Posts Tagged ‘mdt’

• Medtronic Earns 84 Cents Per Share
  Eddy Elfenbein, November 22nd, 2011 at 11:23 am

  Before the opening bell, Medtronic ($MDT) reported earnings of 84 cents per share which beat expectations by two cents per share. Overall, this was a solid quarter:

  Sales increased for the company’s insulin pumps and heart pacemakers. Weakness persisted in its businesses that sell implantable heart defibrillators and products for spinal surgery, which together make up about 40 percent of revenue.

  Medtronic Chief Executive Omar Ishrak told analysts on a conference call that he expects the pressure on those units to eventually reverse as macroeconomic conditions improve.

  The company also reiterated its estimates for this year which is a diluted EPS ranging between $3.43 and $3.50. The stock is up about 3.5% today.

  Here’s a look at Medtronic’s quarterly results for the past several years:

  Quarter	EPS	Sales in Millions
  Jul-01	$0.28	$1,456
  Oct-01	$0.29	$1,571
  Jan-02	$0.30	$1,592
  Apr-02	$0.34	$1,792
  Jul-02	$0.32	$1,714
  Oct-02	$0.34	$1,891
  Jan-03	$0.35	$1,913
  Apr-03	$0.40	$2,148
  Jul-03	$0.37	$2,064
  Oct-03	$0.39	$2,164
  Jan-04	$0.40	$2,194
  Apr-04	$0.48	$2,665
  Jul-04	$0.43	$2,346
  Oct-04	$0.44	$2,400
  Jan-05	$0.46	$2,531
  Apr-05	$0.53	$2,778
  Jul-05	$0.50	$2,690
  Oct-05	$0.54	$2,765
  Jan-06	$0.55	$2,770
  Apr-06	$0.62	$3,067
  Jul-06	$0.55	$2,897
  Oct-06	$0.59	$3,075
  Jan-07	$0.61	$3,048
  Apr-07	$0.66	$3,280
  Jul-07	$0.62	$3,127
  Oct-07	$0.58	$3,124
  Jan-08	$0.63	$3,405
  Apr-08	$0.78	$3,860
  Jul-08	$0.72	$3,706
  Oct-08	$0.67	$3,570
  Jan-09	$0.71	$3,494
  Apr-09	$0.78	$3,830
  Jul-09	$0.79	$3,933
  Oct-09	$0.77	$3,838
  Jan-10	$0.77	$3,851
  Apr-10	$0.90	$4,196
  Jul-10	$0.80	$3,773
  Oct-10	$0.82	$3,903
  Jan-11	$0.86	$3,961
  Apr-11	$0.90	$4,295
  Jul-11	$0.79	$4,049
  Oct-11	$0.84	$4,132

• Medtronic Earnings Preview
  Eddy Elfenbein, November 21st, 2011 at 1:36 pm

  From the AP:

  Medtronic Inc., the world’s largest medical device maker, reports fiscal second-quarter earnings Tuesday morning, as investors continue to monitor weak demand, pricing pressures and other issues hurting the entire medical device industry.

  WHAT TO WATCH FOR: Last quarter Medtronic reported declines for its two leading franchises, heart defibrillators and spinal implants, as tighter hospital budgets, reduced patient procedures and safety concerns led doctors to scale back use of the devices.

  Industry competitors like Boston Scientific Corp. reported weaker-than-expected earnings last month, with noticeable declines in sales of defibrillators, which are heart-zapping implants used to treat heart failure. Leerink Swann analyst Rick Wise estimates the market for the devices declined 14 percent in the first nine months of the year, compared with 2010.

  WHY IT MATTERS: Medtronic relies on defibrillators and spinal implants for more than 50 percent of its total sales. Medtronic and other device makers have seen profits drop since the Department of Justice began investigating alleged overuse of defibrillators in January.

  Then in June Medtronic’s spinal business took a major publicity blow after a medical journal alleged that the company downplayed the risks of its InFuse spinal repair protein. According to reports in Spine Journal, Medtronic also failed to disclose millions of dollars in payments to the authors who wrote the initial studies of InFuse. The implant, which is approved to treat degenerative spinal disk disease, accounted for 85 percent, or $750 million, of Medtronic’s total spinal business last year.

