Posts Tagged ‘josb’

  • CWS Market Review – September 2, 2011
    , September 2nd, 2011 at 7:24 am

    Continuing with my theme from last week’s CWS Market Review, the “Fear Trade” that gripped Wall Street in July and August is slowly retreating. Every investor needs to understand how this dynamic is driving trading right now.

    What’s interesting is that the stock market isn’t so much rallying on good news as it’s rallying on the lack of bad news (or lack of “bad as expected” news). That’s how scared traders are. Nor is the market really rallying as much as it’s walking back to the ground it hurriedly fled from during the jittery days of July and August. My advice to investors is to expect the Fear Trade to continue to fade. Specifically, this means that stocks will cautiously gain ground while bonds, gold and volatility will pull back.

    From Friday through Wednesday, the S&P 500 put on its first four-day win streak in nearly two months. In fact, we’re probably two good days’ rallies away from breaking above the 50-day moving average. Some of this week’s rally was due to Hurricanes Irene and Bernanke not causing as much damaged as was feared.

    We can’t say this for certain yet, but imagine if this statement turned out to be true: “The summer sell-off ended 25 days ago and we’ve already made back 40% of the money we lost.” That may turn out to be correct and it has a very good chance of doing so, but you’d never know it by listening to some of the folks out there.

    Remember that the stock market isn’t a great predictor of the economy. Since 1945, the S&P 500 has fallen 17% or more 14 times, and nine of those times have seen recessions. The bond market, however, has a better track record. Bloomberg writes, “the economy has never contracted with the difference between 10-year and 30-year Treasury yields as wide as the current 1.38 percentage points, or 138 basis points.” That’s pretty eye-opening.

    Through Wednesday, the S&P 500 posted its best eight-day gain since 2009. At one point on Wednesday, the S&P 500 got as high as 1,230.71. Thursday looked like it was going to be our fifth-straight up day until more jitters about Friday’s employment report took hold (more on that in a bit). The initial good news on Thursday was that the ISM Manufacturing Index came in at 50.6 which was better-than-expected. There were even whispers that the ISM could print as low as the mid-40s. Fear, I suppose, is contagious.

    Let me explain this a little. The ISM Index has a decent track record of aligning with recessions and expansions and we’re still well above the danger zone. The worry was that we were rapidly falling into the danger zone. Historically, the economy has done fairly well, on average, when the ISM is in this territory. I checked the numbers and found that there were 49 times when the ISM printed between 50.0 and 51.0 and only three of those months have been during official NBER recessions.

    One month ago, Wall Street was rattled by the reports on consumer spending and factory orders. However, those reports were for the month of June which is in the second quarter. Well, we already knew that the economy was sluggish during Q2, yet the bears had a field day and smacked the bulls around. Now, one month later, those two reports for July turn out to be not so bad. We learned that consumer spending rebounded by 0.8% in July, which topped expectations by 0.3%. That was the biggest jump in five months. On Wednesday, the Commerce Department reported that factory orders rose by 2.4% in July. That was the biggest increase since March. Yet the bulls are still the scared ones.

    So far, the Double Dip hypothesis has been sound and fury signifying not a whole lot. Let me be clear that I’m not saying a Double Dip won’t happen; I’m saying that the evidence proving the case, for now, is very small. At CWS Market Review, we’re guided by facts, not emotions. The good news for us is that we don’t need to predict the future with perfect accuracy to be good investors. But we do need to make reasonable judgments about the here and now.

    The fact is that the overall stock market is inexpensive. Let’s look at some numbers: Second quarter earnings for the S&P 500 came in at $24.85. That’s an 18.9% increase from one year ago. Wall Street currently expects 3Q earnings of $24.95 which is a 15.7% increase over last year. So far, we haven’t seen many companies lower guidance and this is particularly true for our Buy List stocks. In fact, they’ve been raising guidance.

    For all of 2011, Wall Street expects earnings of $98.59 for the S&P 500 (though I think $100 is possible). Since we’re already two-thirds of the way through the year, that forecast is probably pretty accurate. For 2012, Wall Street expects earnings of $112.67. Since that’s further out, we shouldn’t consider that number to be as reliable, and I think it may be too high.

