Posts Tagged ‘afl’

  • 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.

  • AFLAC “Way Ahead of Target”
    , December 16th, 2011 at 12:22 pm

    From Bloomberg:

    Aflac Inc. (AFL), the health insurer that gets about three-quarters of its sales in Japan, will continue to beat goals in that country, said Chief Executive Officer Dan Amos.

    “We have achieved all of our targets and our sales are actually running way ahead of target, as we said in the third quarter, and we expect them to continue,” Amos told Tom Keene and Ken Prewitt during an interview on “Bloomberg Surveillance” today.

    Customers who bought policies through banks drove a 14 percent gain in Japanese sales for the nine months ended Sept. 30, Aflac said last week. The world’s biggest provider of policies supplementing work and government health coverage has prospered as the Japanese market has “pretty much gone back to normal” since the March 11 earthquake and tsunami, Amos said.

    “It’s amazing, the adaptability of the Japanese and how they were able to transform,” Amos said. “We as Americans would find this more difficult.”

    Here’s the audio.

  • CWS Market Review – November 18, 2011
    , November 18th, 2011 at 9:06 am

    Despite coming off a record earnings season, the stock market is still in a sour mood. On Thursday, the S&P 500 closed at 1,216.13 which was its lowest close in nearly one month. Since October 28th, we’re down 5.3%.

    The S&P 500 fell by more than 1.6% on both Wednesday and Thursday this week and it’s now hovering just above its 50-day moving average (the NASDAQ Composite is already below it). The index has closed above its 50-DMA every day since October 10th. I try to avoid “timing” the market but I’ll note that the 50-DMA is often an important demarcation line separating bull markets from bear markets.

    In this week’s CWS Market Review, I want to discuss a major change that’s happening in the market that’s not getting much attention. More importantly, I’ll tell about some of the best places to invest your money right now.

    For the last several weeks, the U.S. stock market has been heavily dependent on what’s been happening in Europe. This is hardly surprising but it’s also been very frustrating because…well, Europe’s economy is massively screwed up. On top of that, the political situation seems to favor ignoring the issues rather than solving them. However, my biggest fear is that we’ll never see a rally here until the mess is over over there.

    Lately, however, we’re starting to see the first signs that our market is disentangling itself from the European malaise. This is very important. Let me explain: Over the last few months, the U.S. stock market has been unusually highly correlated with the euro-to-dollar trade. Whenever the euro has rallied, stocks here have been very likely to rise, and when the euro has sunk, U.S. stocks have gone south. These two lines have moved together like waltzing partners.

    About 18% of the profits for the S&P 500 comes from Europe. Yet at the end of October, the 30-day correlation between the Dow and the EURUSD hit an incredible 0.958. By the end of last week, it slipped to 0.834 and lately, it’s been as low as 0.498. That’s a big turnaround and I think there’s a very good chance it will continue.

    The reason is that the U.S. economy is starting to show signs of life. Make no mistake, we’re not ripping along, but the recent news is somewhat optimistic. For example, this week’s report on industrial production showed a 0.7% gain last month. That was much better than Wall Street’s forecast of 0.4%. The inflation news continues to look good. We also had a decent report on retail sales which is often a glimpse at the confidence of consumers. Jobless claims fell to the lowest level since May. There’s clearly no Double Dip at hand.

    Economists up and down Wall Street have been revising their economic growth estimates higher. JPMorgan Chase ($JPM) just raised its estimate for Q4 GDP growth from 2.5% to 3%. Morgan Stanley ($MS) thinks it will be 3.5%. Joe LaVorgna, the chief economist at Deutsche Bank ($DB), said that he wouldn’t be surprised if Q4 growth topped 4%. Bespoke notes that this earnings season showed the highest “beat rate” this year. What we’re seeing is a fundamentally healthy economy that’s fighting off a housing sector mired in a depression—and as bad as housing is, even that’s showing some slight glimmers of hope.