  Leerink’s Rick Wise said the ongoing pressure could lead Medtronic to scale back its full-year earnings guidance.

  “Though Medtronic seems well positioned to benefit from recent and upcoming product launches, incremental volume declines in both ICDs (implantable cardioverter defibrillators) and spine, with no clear signs of improvement, could prompt management to take an even more cautious stance on fiscal year 2012 guidance,” Wise wrote in a note to investors. Medtronic has stated it expects fiscal year earnings per share between $3.43 and $3.50.

  WHAT’S EXPECTED: Analysts polled by FactSet expect earnings per share of 82 cents on revenue of $4.07 billion for the company’s fiscal 2012 second-quarter.

  LAST YEAR’S QUARTER: In the second quarter last year Medtronic Inc. earned 82 cents per share on an adjusted basis on revenue of $3.9 billion.

• CWS Market Review – November 18, 2011
  Eddy Elfenbein, 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

• CWS Market Review – August 26, 2011
  Eddy Elfenbein, 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

• P/E Compression at Medtronic
  Eddy Elfenbein, August 25th, 2011 at 3:12 pm

  A reader sent this in. I don’t have much to add, but notice how strongly Medtronic‘s ($MDT) Price/Earnings Ratio got squeezed over the past decade. The lesson is that price matters (not a new lesson, but an important one).

  

• Medtronic Earns 79 Cents Per Share, Reiterates Full-Year Guidance
  Eddy Elfenbein, August 23rd, 2011 at 9:03 am

  Medtronic ($MDT) just reported fiscal first-quarter earnings of 79 cents per share which matched Wall Street’s estimate. The best news is that the company reiterated its full-year earnings guidance of $3.43 to $3.50 per share.

  That’s good to see because the stock has fallen and the company doesn’t see any major changes in their business outlook for the coming year. Taking the mid-point of that guidance, Medtronic is going for just nine times earnings.

  Analysts surveyed by FactSet expected, on average, earnings of 79 cents per share on revenue of $3.98 billion. Analysts typically exclude one-time items from their estimates.

  Medtronic has struggled to maintain earnings growth amid sluggish sales of its two leading products: heart defibrillators and spinal implants. Sales for implantable cardioverter defibrillators, or ICDs, fell 8 percent on a constant currency basis to $697 million, as procedure volumes fell in the United States. ICDs treat rapid heartbeats.

  Sales from the company’s spinal business fell to $825 million from $829 million, even though international sales in that segment grew 7 percent. That business took a big publicity blow earlier this year when a medical journal alleged that Medtronic downplayed the risks of its InFuse spinal repair protein and failed to disclose millions of dollars in payments to the authors who wrote the initial studies of the product.

  Medtronic’s total costs and expenses also climbed 11 percent to $3.03 billion.

  The company said international sales accounted for 46 percent of its revenue, and emerging markets sales grew 30 percent as reported or 25 percent on a constant currency basis to $408 million.

  Medtronic reaffirmed the fiscal 2012 forecast it made in May. The company expects earnings of $3.43 to $3.50 per share on revenue growth of 1 to 3 percent, or to $16.1 billion to $16.41 billion.

  Analysts expect, on average, $3.46 per share on revenue of $16.57 billion.

  Here’s a look at Medtronic’s quarterly results for the past several years:

  Quarter	EPS	Sales in Millions
  Jul-01	$0.28	$1,456
  Oct-01	$0.29	$1,571
  Jan-02	$0.30	$1,592
  Apr-02	$0.34	$1,792
  Jul-02	$0.32	$1,714
  Oct-02	$0.34	$1,891
  Jan-03	$0.35	$1,913
  Apr-03	$0.40	$2,148
  Jul-03	$0.37	$2,064
  Oct-03	$0.39	$2,164
  Jan-04	$0.40	$2,194
  Apr-04	$0.48	$2,665
  Jul-04	$0.43	$2,346
  Oct-04	$0.44	$2,400
  Jan-05	$0.46	$2,531
  Apr-05	$0.53	$2,778
  Jul-05	$0.50	$2,690
  Oct-05	$0.54	$2,765
  Jan-06	$0.55	$2,770
  Apr-06	$0.62	$3,067
  Jul-06	$0.55	$2,897
  Oct-06	$0.59	$3,075
  Jan-07	$0.61	$3,048
  Apr-07	$0.66	$3,280
  Jul-07	$0.62	$3,127
  Oct-07	$0.58	$3,124
  Jan-08	$0.63	$3,405
  Apr-08	$0.78	$3,860
  Jul-08	$0.72	$3,706
  Oct-08	$0.67	$3,570
  Jan-09	$0.71	$3,494
  Apr-09	$0.78	$3,830
  Jul-09	$0.79	$3,933
  Oct-09	$0.77	$3,838
  Jan-10	$0.77	$3,851
  Apr-10	$0.90	$4,196
  Jul-10	$0.80	$3,773
  Oct-10	$0.82	$3,903
  Jan-11	$0.86	$3,961
  Apr-11	$0.90	$4,295
  Jul-11	$0.79	$4,049