    This means that going by Thursday’s close, the S&P 500 is trading at 12.22 times this year’s earnings estimate. Flip that over and you get an earnings yield of 8.19% which demolishes just about anything you can find in the frothy bond market. A ten-year T-bond is supposed to offer safety but…c’mon, is that really worth 600 basis points? I don’t think so. The Fear Trade has simply gone too far.

    The slightly better economic news comes at a crucial time for the Federal Reserve. The last FOMC meeting saw the largest dissension in two decades. The next meeting is scheduled for September 20-21. It was originally supposed to be a one-day meeting. I think the “hawks” now have the upper hand and I don’t expect another round of quantitative easing. For now.

    I’m writing this on Friday morning and Wall Street expects another dismal jobs report later today (expectations are for 70,000). I don’t blame them. However, the same dynamic is in play: traders expect to be disappointed so anything that fails to live up to that (or down to that) will be seen as good news. Be sure to check the blog to see how the August jobs report shakes out.

    As investors, we should continue to focus our attention on solid companies that are delivering steady earnings growth. Speaking of which, let’s jump to the best news of the week and that was the strong second-quarter earnings report from our Buy List member, Jos. A. Bank Clothiers ($JOSB). Three months ago, JOSB missed earnings by two cents and the stock got taken to the woodshed. This time, Wall Street was expecting 68 cents per share which I thought was on the low side. The earnings turned out to be even better than I expected. For Q2, JOSB reported earnings of 74 cents per share. Sales came in at $230.7 million which was $20 million more than consensus.

    On Wednesday, the stock gapped up as much as 11.8%. All across the board, Joey Bank’s numbers look very good. Same-store sales rose 14.7% and year-over-year direct marketing sales rose 27.8%. The company has grown its earnings for 39 of the last 40 quarters, including the last 21 quarters in a row.

    I had cautioned investors not to chase JOSB because I wanted to be certain that the company is on a firm footing. Now we have solid proof. I think JOSB can do $3.50 per share for this fiscal year. As a result, I’m raising my buy price on Jos. A. Bank Clothiers to $54 per share. This is our top-performing stock of the year, but I have to warn you that it can be highly volatile.

    I was surprised to see Nicholas Financial ($NICK) announce that it will start paying a quarterly dividend of 10 cents per share. Based on Thursday’s close, that works out to a yield of 3.78%. Not bad. If you’re a regular reader of Crossing Wall Street, you know that this is one of my favorite stocks. I think a fair price for NICK is at least $17 per share.

    I can’t say that I’m a huge fan of NICK paying a dividend, but I will say that there are many things worse that a company can do with shareholders’ money (poor acquisitions, share buybacks). You’ll never go broke cashing a dividend check, and NICK will have no trouble covering this dividend. I don’t have much faith that companies can engineer a higher share price outside of their very basic duty of delivering higher profits.

    I still believe that NICK can earn as much as $1.70 per share for this calendar year. The news that the Fed will keep rates low helps NICK, and the company just extended their credit line to $150 million. This is a really solid outfit. Nicholas Financial is an excellent buy up to $14 and it’s especially good below $11.

    Some other Buy List stocks that look particularly attractive here include Oracle ($ORCL), Reynolds American ($RAI), AFLAC ($AFL) and Wright Express ($WXS).

    That’s all for now. The market will be closed on Monday for Labor Day. I hope everyone has a restful long weekend. 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

  • Jos. A Bank’s Blow-Out Quarter
    , August 31st, 2011 at 9:31 am

    The S&P 500 looks to open higher again today. I think the index has a good chance of breaking 1,220 today, the final trading day of the month. Frankly, August has been a terrible month for the market. We closed July at 1,292.28.

    Today could be the fourth up day in a row. I have to repeat myself from the other day. Imagine if this statement turned out to be true: “The sell-off ended three weeks ago and we’ve already gained back close to 40% of what we lost.”

    The big economic news this morning was the ADP report which showed that the economy created 91,000 private sector jobs in August. The government will release its employment numbers on Friday.