    If the U.S. stock market can finally shake off the daily gyrations caused by our friends across the pond, I think we can see a nice year-end rally. Consider how fearful the market is right now. Shares of Microsoft ($MSFT) are trading at just over eight times next year’s earnings estimate. Wall Street currently thinks the S&P 500 can earn $109.30 next year which means the index is going for just over 11 times earnings. The yield on the 30-year Treasury is back below 3% and the yield on the 10-year is below 2%. In other words, the risk trade continues to be swamped with folks afraid to put their money to work in stocks.

    Now let’s turn our attention to the Buy List which continues to lead the overall market this year. I especially want to highlight some of our higher-yield stocks because they’re the best way to protect yourself in a fragile market like this.

    In last week’s CWS Market Review, I said that I expected to see Sysco ($SYY) raise its quarterly dividend for the 42nd year in a row, but only by one penny per share. On Wednesday, the company proved me right. Going by the new dividend, Sysco currently yields 3.95%. The stock is a good buy up to $30 per share.

    Our only Buy List stock to fall short of its earnings expectation this past earnings season was Reynolds American ($RAI). I told investors not to worry since the quarterly earnings game doesn’t matter so much to a conservative stock like Reynolds. Sure enough, the stock broke out to a fresh 52-week high this week. I wasn’t thrilled by the company’s recent share buyback announcement but it’s clearly given a lift to the stock. Reynolds is now our second-best performer on the year; only Jos. A Bank Clothiers ($JOSB) has done better. At the current price, Reynolds yields 5.27%. The shares are a strong buy below $42.

    Some other stocks on the Buy List that look particularly good right now include AFLAC ($AFL), Moog ($MOG-A), Ford ($F), Fiserv ($FISV) and Oracle ($ORCL).

    Next Tuesday, Medtronic ($MDT) will report its fiscal second-quarter earnings. The company has said to expect earnings for this fiscal year (which ends in May) to range between $3.43 and $3.50 per share. Wall Street expects a quarterly report of 82 cents per share which seems about right to me. I think they can beat by a penny or two, but not by much more. Either way, Medtronic is cheap. The stock is currently going for less than 10 times the company’s own earnings forecast.

    That’s all for now. The stock market will be closed next Thursday for Thanksgiving. For reasons I’ll never understand, the stock market is open on the Friday after Thanksgiving but it will close at 1 p.m. This completely pointless session is usually one of the lowest volume days of the year. 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

  • Dan Amos on AFLAC’s Earnings
    , October 27th, 2011 at 12:43 pm

  • AFLAC Earns $1.66 Per Share, Raises Dividend By 10%
    , October 26th, 2011 at 4:29 pm

    AFLAC ($AFL) just released their third-quarter earnings report and the company earned $1.66 per share in operating profit.

    This was a great report. In last week’s CWS Market Review, I said the company could easily earn $1.64 per share which was higher than Wall Street’s consensus ($1.60) and higher than the company’s guidance ($1.54 to $1.60). Even my optimistic forecast wasn’t high enough.

    AFLAC also raised their quarterly dividend from 30 cents to 33 cents per share which is a 10% increase.

    The best news is that AFLAC raised their 2011 guidance. The company said, assuming a stable yen/dollar exchange rate, that they expect to earn between $1.45 and $1.52 per share in Q4. For all of 2011, they expect to earn between $6.30 and $6.37 per share. Until now, the 2011 guidance was for $6.09 to $6.34 per share so this is good news.

    For next year, the company reiterated its forecast of operating earnings growth of 2% to 5%.

    Commenting on the company’s third quarter results, Chairman and Chief Executive Officer Daniel P. Amos stated: “We are pleased with our overall results in the third quarter of 2011. Aflac Japan sales greatly exceeded our expectations, largely because of our ability to develop relevant products such as WAYS that appeal to banks and Japanese consumers alike. We are proud of Aflac Japan’s remarkable results, especially following two years of exceptional sales growth and the challenges in 2011 resulting from the most devastating natural disaster in Japan’s history. Our outstanding sales results in 2011 will create difficult comparisons in 2012.

    “We were also pleased that Aflac U.S. continued to generate strong sales results, despite the continued weakness in the U.S. economy. Strategic coordination between our sales and marketing areas, which are more closely aligned than ever, continues to benefit our sales results. On the product side, sales have benefited significantly from the addition of group products to our Aflac U.S. product portfolio and strategic, coordinated sales and marketing efforts. On the distribution side, Aflac U.S. has continued to generate significant recruiting gains, which we believe benefited from targeted advertising activities that promote the Aflac sales opportunity. As a result of our positive performance in both Japan and the U.S., we posted strong consolidated financial results.