  Check out Medtronic’s EPS trend. This is what I like to see: a clean strong upward line. The red is based on the company’s forecast. As you can see, MDT is still very profitable, but the earnings will be flat for a time.

  

• Medtronic’s Earnings Preview
  Eddy Elfenbein, August 22nd, 2011 at 10:03 am

  Medtronic ($MDT) reports tomorrow. This will be a key test for the new CEO, Omar Ishrak. Here’s an earnings preview from the AP:

  Ishrak said Medtronic must communicate why its new products not only benefit patients, but also save health systems money. As one example he points to the company’s Revo pacemaker, the first such device that is compatible with MRI scanning. Older devices would often malfunction when exposed to the magnetized imaging technique.

  Not only will patients benefit from better care, he says, but providers will save money because doctors will spot health problems before they grow into more catastrophic, costly problems.

  “If there’s value there, we’ll get paid for it — but that’s not the point,” Ishrak said. “I want to make sure everything we do is geared to have the right economic impact on health care and on customers.”

  With Medtronic trailing competitors in developing new versions of stents, heart valves and other key products, analysts hope Ishrak will focus on cost controls, restructuring and selling off underperforming business units.

  WHAT’S EXPECTED: Analysts polled by FactSet expect earnings of 80 cents per share on revenue of $3.98 billion, on average.

  LAST YEAR’S QUARTER: In the first quarter last year Medtronic earned 80 cents per share excluding one-time items on $3.77 billion in revenue.

• CWS Market Review – August 19, 2011
  Eddy Elfenbein, August 19th, 2011 at 12:16 pm

  The stock market seemed to be recovering for a few days. That is, until Thursday hit. From the S&P 500’s low of August 9th (1,101.54) to the high of this past Wednesday, August 17th (1,208.47), the market gained an impressive 9.7%. We’re still a way from the recent peak of July 22nd, but it’s nice to regain some lost ground. The bears, however, got back in control on Thursday and shaved another 4.46% off the index.

  So where do we go from here? It’s still hard to say but in this issue of CWS Market Review, I want to discuss some likely scenarios and more importantly, tell you how to position yourself for the weeks ahead.

  Initially, I was never terribly impressed with the arguments made by the folks who were expecting a Double Dip recession. After all, these folks already blew this call last year as their worrying helped bring down the market by 18%. All their panicking did was offer up some great bargains. Anyone else remember when Wright Express ($WXS) broke below $30 last summer? Thank you, panic sellers!

  Over the past few days, I’ve become more convinced that the fears of a Double Dip recession are, as of now, vastly overblown. As always, let’s look at the facts rather than at our emotions.

  Earlier this week, the government released its industrial production report for the month of July, and it showed the largest increase in four months. This is important because most of the other reports were for the month of June which was in the second quarter. Only now are we getting a better handle on the third quarter which is already more than half over. For July, industrial production rose by 0.9% which nearly doubled the 0.5% expected by Wall Street. Also, capacity utilization hit 77.5%, a three-year high.

  Last week, the number of initial claims for unemployment dropped below 400,000 for the first time in 17 weeks. Yesterday’s report showed that we jumped up to 408,000 but the trend is still favorable. Also, the recent report on retail sales was the strongest in four months. This is important because it reflects the strength of consumers, the backbone of the U.S. economy. For July, the Commerce Department said that retail sales rose by 0.5%.