    Jos. A Bank Clothiers ($JOSB) reported outstanding second-quarter earnings this morning of 74 cents per share which was six cents more than estimates. Revenues were very strong, up 22.5% to $230.7 million. The consensus was $210.8 million so that’s a big beat. Same-store sales rose 14.7% and year-over-year direct marketing sales rose 27.8%.

    After the hiccup we saw for Q1, I can safely say that this was a very strong quarter.

    “With this quarter’s results, we have achieved earnings growth in 39 of the past 40 quarters when compared to the respective prior year periods, including 21 quarters in a row,” said R. Neal Black, the company’s president and CEO, in a statement. “While sales are just one component of overall profit and August is a relatively small sales month, our comparable store sales in August are up slightly compared to the same period last year, despite the impact of the recent hurricane.”

    The stock has gapped up 10% this morning.

  • Fear of Loss > Joy of Gain
    , August 29th, 2011 at 9:15 am

    According to the futures market, the S&P 500 looks to open higher today which is probably a result of the failure of Hurricane Irene to cause widespread damage. Lots of folks still don’t have power and I see downed tree limbs all over DC, yet traders were clearly worried about a much worse storm.

    If you’re new to investing, this is a good time to learn the important lesson that fear in markets is more powerful than greed. In other words, the fear of a loss looms larger in a person’s mind than the joy of a gain.

    Here’s a very basic way to think about it: Let’s say there are two stocks that are equal in every way. Both stocks are expected to earn $1 per share next year, but there’s one slight difference. One stock is expected to make $1 per share, plus or minus two cents per share. The other is expected to make $1 per share, plus or minus 15 cents per share.

    All things being equal, the first stock will have a higher price than the second. I know that doesn’t make much sense, but that’s what happens. The fear of a loss overpowers the joy of a gain.

    Last week was the first time the S&P 500 made a profit for the week since July. It looks like the index is gearing up for another run at 1,200. The recent high point was 1,204.49 which was the close on August 15th. If we break that, I think the bulls will get a lot more confident. Bloomberg writes: “Should companies meet analysts’ profit estimates, the S&P 500 must advance to about 1,790 to trade at the average multiple of 16.4 since 1954, according to data compiled by Bloomberg.”

    On the Buy List, we’re also going to have Jos. A. Bank’s ($JOSB) earnings today. Wall Street’s estimate is for 68 cents per share. The stock has been creeping up lately ahead of earnings.

  • CWS Market Review – August 26, 2011
    , August 26th, 2011 at 6:48 am

    “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” – Warren Buffett

    Very true, Warren. Very true. Quietly, this past week has been a turning point for the stock market. The “Fear Trade” that gripped Wall Street this summer is slowly beginning to unravel. Specifically, the Fear Trade consisted of investors dumping cyclicals especially and crowding into gold and Treasury bonds. Starting on July 22nd, the Wall Street bears had been in complete command. Every rally was yet another opportunity to short. That is, until this week. After a staggering $2 trillion was shed by the S&P 500, the Fear Trade has finally gotten some (minor) pushback.

    I’ll give you an example of what I mean: The S&P 500 made very similar closing lows on August 8th (1,119.46) and August 10th (1,120.76) and then again on August 19th (1,123.53) and August 22nd (1,123.82). Notice how close together those lows are. Yet the bears weren’t able to bring us any lower. That’s a telling sign.

    It’s still too early to say if this is the beginning of a major leg up, but it probably signals that the worse of the Fear Trade is past us. On closer inspection, much of the negative news was vastly overhyped (I’m looking at you, S&P downgrade). We had some promising rallies on Tuesday and Wednesday, and Thursday looked to be a good day until the German market tanked. Still, I like the trend that I’m seeing.

    The pushback isn’t just happening in the stock market; let’s look at what’s happening in Bondistan. Last Thursday, the yield on the ten-year Treasury dropped below 2% and the five-year plunged to an absurd 0.79%. The three-month LIBOR rate is actually less than the two-year Treasury yield. Dear Lord, I don’t know what to say about prices like that except that it shows us how much fear there was in the market. The short-term Treasuries even pulled a Blutarsky. In the CWS Market Review from three weeks ago, I wrote “All across the board, investors are dumping risk and hoarding security. Fear is giving greed a major beat-down.”