    “As we have communicated over the past several years, maintaining a strong risk-based capital, or RBC ratio, remains a top priority for us. Although we have not yet completed our statutory financial statements for the third quarter, we estimate our RBC ratio will be within the range of 500% and 540% at the end of September. Our strong capital position has enabled us to increase our cash dividend for the 29th consecutive year. I am very pleased with the action by the board of directors to increase the quarterly dividend by 10.0%, effective with the fourth quarter of 2011. Our objective is to grow the dividend at a rate that’s in line with or somewhat better than earnings-per-share growth.

    “With three quarters of the year complete, we continue to believe we are positioned for another year of solid financial performance. Throughout the year, both Aflac Japan and Aflac U.S. have continued to do a very good job managing our operations, including expense control. As we have stated previously, our expectation was to increase spending in the last half of the year, particularly on marketing and IT initiatives in the fourth quarter. Despite our expectation for higher spending in the fourth quarter, I am confident we will achieve our 2011 objective of growing operating earnings per diluted share at 8%, excluding the impact of the yen. If the yen averages 75 to 80 to the dollar for the last three months of the year, we would expect reported operating earnings for the fourth quarter to be in the range of $1.45 to $1.52 per diluted share. Under that exchange rate assumption, we would expect full year operating earnings of $6.30 to $6.37 per diluted share.

    “Looking ahead, I want to reiterate our expectation that 2012 operating earnings per diluted share will increase 2% to 5% on a currency neutral basis. Furthermore, once the effects of our proactive investment derisking program and low interest rates have been integrated into our financial results, we believe the rate of earnings growth in future years should improve.”

  • 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

  • CWS Market Review – October 14, 2011
    , October 14th, 2011 at 8:19 am

    In last week’s CWS Market Review, I mentioned that we could be seeing the start of a prolonged rally. I’m happy to see that the stock market extended its gains this week. On Monday, the S&P 500 broke above its 50-day moving average. Then on Wednesday, the index came very close to hitting its highest close since August 3rd.

    Despite how well the market has done, I’m not a full-fledged believer just yet. I’ll feel a lot better once the market clears its 200-day moving average, but we have another 6% to go for that to happen. Historically, stocks perform much better when the S&P 500 is above its 200-DMA.

    I’m pleased to see investors are gravitating towards the kind of high-quality stocks we favor. Since Monday before last, our Buy List is up 10.29% which is 79 basis points more than the S&P 500. Over that same time span, shares of Ford ($F) and Wright Express ($WXS) are both up 21% and shares of boring little Deluxe ($DLX) are up close to 24%. Best of all, Deluxe still yields close to 4.5%.

    The fact is clear: for the first time in several weeks, investors are seeking safety in stocks, not bonds. Over the last three weeks, investors have quietly sold their bonds and yields have ticked higher. The 30-year Treasury dropped for six days in a row which was its longest slide in four years. The 10-year note recently crossed 2% and I think it could head to 2.5%.

    Until three weeks ago, investors had been massively piling into gold and bonds, seeking shelter from whatever weekly disaster was happening in Europe. The latest (tentative) news from Europe is hopeful and gold has taken its biggest drop in three years. This is part of the Fear Trade unwinding. It’s still too early to declare victory, but the bears are clearly walking back some of their risk-averse positions.

    Make no mistake, the European banks are far from healthy and S&P just downgraded Spain; but it looks like the authorities are starting to realize how bad things are. It’s as if everyone in Europe is waiting for a “Lehman” moment, which may never come. Instead, we’re watching a slow erosion of investor confidence. According to Barclays, the problems in Europe have erased $13 trillion of wealth since July 1st. I should add that I’ve been impressed by how strong the comments have been from officials in Europe. It looks like the next big meeting will be on November 3rd-4th when the G-20 assembles in Cannes.

