 10.65%
    Oct-02 10.60%
    Apr-78 10.56%
    Apr-99 10.25%
    Nov-62 10.09%
    Aug-84 9.78%
    Oct-98 9.56%
    Oct-74 9.48%
    Dec-91 9.47%
    Jul-89 9.04%
    Feb-86 8.79%
    Apr-01 8.67%
    Jul-09 8.58%
    Nov-01 8.56%
    Oct-11 8.55%
    Apr-68 8.51%

  • Oracle Buys RightNow for $1.43 Billion
    , October 24th, 2011 at 9:40 am

    Here’s interesting news from Oracle ($ORCL). The company is making a move into the cloud computing market by buying RightNow for $1.43 billion.

    The deal calls for Oracle to pay RightNow ($RNOW) shareholders $43 per share. This is interesting because not that long ago, Larry Ellison dismissed cloud. This is Oracle biggest acquisition since picking up Sun Micro more than two years ago.

    So what does RightNow do?

    RightNow’s primary product is its CX Suite, a platform that allows companies to engage with their customers through the Web, social media and contact centers. For instance, with its “cloud monitor,” businesses can track and manage conversations on Twitter, YouTube and Facebook related to their brand. RightNow, based in Bozeman, Mont., has nearly 2,000 clients.

  • Morning News: October 24, 2011
    , October 24th, 2011 at 5:42 am

    Greek Bank Stocks Plunge 13% on Haircut Fears

    Sarkozy Yields on ECB Crisis Role, Pressure on Italy

    EU Ramps Up Pressure On Italy To Push Reform Agenda

    UBS, Deutsche Bank May Speed Cuts as Earnings Prospects Dim

    China Flash PMI Rebounds to Ease Hard-Landing Fears

    Currency Market Braces for Japanese Intervention: Japan’s Minister Promises ‘Action’

    Japanese Stocks Rise Most in Two Weeks as Commodity Traders Advance

    Swiss Banks Said Ready to Pay Billions to U.S.

    Rio Tinto: Fall in Iron Ore Prices Accelerating Shorter Pricing Methods

    Jobs Plan Stalled, Obama to Try New Economic Drive

    TomTom Shares Rally as Profits Surge

    Volkswagen May Beat Toyota to Top Spot

    Jim Beam Inviting $11 Billion Liquor Takeover

    2 Japanese Bankers at Heart of Olympus Fee Inquiry

    Marc Chandler: France Appears to Have Conceded to German-ECB Position on Bailout Fund

    Jeff Miller: Weighing the Week Ahead: Real Progress in Europe?

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  • Reynolds American Earnings Preview
    , October 22nd, 2011 at 1:59 pm

    From the AP:

    Reynolds American Inc., the second-biggest U.S. cigarette company and the maker of Camel brand products, is expected to report rising profit despite lower revenue when it releases its third-quarter results before the stock markets open Thursday.

    Americans are continuing to buy fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma.

    WHAT TO WATCH FOR: Investors will be looking for signs that growth in Reynolds American’s Pall Mall brand will continue.

    The company, based in Winston-Salem, N.C., has promoted Pall Mall as a longer-lasting and more affordable cigarette. It says half the people who try the brand continue using it as they weather the weak economy and high unemployment. Most tobacco companies have raised prices and cut costs to bolster profits as declining demand cuts into cigarette sales.

    Pall Mall’s second-quarter volume grew 15 percent, and its share of the U.S. market increased 1.5 percentage points to 8.5 percent. Camel volume fell 3 percent during the quarter, and its share of the cigarette market remained stable 7.8 percent. But the company’s other brands are dragging down overall volume, which fell 4.4 percent in the third quarter.

    Complicating cigarette shipments, the nation’s largest tobacco companies also cautioned last quarter that third-quarter cigarette volume comparisons will be hurt because wholesalers stocked up more than usual in that period last year.

    Reynolds American also sells Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco.

    Analysts pay close attention to the company’s smokeless tobacco products — a segment of the tobacco industry that’s growing and becoming increasingly competitive as companies fight the decline in cigarette sales. Reynolds’ smokeless volumes grew 3.6 percent last quarter, and its market share grew 1.5 points to 31.3 percent of the U.S. market.