    Well, greed is getting back on its feet. The five-year T-note recently broke above 1%. Of course, that’s far from normal, but the key is that people aren’t suddenly dumping bonds and hoarding stocks. Instead, they’re walking back from some of the fear that took hold of the markets this summer.

    With the Fear Trade, the riskier an asset was (or was perceived to be), the worse it did. Junk bonds, for example, have been getting beaten like a rented step-mule. The Wall Street Journal recently wrote: “The spread on the Barclays Capital High Yield Index over Treasurys widened to 7.66 percentage points this week—the highest since November 2009—from 5.87 percentage points at the end of July.”

    The clearest area where the Fear Trade is coming unglued is in the gold pits. On Wednesday, gold dropped $104 per ounce which is one of its biggest plunges ever. Earlier this week, gold peaked at $1,917 per ounce and it closed the day on Thursday at $1,775.20. As long as real rates are low, gold will do well; but the metal has gotten ahead of itself. Once the Fear Trade got going, investors headed into the only areas that were working. Soon that turned into a flood and everything else got left behind (AFLAC at $35?). I remember when the Nasdaq peaked 11 years ago and there were healthy REITs that were paying 12% dividend yields. Only in retrospect do we see how insane that was.

    I’m writing this early Friday morning and the big news due later today is the Ben Bernanke speech at the Fed’s annual shindig in Jackson Hole, Wyoming. I don’t expect any news, but too many people who ought to know better think the Fed will announce another round of Quantitative Easing. That simply isn’t going to happen. As a result, many traders expect Wall Street to be disappointed if QE3 doesn’t come our way. Call me a doubter, but that may have weighed on the stock market on Thursday. If anything, some of the recent data takes pressure off of Bernanke and the Fed.

    The other important item on Friday will be the first revision to second-quarter GDP growth. The initial report said that the economy grew by 1.3% during the second three months of the year. Wall Street expects that to be revised slightly and they’re probably right. Still, the second quarter is now well within our rear-view mirror. I’m more concerned with the rest of Q3 and Q4.

    Now let’s look at what’s happening with our Buy List. We only had one earnings report this past week which was from Medtronic ($MDT). The company reported fiscal Q1 earnings of 79 cents per share which matched Wall Street’s estimate. I wasn’t expecting much of an earnings surprise or shortfall. Honestly, this company has some problems, but ultimately, I think they’re manageable. I’d really like to see Medtronic become a leaner and meaner outfit and I think the new CEO agrees.

    The best news is that they reiterated their full-year guidance of $3.43 to $3.50 per share. As I’ve said before, never dismiss these “reiterations.” Hearing that things are still “on track” is news. If you recall, MDT slashed their full-year guidance several times last year.

    Let’s run through some numbers here: Shares of MDT dropped from over $43 in May to nearly $30 this month. The shares rallied on the earnings report not because the news was good but probably because there wasn’t any bad news. You often see that in value investing when investors get so disgusted by a stock that they expect to be disappointed. As odd as it may sound, that’s often a good buying opportunity.

    Even the low end of Medtronic’s range tells us that the stock is going for less than 10 times this year’s earnings estimate. That’s a good value. The stock currently yields 2.86% and the dividend has been raised for the last 34 years in a row. Medtronic is a good buy below $35 per share.

    We only have one earnings report due next week and that’s from Jos. A. Bank Clothiers ($JOSB) on Monday. If you recall, JOSB got smacked hard in June when the company’s fiscal Q1 earnings came in two cents below consensus. That two-penny miss caused the stock to plunge more than 13% in one day.

    For Monday, the Street expects earnings of 68 cents per share. Sales should rise about 11% to $210 million. I should warn you that since JOSB doesn’t provide guidance, the earnings can vary widely from consensus. Sixty-eight cents sounds slightly low but I’m afraid traders are very strongly biased to be disappointed by whatever JOSB says. My advice is to not be surprised by a pullback. If you don’t already own JOSB, hold on. If you don’t own it, don’t chase it. If JOSB’s earnings come in at 70 cents or more and the stock pulls back below, it will be a very good buying opportunity. I’ll have more on the earnings report on the blog.