  I don’t want to ignore the bad spots. Housing is still a mess and the jobs market is bleak. The recent Consumer Confidence survey was terrible. It was the lowest number since the Carter Administration. Also, I wasn’t exactly thrilled by the ISM report at the beginning of the month. But even that mediocre report is still a long way from a recession. We have to view the actual news in context of what everyone else’s perception is. Bear in mind that the 10-year Treasury dropped below 2% and the 10-year TIPs is negative. The fear on Wall Street is massively overdone.

  My view is that the economy will probably bounce along at a growth rate between 1% and 2% or so. For folks out of work, that’s bad news. But the outlook for corporate profits and, by extension, the stock market, is still pretty decent especially considering the cheap valuations and extremely low Treasury yields.

  I took notice earlier this week when both Home Depot ($HD) and Walmart ($WMT) reported higher-than-expected earnings; plus both companies raised their full-year earnings guidance. I can’t think of a company that better reflects the breath of American shoppers than Walmart. We’re not yet seeing earnings revisions from most companies. Wall Street still expects the S&P 500 to earn close to $100 this year and $113 for next year, though I think the latter number should probably be close to $105.

  Due to the sluggishness of the economy, I still encourage investors to steer clear of most of the cyclical names. I’m writing this early on Friday and the Morgan Stanley Cyclical Index (^CYC) actually broke below 800 very briefly. That’s a stunning 28% collapse in just six weeks. That’s the thing about cyclicals—they move in cycles. When everything is good, it’s very, very good. When it’s not, get out of the way.

  I’m inclined to believe that the worst of the selling has past. That doesn’t mean we won’t go lower from here, but future selling won’t match that selling we’ve already seen. Bear attacks usually end before most investors realize it. I’m also struck by the persistence of high volatility. Instead of reflecting danger in the markets, I think high volatility is more of a reflection of the war between the Double Dip and Anti-Double Dip camps. Once the market settles on a thesis, I expect a quick return to low volatility, but there will be fits and starts along the way.

  I still like a lot of the names on our Buy List. Let me highlight a few that look especially good right now. I noticed that Oracle ($ORCL) dropped down below $26 per share. Let’s remember that this company has been consistently beating earnings, and Wall Street has been raising estimates. For this current fiscal year (ending in May), Wall Street expects earnings of $2.41 which gives ORCL a forward P/E Ratio of 10.6.

  I have to fess up that I blew my Sysco ($SYY) call. In last week’s issue of CWS Market Review, I said expect earnings of 60 cents per share, plus or minus two cents. Instead, Sysco reported 57 cents per share which matched Wall Street’s estimate. The shares got pounded hard on Monday and they’ve continued to retreat.

  It turns out what I missed is that the company was hurt by food cost inflation more than I expected. That put the squeeze on margins which is what every business hates. However, in pure operational terms, I think Sysco had a decent quarter. When we look at a company, we have to discern between manageable problems and non-manageable ones. For Sysco, higher food costs are ultimately very manageable. The silver lining is that Sysco now yields over 3.8%. This is a very good stock to own below $28.

  We’re soon going to get earnings reports from our companies that have quarters ending in July. Medtronic ($MDT) is due to report this Tuesday, August 23rd. Jos. A. Bank ($JOSB) will probably report around September 1st. Wall Street expects earnings of 79 cents per share for MDT which sounds about right. Frankly, even if they miss by a little, Medtronic is so cheap right now that the stock shouldn’t be too dented. The stock currently yields a little over 3%. Medtronic is a good buy below $32.

  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

• Medtronic Raises Dividend By 8%
  Eddy Elfenbein, June 23rd, 2011 at 12:56 pm

  For the 34th year in a row, Medtronic ($MDT) is raising its quarterly dividend. The company is increasing it from 22.5 cents per share to 24.25 cents. That’s an 8% increase. Annualized, the dividend rises from 90 cents per share to 97 cents per share.

  Going by the price as of 1 pm today, that comes to a yield of 2.56%.

  Last month, MDT told us to expect earnings for this year between $3.43 per share and $3.50 per share. Their fiscal year ends in April. This means the stock is going for 11 times the low-end of the company’s own forecast.

• CWS Market Review – May 27, 2011
  Eddy Elfenbein, 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!