    WHY IT MATTERS: Reynolds American’s results will help reveal key tobacco industry trends in the U.S.

    Continued strength from Pall Mall could mean smokers are still switching to cheaper brands to save money, and those who tried the brand during the recession are remaining loyal. But if volumes of premium brands like Camel are rebounding, that could signal consumers are adjusting to higher prices on cigarettes following federal and state tax hikes.

    WHAT’S EXPECTED: Analysts expect Reynolds American to report earnings of 73 cents per share on revenue of $2.16 billion, according to FactSet.

    LAST YEAR’S QUARTER: Reynolds American reported earnings of 65 cents per share. Its revenue was $2.24 billion, excluding excise taxes.

  • Wicked Cool
    , October 21st, 2011 at 7:02 pm

  • S&P Upgrades Ford
    , October 21st, 2011 at 6:43 pm

    Thanks to the deal Ford recently reached with its unions, Standard & Poor’s raised their credit rating two notches. It’s now only one away from investment grade. The company’s debt has been in junk land since 2005.

    Standard & Poor’s Ratings Services raised Ford two levels to “BB+” from “BB-,” saying the agreement will allow its North American operations to remain profitable.

    Ford Motor Co. shares rose 48 cents, or 4 percent, to $12.19 in early afternoon trading.

    The agency said strong performance in North America has helped Ford generate global profits in the past two years. The new 4-year contract with the United Auto Workers “will allow for continued profitability and cash generation in North America,” it said.

    The union, which represents 41,000 Ford employees, approved the contract Wednesday. It includes signing bonuses but no annual pay increases, and it will let Ford hire more workers at lower wages.

    Ford executives said it will raise labor costs by less than 1 percent each year — $280 million this year and $80 million a year after that. Fitch Ratings upgraded Ford on Thursday, also to within one level of investment-grade status.

    Moody’s Investor Service has also said it’s reviewing its below-investment grade ratings for the automaker.

  • Dollar Hits Record Low Against the Yen
    , October 21st, 2011 at 12:08 pm

    In 1971, one yen was worth a measly 0.3 cents. Since then, it’s done very well.

    By 1978, the yen got to half a penny. In 1987, it reached three-quarters of a cent. In 1994, we finally broke the penny mark.

    Today the yen got as high as 1.32 cents.

  • CWS Market Review – October 21, 2011
    , October 21st, 2011 at 8:15 am

    The stock market continues to improve albeit in a hesitating manner. Last week, the S&P 500 broke above its 50-day moving average and this past Tuesday, the index closed at its highest level in two-and-a half months.

    So has the bear finally left us alone? Unfortunately, it’s too early to say. The market is stronger than it was but there are still plenty of hidden—and not-so-hidden—risks out there. The problems in Europe are still bad but at least the authorities finally realize that they can no longer drag their lederhosen. For now though, all eyes are on the third-quarter earnings season which is now in full swing.

    In this issue of CWS Market Review, we’ll take a closer look at earnings season. So far, all four of our Buy List stocks that have reported have topped expectations. I’m happy to report that our Buy List is leading the rebound. In the last 13 trading days, our Buy List has gained more than 11.3%. If this keeps up, 2011 will be our fifth-straight year of beating the overall market. As usual, prudence and patience have served us well.

    Now let’s look at the most exciting news this week which was the break-up announcement of Abbott Labs ($ABT). The company stunned Wall Street on Wednesday when they said that they’re breaking themselves into two separate companies: a drug business and a medical devices business. I’ve long been a fan of ABT. This company throws off tons of cash and has a solid balance sheet.

    The problem for Abbott (and what attracted me to it) is that the market is clearly wary of giving their drug business a decent valuation. Humira, Abbott’s blockbuster rheumatoid arthritis drug, will rack $6.5 billion in sales this year. But there are fears that competitors will move into that space and knock the legs out from under Humira.