    Here in the U.S., the next few weeks will be dominated by earnings reports. I expect this earnings season to be good but it won’t be as impressive as previous seasons have been. Overall, our stocks should continue to post good numbers and that’s probably giving us a lift. Earlier this week, Reynolds American ($RAI) hit a new 52-week high. Don’t let these conservative value stocks fool you. Reynolds is one of our best performers so far this year. The recent good news from Europe has also been positive for AFLAC ($AFL). Since September 23rd, the stock is up 28%. I’m expecting another solid earnings report in two weeks.

    Looking around at other stocks on our Buy List, I see that Bed, Bath & Beyond ($BBBY) is also near its 52-week high. Sometime within the next few weeks, I expect to see Becton, Dickinson ($BDX) increase its dividend for the 39th year in a row. I still like Oracle ($ORCL) a lot. In fact, I’m going to raise my buy price for it. Three weeks ago, I said Oracle was a good buy up to $30. I’m now raising that to $33. That’s a very good stock.

    I mentioned last week that the big story for us this week would be JPMorgan Chase’s ($JPM) earnings report. On Thursday, the bank reported earnings of $1.02 per share which was ten cents more than estimates. The stock fell after the earnings report but I think this was a decent report, though not a great one.

    Bear in mind that Wall Street has been slashing estimates for all the major banks for this earnings season. To give you an example, a few weeks ago the analyst community was expecting Goldman Sachs ($GS) to report earnings of more than $3 per share. Now that’s down to 27 cents per share. In fact, Goldman could post a loss. For JPM, the downgrades weren’t nearly as harsh. Estimates fell from around $1.20 per share to 92 cents per share (which they beat anyway). The story for JPM is that the capital markets side of the business is rather weak but traditional retail banking is doing fine.

    All told, JPM is still doing well despite a more challenging environment. By most reasonable metrics, the shares are cheap. In my opinion, the most important factor to watch with JPM is the dividend. The quarterly dividend is currently at 25 cents per share which gives the stock a yield of 3.16%. That’s about what a 30-year Treasury gets now. But more importantly, JPM can easily raise its dividend by 30% or more.

    The next earnings report from a Buy List stock will be Johnson & Johnson ($JNJ), which reports on Tuesday, October 18th. Wall Street expects Q3 earnings of $1.21 per share which is too low. That would actually be a decrease of two cents per share from one year ago. My analysis shows that JNJ can deliver earnings of $1.25 per share.

    In July, JNJ reiterated its full-year EPS forecast of $4.90 to $5. I think there’s a very good chance that they’ll raise both ends of their forecast by, say, five cents per share. The bottom line is that JNJ is the ultimate in blue chip safety. Unlike the United States of America, JNJ has a AAA credit rating. The stock currently yields 3.55%. Johnson & Johnson is a good buy up to $67 per share.

    On Wednesday, October 19th (the 24th anniversary of the ’87 Crash), Stryker ($SYK) will report earnings after the close. For the first and second quarters, the company earned 90 cents per share, so let’s go with that figure for the third quarter as well (the Street expects 89 cents). Stryker has said it expects full-year earnings of $3.65 to $3.73 per share. Stryker is a very good company but I’d like to see the stock a little lower than where it is right now before I feel confident calling it a very strong buy. As it is, Stryker is a good buy at $50 but I’d like it a lot more at $45.

    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

  • The S&P 500 Breaks 1,190
    , October 10th, 2011 at 10:48 am

    The stock market is getting another bump this morning. The S&P 500 has been as high as 1,190.15 so far which is an 8.27% rally from last Monday’s close.

    The cyclicals are in charge today as the Energy, Financial and Materials sectors are doing the best. On Thursday of this week, JPMorgan Chase ($JPM) will be the first of the major banks to report earnings. The shares got as low as $27.85 last week. Today it’s the top-performing stock on our Buy List. This earnings report will probably tell us a lot about where banks earnings stand for this earnings season. I’m pleased to see that both AFLAC ($AFL) and Ford ($F) are strong today.

    Bloomberg sums up the good news:

    German Chancellor Angela Merkel and French President Nicolas Sarkozy said yesterday they will deliver a plan to recapitalize European banks and address the Greek debt crisis by the Nov. 3 Group of 20 summit. Belgium said today it will buy part of Dexia SA and provide security for depositors as part of a plan to rescue the lender.