    I also want to highlight Oracle ($ORCL) which looks very good at this level. In seven weeks, the shares have dropped from $34 to $26 yet their business outlook remains unchanged. The next earnings report should be out in mid-September. Oracle is an excellent buy below $25.

    That’s all for now. There’s some talk going around that the NYSE might be closed due to Hurricane Irene. I’ll let you know as soon as I do. 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 – June 3, 2011
    , June 3rd, 2011 at 7:19 am

    I’ve gone up to the great state of Maine for a few days of R&R so this will be an abbreviated edition of CWS Market Review.

    Unfortunately, Wall Street decided to use my vacation time for a period of high drama. No need to panic—I’ll fill you in on the latest and I’ll tell you why Wall Street is being its usual melodramatic self.

    The big news, of course, is that the S&P 500 dropped 2.28% on Wednesday followed by another 0.14% fall on Thursday. Wednesday’s sell-off was the market’s biggest one-day plunge since August 11th. As you might have guessed, cyclical stocks were the biggest losers on Wednesday; the Morgan Stanley Cyclical Index (^CYC) shed more than 3.5%.

    As dramatic as the market drop sounds, the S&P 500 is still well within the trading range that I mentioned in last week’s issue of CWS Market Review. The S&P 500 has now closed between 1,305.14 and 1,348.65 for 42 of the last 48 days. So far, all we can say is that we moved from the top of the range to the bottom—in a very short period of time.

    The reason for the market’s bout of irritability seems to be a batch of poor economic news. What surprised me the most was Wednesday’s report on the ISM Index. Let me back up and explain what this is. On the first business day of each month, the Institute for Supply Management reports its manufacturing index for the month that just ended. Any reading above 50 means the economy is growing while any report below 50 means the economy is receding.

    Unlike many economic reports, I like ISM report. One reason is that it comes out quickly so there isn’t much time lag. Also, the report isn’t subject to countless revisions like the GDP report. Most importantly, the ISM report has a very good track record of telling us if we’re in a recession or not. Basically, whenever the ISM falls below 45, there’s a very good chance that the economy is in a recession.

    Until this latest report, the ISM had been putting up some impressive numbers: four straight months over 60 and 21 straight months over 50. In fact, the March ISM clocked in at 61.4 which was a tie for the highest level since 1983. So it was a bit of a shock on Wednesday when the ISM for May came in at 53.5. That was well below Wall Street’s consensus of estimate 57.1.

    Still, I think the bears are overreacting on this one and this reminds me of the Great Double Dip Hysteria of last summer. First, the ISM still came in above 50 (and for the 22nd month in a row) so the economy is growing, but perhaps not as quickly. Also, the stock market should have limited downside risk since valuations are already fairly cheap. Furthermore, this isn’t news to anyone who has been following the earnings trend. The economy is still growing, but the easy gains have faded. That’s a very different story from a recession.

    Here’s what’s going on in the stock market: The only thing that’s more dangerous than an investing thesis that’s dead wrong is one that’s partially right. The bears have been pushing hard the message that the economy is weak and stocks are vulnerable. They’re right, but it’s only true for most cyclical stocks and a few hi-fliers. Yes, anyone who bought LinkedIn ($LNKD) at $120 isn’t looking so smart right now. (I don’t think the buyers at $80 look much smarter.) The cyclical stocks are weak and they’re going to lag the market for some time to come. I strongly encourage investors to lighten up on cyclical stocks and long-term bonds. Defensive stocks and the high-quality stocks on our Buy List continue to offer investors very good values.

    The biggest side effect of Wednesday’s bloodletting was that bonds have entered the danger zone. The yield on the 10-year Treasury recently dipped below 3% for the first time this year. That’s a P/E Ratio of 33 for an asset that’s not growing its earnings at all. That should tell you how scared investors are. Going by Thursday’s closing price, Johnson & Johnson ($JNJ) yields 3.43% which is 40 basis points more than the 10-year T-bond. That makes zero sense to me.

