Posts Tagged ‘dlx’

  • 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:

  • 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

  • Deluxe Earns 75 Cents Per Share
    , July 28th, 2011 at 8:48 am

    The earnings reports are still coming in. Deluxe ($DLX) just reported adjusted quarterly earnings of 75 cents per share. Quarterly revenue dropped 0.5% to $346.3 million which was slightly better than Wall Street’s forecast. The company hed been expecting EPS to range between 66 cents and 71 cents per share. Wall Street was expecting 71 cents per share.

    For the third quarter, Deluxe expects adjusted earnings of 71 cents to 77 cents per share on revenue of $353 million to $361 million.

    Deluxe also raised their full-year outlook from $2.90 – $3.10 per share to $3.00 – $3.15 per share. Currently, Wall Street’s full-year forecast is at $3.03 per share.

    Here are some second-quarter highlights from the earnings report:

    Revenue for the quarter was $346.3 million compared to $348.0 million during the second quarter of 2010 with growth in Small Business Services partially offsetting declines in Financial Services.

    Gross margin was 65.1 percent of revenue compared to 65.0 percent in 2010. Favorable impacts from price increases and the Company’s continued cost reduction initiatives were offset by increased material costs and delivery rates.

    Selling, general and administrative (SG&A) expense decreased $3.2 million in the quarter compared to 2010. Increased SG&A expense associated with acquisitions, brand awareness campaigns, and investments in revenue generating initiatives were more than offset by benefits from continuing to execute against cost reduction initiatives.

    Operating income in 2011 was $64.0 million compared to $63.2 million in the second quarter of 2010. Restructuring and transaction-related costs were $5.0 million in 2011 versus $2.7 million in 2010. The 2011 costs were primarily attributable to the Company’s on-going cost reduction initiatives and the April Banker’s Dashboard acquisition. Operating income was 18.5 percent of revenue compared to 18.2 percent in the prior year.

    Reported diluted EPS increased $0.03 from the prior year driven by improved operating performance and a lower effective tax rate primarily from lower state taxes in 2011.

    This is a very good earnings report. The stock is going for less than eight times earnings and the current dividend yield is 4.33%.

  • CWS Market Review – July 22, 2011
    , July 22nd, 2011 at 8:03 am

    Get ready! Earnings season is stepping into high gear and so far, Wall Street likes what it sees. Truthfully, this shouldn’t be much of a surprise but traders have been so overwhelmed by reasons to be fearful this summer.

    The financial media bears much of the blame. Every day we’ve been bombarded with panicked headlines: “Debt Ceiling! Greece! Default! Spain! Ireland!” Meanwhile, I’ve been quietly counseling investors to focus on the most important word, “Earnings!” So far, the earnings have been quite good. It’s still early but earnings growth for this quarter is running at 17%, and 86% of the companies have topped Wall Street’s estimates. As I said in last week’s CWS Market Review, this earnings season may be an all-time record.

    So much of successful investing is nothing more than tuning out the short-term noise and concentrating on fundamentals. Remember, it was only a month ago that Oracle ($ORCL), one of the stocks on our Buy List, dropped 4% on a good earnings report. Since then, the stock has rallied and is higher now than before the earnings report (as of Thursday’s close). Jos. A. Bank Clothiers ($JOSB) has also gained back much of what it lost after it missed Wall Street’s estimate by the frightening amount of one penny per share.

    I’m very pleased to see renewed strength in the financial sector. On Thursday, the financials had their best day of the year. Since JPMorgan Chase ($JPM) reported earnings earlier this month, the stock is up nearly 7%. I’m also happy to see AFLAC ($AFL) showing a little life. Their earnings are due out this Wednesday and I’m expecting very good news. I’ll have more on that in a bit.

    Between Tuesday and Thursday of this week, the S&P 500 rallied nearly 3%. We’re now within striking distance of our April 29th high of 1,363.61. If we were to break that, we would set a new three-year high for the stock market. The fact is that the metrics continue to lean heavily towards equities. Bloomberg noted that return-on-equity for the S&P 500 is running at 24% while borrowing costs are running at 3.61%. That’s stunning. This wide spread will probably lead to more M&A activity and you can be sure that that will help the small-stock and value sectors.

    Let’s recap some of our recent earnings reports from our Buy List.

    First up is Stryker ($SYK). After the close on Tuesday, the company reported earnings of 90 cents per share which matched Wall Street’s forecast. Stryker also reaffirmed its full-year forecast of $3.65 to $3.73 per share. Despite what I thought were good numbers, traders brought down the stock by 3.8%. The problem is that sales of orthopedics weren’t as strong as analysts predicted. This is to be expected since these are pricey procedures and the recession is still hurting many folks. However, I’m not at all concerned. Stryker continues to be a very compelling buy.