  • CWS Market Review – October 7, 2011
    , October 7th, 2011 at 9:27 am

    On Monday, the S&P 500 finally broke out of its 100-point trading range. For 41 sessions in a row, the index had closed between 1,119 and 1,219. But on Monday, the S&P 500 dropped down to close at 1,099.23. That was our first close below 1,100 in over a year.

    Since then, the market has raced higher. On Thursday, the S&P 500 closed at 1,167.97 which is a 5.98% surge in just three days. Naturally, we shouldn’t get too excited by this recent uptick. For the last several weeks, the stock market has bounced up and down in high-volatility spikes, but ultimately, we haven’t moved very far. However, with earnings season upon us, this time could be different.

    As usual, the hurdle has been Europe, and more specifically, Greece. For a few months now, investors have been jerked around as we wait to hear something (anything!) promising from the Old World. Unfortunately, European officials seem firmly committed to doing a series of half-steps—and after each one, they seem puzzled that things aren’t getting any better. The good news is that it appears as if some folks in Europe are starting to understand what needs to be done.

    In this issue of CWS Market Review, I want to give you a preview of the third-quarter earnings season. While the overall market continues to spin its wheels, I think several of our Buy List stocks are poised to surge higher. In fact a few of our stocks, like Deluxe ($DLX) and Ford ($F), have already started to turn the corner.

    I’m writing you in the wee hours of Friday morning. Later today, we’ll get the crucial jobs report for September. Wall Street has been dreading this report for several days now, and it’s easy to understand why. Frankly, nearly every jobs report for the last few years has been dismal. I’m afraid I’m not expecting much better for September’s report. Wall Street is expecting a gain of 60,000 nonfarm payroll jobs, and as low as that estimate is, it might be too high.

    If the news is better than expected, it may take some of the pressure off the Federal Reserve to get the economy going again. But bear in mind that the economy needs to create, on average, 200,000 net new jobs every month for a few years to get back to anywhere near normal. Truthfully, I think many of our economic problems are beyond the scope of the Fed’s repair kit, but I’ll save that for another time. If Friday’s jobs report is worse than expected, well…we’re already down so much that it may not hurt equities (although the political fallout could be dramatic).

    The truth is that the U.S. economy isn’t doing nearly as badly as is generally perceived. Of course, I’m not saying that the economy is humming along. I’m just saying that its performance is far better than the febrile commentary I see every day. Consider that earlier this week Bespoke Investment Group noted that 17 of the last 21 economic reports have come in better than expected. Just this week, the ISM Manufacturing index topped expectations. The ADP jobs report beat consensus and the construction spending report was surprisingly strong. On October 27th, the government will release its first estimate of Q3 GDP growth and I think it’s possible that growth will come in over 2%. That’s not great, but it’s a far cry from a Double Dip.

    Another promising note is that bond yields are finally beginning to creep higher. This is an early signal that investors may be willing to take on more risk. What’s interesting is how orderly the increase in risk is turning out to be. Yields for the one-, two- and three-year Treasuries all bottomed out on September 19th. Three days later, the yields for the five-, seven-, ten-, twenty- and thirty-year Treasuries hit their lows. Since then, the yield on the ten-year note has jumped 29 basis points. The five-year yield just closed above 1% for the first time in six weeks. The takeaway is that this orderly exodus out of low-risk investments may provide fuel for a sustained stock rally. Capital always goes where it’s treated best. If Friday’s jobs report comes in strong, Treasuries will continue to fall.

    I’m pleased to see that many of our Buy List stocks continue to do well. In the last two weeks, the Buy List has gained 2.11% while the S&P 500 is down by 0.15%. On Thursday, shares of AFLAC ($AFL) got as high as $38.40. That’s the highest price since mid-August and it’s a 22% bounce off the low from two weeks ago. I’ve been flabbergasted by AFLAC’s recent plunge. The company is clearly doing well. I expect to see another strong earnings report on October 26th. I also wouldn’t be surprised to see another upward revision to next year’s earnings guidance. Still, investors seem convinced that AFLAC is taking a bath on its European investments. They’re not. AFLAC is well protected. The stock is a very good buy up to $40 per share.