    Due to these worries, the entire company’s valuation has suffered. But as I’ve noted before, Abbott is much more than Humira. They have a strong business in medical devices which hadn’t been getting the market love it deserves. So Abbott did the logical step and announced the break-up. Interestingly, it’s the medical devices business that will keep the Abbott name. That probably tells you where the priorities lie.

    The spin-off will happen sometime next year so it won’t impact this year’s Buy List. As a general rule I like spin-offs, especially when good companies do them. What often happens is that a highly profitable division feels that it has to “carry the weight” of a larger organization. Once the division is unmoored from its parent company, it’s able to be more flexible and find new areas of growth.

    Also on Wednesday, Abbott reported third-quarter earnings of $1.18 per share which was a penny more than estimates. Abbott narrowed their full-year guidance from $4.58 – $4.68 per share to $4.64 – $4.66 per share. That means the stock is going for 11.6 times this year’s earnings which is less than the overall market. The full-year range implies a Q4 range of $1.43 to $1.45 per share which is a nice jump over the $1.30 per share from last year’s Q4.

    Shares of Abbott responded positively to the break-up news and the stock currently yields a healthy 3.55%. For the year, Abbott is a 12.82% winner for us which is a lot better than the market’s loss of 3.36%. I congratulate Abbott on their bold move and I rate the stock a strong buy up to $58 per share.

    Two other healthcare companies of ours reported earnings this past week. On Tuesday, Johnson and Johnson ($JNJ) reported earnings of $1.24 per share. This beat Wall Street’s consensus by three cents per share but was a penny less than my forecast. The bottom line is that this was another solid quarter for J&J.

    In last week’s CWS Market Review, I said that JNJ could raise both ends of their full-year forecast by five cents per share. Well, I was half right. The company raised the low end of its forecast by a nickel per share. The new EPS range for 2011 is $4.95 – $5.00 per share which implies a Q4 range of $1.08 – $1.13.

    The share price dropped a bit on the news but not too badly. JNJ continues to do well. This is a very well-run firm; Johnson & Johnson is a good buy up to $67 per share.

    The other healthcare stock to report was Stryker ($SYK). After the close on Wednesday, the company reported earnings of 91 cents per share which was two cents better than estimates; plus Stryker raised their full-year guidance. The new guidance is $3.70 – $3.74 per share which is up from $3.65 – $3.73 per share. That implies a Q4 range of $1 – $1.04 per share.

    Last week, I wrote that I like Stryker but that it would be better at a cheaper price. Sure enough, the stock dropped on the good earnings report. Stryker closed Thursday at $48.28 which is a decent price (less than 13 times this year’s earnings). However, if you’re able to get Stryker below $45, you’ve gotten a very good deal.

    The upcoming week will be a very busy week for us; we have five Buy List stocks reporting earnings. On Tuesday, Reynolds American ($RAI) reports. Then on Wednesday, AFLAC ($AFL) and Ford ($F) are due to report. Finally on Thursday, Deluxe ($DLX) and Gilead Sciences ($GILD) will report.

    The one I’ll be watching most eagerly is AFLAC ($AFL). Simply put, the selling of AFLAC shares reached ridiculous levels over the last several weeks. At one point, the stock was trading at $31.25 though the company has told us repeatedly that it expects to earn between $6.09 and $6.34 per share in operating earnings this year.

    Well, Wednesday will be the time of reckoning. In the last earnings report, AFLAC said that it expects Q3 operating earnings to range between $1.54 and $1.60 per share. My numbers say that’s too low. I think AFLAC can easily make $1.64 per share. They may also have good things to say about next year as well. I’m going to raise my buy price for AFLAC to $43 per share.

    Three months ago, Reynolds upset Wall Street when it missed earnings by four cents per share (which I suspected would happen). That was pretty unusual for Reynolds but the stock has recovered very nicely. The current estimate for Q3 is for 73 cents per share which seems about right.

    The other earnings report to watch will be from Ford. The company is fundamentally very sound despite the stock’s poor performance this year. I’m also pleased to see that the latest union contract has been approved. Wall Street currently expects Ford’s third-quarter earnings to come in at 45 cents per share which is below the 48 cents per share from the year before. I think there’s a good chance here for a large earnings beat.

    That’s all for now. 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