    On Wednesday morning, Abbott Labs ($ABT) reported quarterly earnings of $1.12 per share. That makes for seven quarters in a row that Abbott has beaten Wall Street’s forecast by a penny per share. The best news is that the company raised its full-year earnings forecast. The previous EPS range was $4.54 to $4.64, and the new range is $4.58 to $4.68. True, it’s not a huge increase but it’s still good to see. The CEO said, “Abbott is well-positioned for a strong second half of the year as we remain on track for double-digit EPS growth in 2011.”

    Shares of Abbott initially sold off on Wednesday morning, but they eventually gained much of it back. In fact, ABT isn’t too far from making a new 52-week high. Going by Thursday’s close, the stock yields 3.62%, which is pretty impressive considering that the dividend has grown by 128% over the past decade. This is another solid stock and I’m keeping my buy price at $54.

    On Tuesday, Johnson & Johnson ($JNJ) reported Q2 earnings of $1.28 per share. Wall Street had been expecting $1.24 per share, and I thought it could have been as high as $1.30. The results were hampered somewhat by the sluggish economy and by generic rivals. JNJ also reiterated its full-year EPS forecast of $4.90 to $5. I would have liked to see the company raise guidance as ABT had. Even though they didn’t, I think they’ll have little trouble hitting their guidance. The shares have been pretty steady lately. Based on Thursday’s close, the stock yields 3.43%. JNJ is about as blue chip as you can get.

    The coming week is going to be very busy for our Buy List. Reynolds American ($RAI) reports on Friday. Then on Tuesday, Ford ($F), Fiserv ($FSV) and Gilead Sciences ($GILD) report. AFLAC ($AFL) follows on Wednesday, and Deluxe ($DLX) reports on Thursday.

    I’ll only make some brief comments here but you can check the blog for more details. Reynolds is expected to earn 71 cents per share which may be slightly too high. Still, they should show an earnings increase. The company has already said to expect full-year earnings between $2.60 and $2.70 per share and that seems very doable. Reynolds is already an 18% winner on the year for us. The stock currently yields 5.5% which makes it a very good buy.

    Three months ago, AFLAC said to expect second-quarter operating earnings to range between $1.51 and $1.57 per share. Despite the problems in Japan and Europe, AFLAC should report very good numbers. My analysis shows earnings coming in between $1.60 and $1.65 per share. The company has been benefiting from favorable exchange rates. For the full-year year, the company sees earnings between $6.09 and $6.34 per share. That means AFLAC is currently going for less than eight times earnings. I don’t see why AFLAC isn’t at least $10 higher.

    I’ll be very curious to see what Fiserv and Gilead have to say. Fiserv missed earnings last quarter, but they kept their full-year forecast unchanged. Gilead is an odd case because the last earnings report was a complete dud. The stock, however, has been doing very well lately and it just broke out to a new 52-week high. Even though Gilead’s earnings were poor, the stock was so cheap that it apparently limited our downside. Ford has had a lot of trouble this year, but the company seems to have righted itself. Wall Street currently expects Q2 earnings of 60 cents per share. My numbers say Ford can hit 70 cents per share.

    That’s all for now. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  • CWS Market Review – May 27, 2011
    , May 27th, 2011 at 7:56 am

    In the March 4th issue of CWS Market Review, I told investors to expect a range-bound for much of this spring and that’s largely what we’ve seen. Every rally seems to fizzle out after a few days, and every sell-off is soon met with buying pressure.

    Consider this: Over the last two months, the S&P 500 has closed between 1,305.14 and 1,348.65 over 86% of the time. That’s a range of just 3.33%. Even going back to February 4th, we’ve still remained in that narrow range nearly 80% of the time. The Dow hasn’t had a single four-day losing streak since last August.

    Let me caution you not to get frustrated by sideways markets. This is how markets typically work. After impressive rallies, investors who got in early like to cash out their chips. This is known as a consolidation phase. Although the market may seem to be spinning its wheels, there’s a lot of action going on just below the surface.

    This week, I want to take a closer look at some of these hidden currents. As I’ve discussed before, the market is rapidly changing its leadership away from cyclical stocks. In fact, the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500 nearly broke through 0.8 this week for the first time in six months. Cyclicals have underperformed the broader market for nine of the last 12 trading sessions, and most of the worst-performing sectors this month are cyclical sectors. This trend will only intensify.