    Another big gainer recently has been JPMorgan Chase ($JPM). Over the last three days, the shares have gapped up by 14%. Next Thursday, JPM is due to report its third-quarter earnings. This will be the first of our stocks to report this season. Due to the problems in Europe and in our economy, Wall Street has been ratcheting down estimates for JPM. The Street currently expects JPM to report 98 cents per share which is 23 cents less than what they were expecting just one month ago.

    I have to admit that I don’t have a good feel for what JPM should report next week. In previous quarters, I had a pretty good idea but there are too many unknowns to give you a precise forecast. However, I wouldn’t be surprised to see JPM miss estimates this time around; but I’ll be far more interested to hear what they have to say about their business. JPM continues to be the healthiest of the major banks. Thanks to the lower share price, the stock currently yields 3.2%. I also expect that the bank will bump up that dividend early next year. In fact, they could easily raise the dividend by 30% to 50%. If next week’s earnings report is positive, JPM would be a good buy up to $34 per share.

    I’ve been very frustrated by the performance of Ford ($F) but I have to admit that the stock is well below a reasonable valuation for the company. Ford has turned itself around very impressively. I don’t like many cyclical stocks but Ford looks very good here. Sales continue to do well. The shares are currently going for about one-third of its sales. If you’re able to get shares of Ford below $11, you’ve gotten a very good deal.

    There are a few other stocks I want to highlight. Over the last three sessions, shares of Deluxe ($DLX) are up nearly 18%. Even after that rally, the shares still yield 4.7%. Jos. A Bank Clothiers ($JOSB) is up over 10% since Monday and Wright Express ($WXS) has tacked on 13%. Last week, I highlighted Moog ($MOG-A), one of our quieter buys, and the stock has rallied nicely since then.

    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

  • Surveying the Damage
    , October 3rd, 2011 at 10:50 pm

    Ugh! Monday was a rotten day for the stock market. Let’s survey some of the damage.

    The S&P 500 plunged 32.19 points or 2.85% to close at 1,099.23 which is the lowest close in 13 months. The index now has its lowest trailing Price/Earnings Ratio in over 22 years. The S&P 500 is trading at just 11.69 times earnings which it hasn’t done since March 30, 1989.

    As bad as today was for the S&P 500, the small-cap stocks did much worse. The Russell 2000 ($RUT) plunged 5.38% and the S&P Small-Cap 600 ($SML) lost 5.06%. The large-cap S&P 100 ($OEX) lost “only” 2.59% while the Dow dropped 2.36%.

    Smaller stocks tend to be more cyclically focused. The Morgan Stanley Cyclical Index ($CYC) lost 3.6% to close at 737.63. That’s the CYC’s lowest close since November 4, 2009.

    Looking at the S&P sectors, the financials were once again the biggest losers. The Financial Index dropped 4.53%. The Financial Sector ETF ($XLF) is down to $11.28.

    Several major banks are now selling at distressed valuations. Shares of Bank of America ($BAC) plunged through the $6 barrier to close at $5.53. The stock has been chopped in half in just three months. Shares of BAC are about where they were in December 1985.

    During the financial crisis, BAC cut its dividend from 32 cents per share to one penny per share, just to say that they’re still paying a dividend. Well at four cents per year, that yield comes to 0.72% which isn’t far from a five-year Treasury yield of 0.88%.

    We’re now seeing many major financial firms with yields north of 3.5%. AFLAC ($AFL), an S&P Dividend Aristocrat, now yields 3.57%.

    Once again, the big worry today was Europe. Bloomberg noted that the cost to protect against default on European corporate debt nearly reached a three-year high today. The strange fact is that the recent economic data has been fairly positive. The folks at Bespoke Investment Group pointed out that 17 of the last 21 economic reports have been better than expected. Of course, much of that data is past news.

    To give you an idea of how low the valuations are, if we assume that the market is going for 14 times next year’s earnings, that would mean that earnings would have to drop 20% next year. Earnings are currently expected to rise over 13% next year.