    Turning to our Buy List, the big news this week was the market giving shares of Joseph A. Banks Clothiers ($JOSB) a super-atomic wedgie after its earnings report. The company reported earnings of 64 cents per share which was one penny below Wall Street’s expectations. This is particularly frustrating for me because it’s precisely what I told you to expect. Nevertheless, the bears took this one item of bad news and pounded shares of JOSB for a 13.3% loss on Wednesday.

    I apologize for the rattling but when an angry mob is out for blood, they won’t listen to reason. There are a lot of folks out there who simply don’t like JOSB. The stock has risen very quickly this year. In fact, it’s still our #2 performing stock for the year. I had also cautioned investors not to chase JOSB and to let the stock come to you. Well…it’s here. I think Joey Banks is an excellent buy below $50 per share.

    There are so many good buys right now on the Buy List. For now, I’ll highlight three. First, AFLAC ($AFL) is very cheap below $47 per share. Abbott Labs ($ABT) now yields 3.75%. Earlier this year, Abbott said it was expecting full-year earnings of $4.54 to $4.64 per share. ABT is an excellent buy below $52. JPMorgan Chase ($JPM) is also looking very good. Jamie Dimon recently said that the company is buying back shares faster than they originally indicated. I’d prefer to see higher dividends, but the bank is currently constrained by the Fed over how much it can raise its dividend. JPM is a good buy any time the stock is below $44 per share.

    That’s all for now. I’ll be heading back to the office on Tuesday. 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!

  • 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!

  • Commodities Get Clobbered
    , May 12th, 2011 at 11:07 am

    Let me help explain what’s been going on in the market over the past few days. Now that earnings season is mostly over, there’s been a rush out of formerly hot commodities as investors have sought shelter in very low-risk bonds or in stocks in non-cyclical industries.

    To give you an example, the Silver ETF ($SLV) got as high as $48.35 two weeks ago. Today it’s been as low as $31.97. Ouch! The Gold ETF ($GLD) has backed off from $153.61 last Monday to $145 today. Oil ($USO) has dropped from $45.60 to $38.59. (Prices at the pump, however, are still high.)

    Now let’s check out what’s happening in the debt market: The yield on the one-year Treasury has dropped below 0.17%. Sure, it’s one thing for short term rates to be microscopic, but now we’re talking about one full year.

    Let’s take a step back and see what that means. One year at 0.17% works out to about 21 Dow points stretched out over a full year. Plus, that doesn’t include dividends. In other words, the Treasury investor would lose to the broad-based investor even if the Dow fell by (roughly) 1.8% over the next twelve months. So what is it that debt investors want so badly? The answer is security. They want it so badly, they’re willing to vastly overpay for it.

    I think that’s nuts, but there’s a buyer for every seller.

    On the stock front, the damage has mostly hit the commodity stocks. These are the stocks you find in the Energy ($XLE) and Materials ($XLB) sectors. The fall off in oil is really starting to hurt some of the major oil stocks. The market value of ExxonMobil ($XOM) has dropped by $40 billion this month. There are only a handful of companies in the world that are worth $40 billion.

    Energy and Materials stocks are the core of the cyclical side of the stock market. As I’ve been expecting, investors are rotating out of cyclical stocks and finding safe refuge in stable stocks. Cyclical stocks tend to lead the market on the way up, but they are punished more on the way down.

    Since our Buy List is focused away from cyclicals, we’re not down nearly as much as the rest of the market is. In fact, some of our stocks continue to rally. Jos. A. Bank ($JOSB), for example, is at another new high today. Sysco ($SYY) is also holding up well after its massive jump after the earnings report. Outside of our Buy List, defensive stocks like CVS ($CVS) and Southern Company ($SO) are at new 52-week highs.

    According to Bloomberg’s latest numbers, 72% of companies beat analysts’ estimates this earnings season. S&P has the S&P 500 on track to earn $22.58 for Q1. That’s a 16.51% increase over Q1 of 2010. It’s very likely that this current quarter will top the record earnings ($24.06) made in Q2 of 2007.

    For all of 2011, the S&P 500 is projected to earn $98.19. Going by yesterday’s close, the index is trading at 13.67 times this year’s forecast. That works out to an earnings yield of 7.32%. That’s about 400 basis points more than a 10-year Treasury. For next year, the S&P 500 is projected to earn $111.82.