    The other important change is that the bond market has turned around, and it’s been much stronger than a lot of people expected. After the Fed announced its QE2 plans last August, bond yields started to rise, especially for the middle part of the year curve (around five to 10 years). Beginning late last year, the yield on the five-year Treasury more than doubled in just a few weeks. This was part of a larger shift as investors moved out of safe assets and into riskier asset classes. I’d like to say that I saw this coming, but I merely followed the path laid out for us by the Federal Reserve.

    Now bonds are hot again. The yield on the five-year treasury is at its lowest level of the year. The 10-year yield is close to breaking below 3% again. This week’s auction of seven-year notes had the highest bid-to-cover ratio since 2009. What’s happening is that investors are growing more skeptical of the U.S. economy and they’re seeking safer ground. Also, the fear of inflation is subsiding. In April, the inflation premium on the 10-year Treasury hit 2.67% which was its highest in three years. Today, the inflation premium is down to 2.26%.

    Many investors are also worried that the European sovereign debt crisis is getting worse. I think that’s correct. What you need to understand is that the shift back into Treasuries compliments the move out of cyclicals stocks. The common thread is a desire for less risk. This current is perfectly understandable and it helps our Buy List since most of our stocks are non-cyclical.

    For us, the takeaway is that the stock market will eventually break out of its trading range but it will be a more cautious and risk-averse rally. That’s good for us. Please don’t get frustrated by a churning market. It will come to an end before you know it. Until then, make sure your portfolio has plenty of high-quality defensive and non-cyclicals stocks such as the ones on our Buy List.

    Speaking of the Buy List, we had one earnings report this past week and it was a slight disappointment. Medtronic ($MDT) reported earnings-per-share of 90 cents for its fiscal fourth quarter which was three cents below Wall Street’s consensus. That’s not good news, but honestly, it’s not too bad.

    Over the last several months, Medtronic has repeatedly lowered its earnings forecast. As I like to say, these lower earnings revisions tend to be like cockroaches—there are a few more hiding for every one you see. But last August, Medtronic dropped below $32 which made it an outstanding buy. Since then, MDT has put on a nice rally that only broke down recently.

    With this past earnings report, Medtronic gave us a full-year earnings guidance range of $3.43 to $3.50 per share (their fiscal year ends in April). Wall Street had been expecting $3.62 per share. My take: I think the company has grown tired of lowering its forecasts so they decided to give us a low ball to start the year. Even so, let’s put this into proper perspective: Medtronic is currently going for 11.78 times the low-end of their forecast. That’s pretty cheap.

    With other companies, the lowered guidance would get to me, but Medtronic isn’t like most stocks. Some time in the next few weeks you can expect Medtronic to raise its dividend as it has every year for the past 34 years. That’s a very impressive record. Medtronic is a solid buy below $45 per share.

    The next Buy List earnings report will be from Jos. A Banks Clothiers ($JOSB). Three months ago, I said that Joey Banks looked like it was ready break out. How right I was. The shares are up over 20% since then. For the year, JOSB is up 37.52% for us and it’s our top-performing stock.

    The company hasn’t said when they’ll report yet, but they’ve historically released their Q1 report shortly after Memorial Day. I have to explain that JOSB’s annual earnings are heavily tilted towards their Q4 (November, December, January). About 40% of their profits for the year come during that quarter while the other 60% is divided up during the other three quarters. As a result, the upcoming earnings report isn’t nearly as crucial as the report from two months ago.

    For the coming earnings report, Wall Street’s consensus is for 65 cents per share which is probably a bit too high. JOSB’s earnings are hard to predict so a little leeway should be expected. For example, the earnings “miss” from six month ago clearly hasn’t hurt the stock. Joey B has a very compelling business model and this will very likely be their 20th straight quarter of higher earnings.

    I still think JOSB is a great stock, but if you don’t own, I urge you not to chase it. Chasing stocks is simply bad investing; good investors are disciplined about price. If you want to buy JOSB, wait until it falls below $50 per share. Patience, my friend. Patience.

    Some other Buy List stocks that look good right now include Deluxe ($DLX) which is a good buy up to $26. I love that 4% yield! The folks at Motley Fool have a good article explaining why DLX’s earnings are so strong. Fiserv ($FISV) is also looking strong. I rate it a good buy any time the shares are less than $65. Their board just approved a share repurchase of up to 5% of the outstanding shares. Lastly, I think AFLAC ($AFL) is a great buy below $50 per share. AFL is going for less than eight times my estimate for this year’s earnings.

    That’s all for now. The market will be closed on Monday for Memorial Day. I hope everyone has a great long weekend. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!